Talking Tort with Colorado Commissioner Doug Dean

Washington Governor Bill Owens appointed Doug Dean commissioner of Insurance in January 2003. As commissioner, Dean heads the Division of Insurance, which is one of eight divisions within the Department of Regulatory Agencies. The Division licenses approximately 2,200 foreign and domestic insurance entities, monitors their financial solvency and market conduct activities, and responds to 60,000 inquiries annually, including 7,500 formal complaints.

Prior to becoming commissioner, Dean served eight years in the Colorado House of Representatives, serving on the Business Affairs and Labor Committee, the State, Veterans and Military Affairs Committee, and the Education Committee where he served one term as vice chairman. In 1999, his colleagues elected him as House Majority Leader, and in 2001 he was elected Speaker of the House.

Dean is an active member of the National Association of Insurance Commissioners, serving as vice chairman of the Regulatory Framework Task Force, and is a member of the Consumer Protections Working Group, the Senior Issues Task Force, the Antifraud Task Force, and the Government Affairs Task Force. He also serves as the NAIC’s State Legislative Liaison.

In this interview, Dean discusses the major issues surrounding the Colorado insurance market. Read on to hear what Dean has to say about Colorado’s switch from a no-fault auto insurance market to a tort-based system. (Editor’s note: See page 55 for a related story on the PCI’s study.)

Insurance Journal: Let’s start first with what I understand is a pretty prominent issue in your state right now, and that’s the decision to move to a tort-based automobile insurance system. How did that decision come about?

Commissioner Doug Dean: Well, what’s happened is that it’s common in Colorado to put a sunset date in a section of law, and in that way it forces future legislatures to look at the program again. So the last time [no-fault] was reauthorized, the legislature put in a June 30, 2003 sunset date in the bill. That meant that without the legislature affirmatively reauthorizing no-fault, that the law would automatically expire June 30, 2003. Now, we started seeing some dramatic increases in auto insurance premiums in Colorado over the past several years, including an average 20 percent increase in Colorado for auto insurance premiums in the last part of 2002. So the governor told the legislature that no-fault was not working and that he would not sign a bill that would simply continue the current system. They had to completely reform no-fault or he would veto any other bill and he would allow the state to revert to a tort state. So the legislature tried on three separate bills, three different approaches, but they could never get an agreement or consensus on how to make no-fault work because there are always three competing factions: the insurance industry, the trial lawyers, and the Colorado Chiropractic Association, who are usually at odds with one another on how it should look. Because there was never any consensus on where they could ever get a majority of votes in the House of Representatives on any proposal, they were not able to pass a bill and so no-fault just went away by virtue of the fact that the clock had changed from June 30 to July 1.

Now the legislature did pass a bill when we noticed late in the session that they were probably not going to reach a consensus on no-fault. There were some other things, some consumer protections that were in the auto insurance law that were also going away with no-fault, and so the legislature passed the bill, House 1188, which would just keep all those things in place (the old sections of law in place) that didn’t have to do with no-fault. But no-fault was going away even without the passage of House Bill 1188.

IJ: Is there anything in store for the future as to the legislature revisiting this issue?

Dean: There have been several bills introduced on medical payments coverage in the legislature; so far I’ve not seen anything to make it mandatory. I just was made aware today that some legislators are looking at bills to reinstate no-fault through a “pay at the pump” mechanism. But, those are all just proposals that are probably going to get a lot of attention and discussion but they’re probably in fact not going to go very far in the legislative process. We feel very confident that once it’s all said and done that there won’t be a lot of significant changes in the auto insurance law when the legislature’s done because, for one thing, the governor agreed that we need to give this system a chance to work as is without making a bunch of changes to it every year and see what the real effect of it is going to be.

IJ: In regards to some of the other issues with auto insurance, can you tell me about the governor’s proposal to enforce tougher penalties for uninsured motorists?

Dean: Colorado is pointed to as one of the states that has a high incidence of uninsured motorists and when we look at it we think that really our laws are just not strong enough. We look at other studies that have been done, we look at the study that the NAIC did about 10 years ago and also at a study in about 2002 by the Florida State University College of Business. For every credible study that’s been done on this subject shows that the best way to insure compliance with compulsory motor vehicle insurance laws is to have high fines for non-compliance. Right now the fine in Colorado is only $100 if you’re caught driving without insurance. Well, that doesn’t make it worth the price … to purchase insurance because it’s cheaper to drive and risk being caught than it is to go out and purchase insurance. So we really studied this proposal and looked at what other states have done right and what they’ve done wrong and we came up with a proposal taking key things of the best of what many states have done and we think we have something that’s going to work. There will be a mandatory $500 fine for the first offense, $1,000 for the second and subsequent offenses. The most probably attractive piece of it is that we’re going to require, if anyone is caught driving without insurance, that they’re going to have to have an SR-22 form filed by their auto insurance company to submit proof of insurance with the Department of Revenues. If they don’t keep that insurance in effect, they will have their license and registration administratively suspended.

IJ: Is this something that the insurance companies are in favor of?

Dean: Not necessarily. In Colorado we’ve talked to the insurance companies about this and we think that the way we’re going, they’re not going to fight us on this proposal but you have to keep in mind, the PCI and other insurance companies tend to take the position in general that they don’t support compulsory motor vehicle insurance laws in the first place. So for them to come out and support strict enforcement of compulsory insurance motor vehicle laws, that isn’t really on their radar screens.

IJ: Let’s talk a little bit about this new proposal to create a seven-member consumer insurance board. Is that a proposal that you came up with?

Dean: Oh, absolutely not. It’s something that we’re very strongly opposed to. It’s not workable, and there’s some politics going on with that proposal I believe. It doesn’t just create a seven-member board, but it also makes auto, health, homeowners and long term care insurance prior approval instead of file and use. So it takes us back to the dark ages of rate regulation and those things drive up costs, not reduce costs. What keeps costs of insurance down is open market competition and allowing companies to bring their products quickly to market, not having a system where they’d have to go back to the old archaic system of having rates prior-approved and such. It’s not workable for a number of reasons. We do hundreds and thousands of rate filing reviews, hundreds of times a year, and the board only meets six times a year and they’re supposed to have authority on approving rates? That’s just not possible the way this is written. I wouldn’t give any credibility to that; this is just a wild idea that someone came up with and we’re going to oppose this, there’s no way that it will become law. It won’t have any support from the majority party and certainly the governor would never sign such a proposal.

IJ: Do you know who came up with the proposal?

Dean: Representative Dorothy Butcher, but it’s something pushed by the Democrat caucuses in the House and Senate; they think that the way to keep insurance down is to have prior approval of rates and you know, that’s like saying the way to keep the costs of oil down is to tell gas stations what they can charge for gas. Rate regulation doesn’t work that way. You have to deal with the cost drivers and not the retail end of it basically.

IJ: Are there any other issues in Colorado that you’d like to discuss?

Dean: One of the hot issues that we’ve been dealing with, and I think one thing in Colorado that we’re really proud of that we’ve been doing is we’ve been kind of a leader in the nation in small group health insurance reform. There have been significant pieces of legislation passed last year that directed me to come up with a basic plan for the insurance market that was a higher deductible and lower benefit plan that has actually reduced the price of health insurance, depending on the company, by as much as one-third over what it was last year for the basic small group plan. So we’re very encouraged to show other states the different approaches that they can look at.

Topics Auto Legislation Market Colorado