Steamboat Springs Consumers in the Yampa Valley can begin right away to take advantage of a change in Colorado law that will allow them to save up to 25 percent on their automobile insurance. But insurance agents are dubious about how real the savings are.
Within less than a year, all auto insurance policyholders here will be realizing savings on at least one portion of their automobile insurance. That's because on July 1, Colorado will begin the transition from the "no fault" system that has prevailed for three decades to a tort system. However, the gains could be offset by a need to increase "uninsured motorist" coverage. It's also possible that health insurance premiums will be affected negatively.
Insurance agents want to ensure their clients understand the implications of a drastic change in the state's auto insurance system.
"I think the savings are way, way, overblown," Farmers Insurance Group agent Bob Strong said. "They'll be offset by increases in uninsured motorist and liability rates. The health insurance industry is in chaos right now. That's the part I find really scary."
Auto policyholders will no longer have to pay premiums for the personal injury protection coverage that accounts for 20 percent to 30 percent of the cost of most policies. That's where the savings lie. But the money will have to come from somewhere, insurance agents say.
The big picture
"If you look at the big picture, the dollars that are being spent today (to settle medical claims resulting from automobile collisions) will still be spent tomorrow," Scott Mayor said. "It will either be health insurance, other areas of your automobile policy or your checkbook."
Mayor is branch manager for Brown and Brown Insurance in Steamboat Springs.
Jill Schneider, a personal lines agent with the Sleeping Giant Agency, welcomes calls from clients who want their policies adjusted in accordance with the new system. She just wants to be certain they still have adequate protection.
"I'm a consumer, too," Schneider said. "I'd like to see my premiums go down. As long as people are educated, I have no problem with it. But you've got to understand, we're losing a lot of coverage."
After July 1, many policyholders will be able to contact their insurance agents and ask to have their policies rewritten or amended to eliminate the "personal injury protection" portion of their coverage. That coverage, also known as PIP, accounts for as much as 25 percent or 30 percent of the average car insurance bill.
PIP was part of the "no fault" system in which insurance companies paid the medical bills for clients regardless of who was at fault in the accident.
Schneider said on Thursday that she is answering questions from up to 20 clients a day regarding the change in the state insurance system. The first thing to know, she said, is that policyholders who choose to do nothing next month will still have their old PIP coverage in place until their policy comes up for renewal.
Policyholders whose coverage is up for renewal in the next couple of months anyway may find it makes more sense to leave their PIP benefits in place during that term. For people whose policies recently were renewed, there is more incentive to talk to an agent and begin realizing the savings right away.
Consumers must consider coverage losses that include lost wage and death benefits as they reevaluate their policies, Schneider said. They must also be careful to see that their health insurance is sufficient to protect them in automobile accidents.
The uninsured factor
Under the new tort system, which is the most common system across the country, the insurance company of the driver who caused the accident will pay the medical bills for all of the injured parties. But only up to the limits provided for in the policy of the at-fault driver.
Mayor said that fact places an even greater emphasis on uninsured motorist coverage, which also takes into account underinsured motorists. If another motorist is responsible for an accident that injures one of Mayor's clients, that client will be dependent upon the other party's insurer to pay a portion of his or her medical bills.
Colorado requires motorists to have a minimum of $25,000 of bodily injury coverage per injured person. Mayor will insist that his clients carry a minimum of $50,000 to cover the medical costs of parties they might injure. But up to 30 percent of Colorado motorists are uninsured, and consumers should talk to their agents to weigh how much uninsured motorist coverage they need, Mayor suggested.
Strong said his agency is strongly resisting clients who want to go without additional medical insurance on their auto policies. Additional medical insurance can backstop health insurance while a client is being treated for an injury.
In theory, Strong said, under tort, the insurance of a driver who injures one of his clients will pay for medical costs. However, it remains to be seen how the claims adjustors of major insurance providers will work out the payments, and how long it will take them to arrive at a settlement. A modest amount of medical insurance will cover the deductibles and co-pays required by his clients' health insurers, Strong said.
"The medical insurance is indisputable," Strong said.
Pros and cons of change
There is no doubt that PIP drove up insurance rates in Colorado, Schneider said. But they were good benefits that included $50,000 of medical benefits, $50,000 of coverage for rehabilitation costs plus smaller benefits to offset lost wages, and small amounts to cover disability and death.
Schneider wishes that instead of allowing the no-fault system, the state Legislature had made reductions in the PIP benefits to make the cost more reasonable.
"It would have been nice if the state would have addressed limits on no-fault insurance," Schneider said. "It was getting ridiculously high. But it had a ton of benefits."
Mayor agrees. He also would have preferred that the Legislature had raised the threshold for lawsuits that cost insurance companies heavily.
Looking to the future
Schneider predicts the insurance industry will probably take six months to adjust to the new rules that will govern the claims system.
In other states where the tort system has been in place for a long time, the bulk of medical claims from car accidents are handled between the two insurance companies.
"Hopefully, claims adjustors (in Colorado) will adjust their way of adjusting," Schneider said.
Strong added that he hopes those claims adjustors will make the adaptation quickly.