How Regulation is Impacting Auto Insurance

Feb 16, 2022 / by Lori Dreaver Munn

Regulation plays an outsized role in the development of the auto insurance sector. Since the beginning of the pandemic, we have seen an even higher than usual impact from wild fluctuations in rates, claims, premiums, and consumer reimbursements, to activities impacting the industry itself.

Rising Rates and Claims…Again

After a drop in premiums from 2019 to 2020 as a result of less vehicle activity caused by the pandemic, economic activity has resumed to pre-pandemic levels in the past year, with increasing travel, more accidents, larger number of claims, and an increase in severity, according to LexisNexis Risk Solutions. In Q3 2020, violations for driving more than 20 mph over the posted speed limit increased 26% compared to Q1 2020. With increases in distracted driving, 2021 also saw drastically increased driving injuries and fatalities, with more than 3,000 yearly deaths on average.

Car Manufacturers Enter Insurance

Tesla has started selling auto insurance in California and Texas as part of a nationwide rollout, and General Motors has begun selling OnStar Insurance in Arizona. This trend is expected to continue with pressures on the insurance industry coming from players (i.e. tech companies) that have telematic capabilities beyond most major players in the space.

Credit Score Bans

State of Washington Commissioner Mike Kreidler adopted a rule banning the use of credit scores to determine auto insurance rates for three years, and proposed a rule to increase transparency, making him the face of the new regime of ratemaking. Although several organizations such as the American Property Casualty Insurance Association (APCIA) challenged the rule in superior court, the trends point to a world where carriers need to reevaluate their rating plans.

Illusory Minimum Limits

The Pena v. Viking Insurance Company case from the Supreme Court of Idaho surfaced a new argument for Underinsured Motorist (UIM) coverage, which is coverage that provides protection in an accident if the responsible party injures you or damages your automobile, but doesn’t have enough insurance coverage to fully pay your medical bills or repairs to your car. Pena argued that Viking’s policy is illegal, void, and against public policy because it provides the illusion of UIM coverage through the declaration and payment of premiums, but through unambiguous definitions and exclusions, takes away all UIM coverage. The Idaho Supreme Court ruled in favor of Pena, a decision with the potential for long-term ramifications on auto policies in Idaho.

Florida PIP Repeal Drive

The move to end Florida’s decades-old no-fault auto insurance system started recently in the U.S. Senate, after Governor Ron DeSantis vetoed the effort last year. The Senate Banking and Insurance Committee approved a proposal that would eliminate a requirement that motorists carry personal-injury protection (PIP) coverage and require them to have bodily injury coverage.

The Senate proposal would require motorists to have at least $25,000 in coverage for bodily injury or death, and $50,000 for bodily injury or death of two or more people. Insurers would also have to offer medical payments coverage, known as “med-pay,” at $5,000 and $10,000. A similar House bill, which has not been heard in committees, would also offer a $5,000 death benefit, which isn’t in the Senate bill. For several years, lawmakers in both chambers floated the idea of ending the no-fault system, before sending a bill to DeSantis’ desk last year. If approved, this would have a significant impact on auto insurance in Florida.

Washington State Appraisal Clause

A bill sponsored by a longtime advocate for auto repair facilities is causing concern for insurers. According to the bill, in the case of an accident:

  • each party is responsible for expenses of an auto appraisal and each party is equally responsible for the cost of the ‘umpire’, who is used to settle disputes.
  • however, the insurance company will reimburse the policyholder for the costs of the appraisal process when the amount of loss determined through the appraisal process is greater than the amount of loss adjusted before the appraisal process was invoked. Appraisal process costs include reasonable appraiser charges, reasonable attorneys' fees, and other necessary costs.

Insurance industry representatives express concern about how the bill is confusing, unfairly stacked in favor of auto repair shops, and that consumers already benefit from a robust regulatory framework for settling total loss claims. Consumer sentiment surveys demonstrate that they are not displeased with insurers adjusting auto repair claims either.

Interested in hearing more about what’s going on at the state level across the country? Reach out to our Auto team here.

Tags: Community, Issues & Trends, Insurance News/Current Events, Regulatory/Compliance, P&C Insurers, Commercial Auto, Legislation & Regulation, AAIS News & Views, AAIS Insights, Personal Auto, Insurance Line of Business, auto insurance

Lori Dreaver Munn

Written by Lori Dreaver Munn

Lori Dreaver Munn is Government Relations and Compliance Manager at AAIS. She is a regulatory compliance legal analyst with over 20 years of experience in the insurance industry with an emphasis on compliance and new program development. She specializes in summarizing state regulatory requirements; managing rate, rule, and underwriting manuals; and competitive and other product research, and analyses. She is a key member on two initiatives within AAIS to modernize regulatory reporting including using artificial intelligence to improve compliance filings and openIDL, an open blockchain network that streamlines regulatory reporting and provides new insights for insurers, while enhancing timeliness, accuracy, and value for regulators. She is a Member of the Association of Insurance Compliance Professionals (AICP), having served as president, regional director and treasurer of the AICP’s Western Chapter, and has been a contributing writer for the AICP journal and blog. She is a graduate of Arizona State University with an Arizona property and casualty producers license and has developed longstanding relationships with state insurance departments.

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