Florida officials have rejected a rule that would have expanded a ban on auto insurance surcharges for drivers involved in collisions where they were not found at fault.
The state currently prohibits insurers from surcharging existing customers with not-at-fault accidents on their driving records; the Office of Insurance Regulation (OIR) wanted to change the rule to ban insurers from surcharging new business applicants as well.
But members of the Florida Financial Services Commission would not go along with the OIR request. The commission, consisting of Florida Gov. Charlie Crist, CFO Alex Sink, Attorney General Bill McCollum, and Department of Agriculture and Consumer Services Commissioner Charles H. Bronson. Only Gov. Crist favored adopting the rule change.
Insurance Commissioner Kevin McCarty said he believed lawmakers intended the original statute to apply to both applicants as well as existing customers.
“Insurers do not insure applicants. Insurers insure policyholders. Applicants don’t pay premiums, policyholders pay premiums,” he said, suggesting it made no sense to assume the statute would treat applicants differently.
But the commission heard from insurance industry and was persuaded to keep the surcharge ban to existing business only.
Insurers told the commission that changing the rule would restrict options for applicants looking for insurance because some insurers might choose to refuse to write policies for applicants with not-at-fault accidents on their records.
“Applicants with not-at-fault or, more accurately, unproven fault accidents on their driving records will likely see increased rates and find it more difficult to obtain coverage, if the rule change were to pass,” testified Liz Reynolds, Southeast state affairs manager for the National Association of Mutual Insurance Companies (NAMIC). “It makes sense to require insurers to ascertain fault before surcharging existing policyholders- because companies have access to information necessary for making such a determination. Applicants, however, are a different story.”
Insurance companies don’t have access to information that would reveal whether an applicant with an unproven fault accident is truly blameless, Reynolds said. Drivers who have been at fault for past accidents are more likely to have insurance claims in the future, she maintained.
“If applicants with clean records must be pooled with applicants with unproven fault accidents on their records, then rates will rise for all because losses for the group will increase,” Reynolds testified. “Pricing will be less accurate and low-risk, or clean, drivers will subsidize high-risk drivers.”
Reynolds also said insurance companies could choose to reject applicants with accidents on their records. “The rule would, in fact, give insurers an incentive to do so. This ultimately could lead to private market disruption and growth in the residual market.”
Brian Newman, representing the Florida Insurance Council, agreed that the rule change would mean less choice for applicants with unproven accidents on their record.
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