HB 264: House Commerce and Labor Special Subcommittee

August 10, 2006

The special subcommittee to study House Bill 264 met in Richmond on August 10, 2006. Members are Delegates Frank Hargrove (chair), R. Lee Ware, Jr., Samuel A. Nixon, Jr., Johnny S. Joannou, and Jennifer L. McClellan assisted by Chris LaGow and Jackie Stone, pursuant to Rule 20 of the House Rules.

Background

Virginia's financial responsibility law requires the owner of a motor vehicle, as a condition of registration, to insure it under a policy with liability limits for a single accident of $25,000 for bodily injury or death of one person, $50,000 for bodily injury or death of two or more persons, and $20,000 for damage or destruction of the property of others. The financial responsibility requirements may also be met by providing a satisfactory surety bond or obtaining a self-insurance certificate. A motor vehicle owner who does not maintain an insurance policy or other financial security mechanism must register the vehicle as uninsured and pay a $500 uninsured motor vehicle fee.

House Bill 264 would increase the minimum coverage amounts under a motor vehicle liability insurance policy from $25,000/$50,000/$20,000 to $50,000/$100,000/$50,000. Mary Bannister of the State Corporation Commission's Bureau of Insurance testified that if Virginia's minimum liability limits for bodily injury were increased to $50,000/$100,000, they would be tied with Alaska and Maine as the highest in the nation. She also noted that if the minimum property damage limit was increased to $50,000, it would be the highest limit in the nation. Virginia's current limits are in line with those of most other states, as over half of the states have bodily injury limits of $25,000/$50,000.

The Bureau of Insurance representative reported that increasing the minimum liability limits may increase premiums for liability and uninsured motorist coverage. A review of 15 of the top 50 private passenger automobile insurance writers in Virginia indicated that annual premiums would increase by 7% to 17% per vehicle. For example, insurance for a married 45-year old man with a clean driving record would increase between $18 to $325, while insurance for a single 20-year old male with a clean driving record would increase between $49 to $889, per vehicle, depending on the driver’s classification, the territory, and the company.

Insurance Company Perspectives

Mark Pachucki - Nationwide

Mark Pachucki of Nationwide reported that 98.6% of the company's bodily injury claims resulted in payments of less than the minimum limit of $25,000, with the average being around $9,000. Less than one percent of claims settled for between $25,000 and $50,000, and 1.6%, or 280 claims, involved payouts of over $50,000. In property damage claims, 95.9% settled for less than $20,000, with an average payout of $2,238. Over 80% of Nationwide’s auto policies have coverage with bodily injury limits of $50,000/$100,000 or higher. Only 19.6% of its 661,000 Virginia auto policies insured vehicles at the minimum limits. Mr. Pachucki noted that raising the minimum limits to $50,000/$100,000 would affect persons with coverage already at higher limits and that increasing the cost of insuring vehicles would increase the number of uninsured motorists, as well as uninsured motorist claims.

Machell Hamlin - GEICO

Ms. Hanlin, who could not attend the meeting, sent a written statement in line with testimony already presented. She agreed that raising the minimum limits would result in a greater number of people with higher insurance premiums that they would be unable to pay. A higher population of uninsured drivers would mean a greater number of uninsured liable parties involved in accidents and more injured people with no insurance source from which to recover damages.

Rebecca King - Progressive

Rebecca King of Progressive stated that only four states—Alaska, Maine, Minnesota, and North Carolina—currently have minimum bodily injury limits that exceed the $25,000/$50,000 limits required in Virginia. Twenty-seven states have the same $25,000/$50,000 minimum bodily injury limits now required in Virginia. Progressive provided a state-by-state analysis of the percentage of median family income spent on personal automobile insurance (PAIN). Vir-ginia's percentage, at slightly less than 1%, was the third lowest in the nation with only Iowa and Wisconsin having a lower index figure. The highest PAIN index, at 2%, was felt in the District of Columbia and Louisiana. Ms. King reported that an estimated 10% of the motorists in Virginia are uninsured, tied as 13th lowest of all the states. Other information from the Progressive testimony may be found on the study website.

Other Speakers

Dennis Yocom of Professional Insurance Agents of Virginia and Washington D.C. reported that a polling of their members found that 70% were opposed to increasing auto minimum limits. Most agents believe that increased limits would negatively impact the insurance affordability for the working poor, force low-income drivers to forego auto insur-ance, and increase the number of uninsured drivers. He suggested increasing Virginia's uninsured motorist fee from its current level of $500 to $750-$1,000 or increasing the property damage limit from $20,000 to $25,000.

Judy Swiston, representing taxicab companies, noted that some small cab operators are on assigned risk and that increasing the cost of insurance coverage might put them out of business. Bob Bradshaw, representing independent insurance agents, suggested that the study consider requiring all drivers to maintain liability insurance policies, removing the option of driving an uninsured vehicle. Jeff Trice of the Insurance Doctor testified that most of their business involves policies for the minimum liability limits and that 48% of his clients could not make monthly payments. He noted that increased premiums would mean more people would not be able to keep their policies in effect. He agreed that compulsory insurance, which is required by law in 34 states, would be a better approach. Vicky Harris of State Farm Insurance agreed that most agents do not sell policies with minimum limits except to people who cannot afford higher limits, and raising the limits would increase the uninsured motorist population. Katie Jones of Enterprise Rent-A-Car supported the current limits.

Subcommittee Action

The subcommittee unanimously endorsed a motion that HB 264 be tabled. The members indicated that raising the minimum liability limits at the present time would be inappropriate, but felt that it was necessary to periodically review the minimum automobile policy liability limits.

Chairman:
The Hon. Frank D. Hargrove, Sr.

For information, contact:
Frank Munyan, DLS Staff

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