New Insurance Laws – Changes Could Prove Costly for Auto Insurance Consumers

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A new law enacted by the Oregon Legislature that will go into effect in January will change the way auto insurance claims involving injuries and uninsured drivers are paid by insurers – and those changes could impact auto insurance rates, NW Insurance Council President Kenton Brine said.

“Consumers should know that changes made to Personal Injury Protection insurance and Uninsured & Underinsured Motorist insurance – policies that all drivers must purchase under Oregon law – could result in higher claims costs for insurers; costs that could ultimately be paid by insurance consumers,” Brine said.

In a December 22, 2015 news release, the Oregon House Majority Office touted SB 411, passed in 2015, as a law that will allow consumers “to receive up to the full amount” of their uninsured/underinsured motorist benefits” when the law becomes effective on January 2, 2016. The release urged consumers to contact insurers to “have their policies renewed or reissued effective January 2, 2016” to be sure their policies reflect changes in the law.

“What consumers may not know is the new law is anticipated to increase what insurers pay to settle claims – by as much as $85 million per year,” Brine said. The cost of settling claims is among the factors that determine the price consumers pay for auto insurance.

SB 411 changes requirements for two insurance policy types: Personal Injury Protection (PIP) and Uninsured/Underinsured Motorist (UM/UIM). Drivers in Oregon are required by law to carry at least minimum limits of both policy types in addition to Liability insurance. (Drivers in Washington, Idaho and California are only required to have Liability insurance – the other coverages are optional.)

Under the new law, the benefit period for payment of PIP benefits has doubled from one year to two. Also, non-economic damages (such as pain & suffering or other less “tangible” damages) must be paid up to the limits of the policy, where only payment of “actual” economic damages (such as loss of wages and the cost of medical treatment) were previously required. In addition, the law now requires insurers to pay up to the full limits of an uninsured/underinsured motorist policy, even if the injured party has received full compensation from the at-fault driver’s liability insurance policy. Studies produced by insurers and the Oregon Insurance Division from 2009-2015 estimated the cost of the changes to the two coverage lines combined to reach roughly $80-85 million per year.
The changes to PIP policies alone were estimated by the Oregon Insurance Division to result in a 22 percent increase in the cost of PIP coverage, according to the Division’s 2009 report to the Legislature.

Because each auto insurer has its own models for determining what factors are considered in setting the price their customers pay for insurance, Brine said it is not possible to predict how the law will impact rates for individual drivers.
However, Brine added, insurers’ claims settlement costs run more than twice as high in states that have UM/UIM laws similar to what is required under SB 411. As with other products and services provided by private businesses to consumers, cost increases are typically reflected in consumer prices.

“Lawmakers are elected to determine and implement public policy on behalf of the citizens of Oregon,” Brine said. “But these changes are not free. Insurance consumers deserve to know that legislators who voted for this law imposed costly – and arguably unnecessary – new mandates on insurance coverage that no insured Oregon driver has the opportunity to decline.”

For more information or copies of Your Guide to Insurance, contact NW Insurance Council at (800) 664-4942.
NW Insurance Council is a nonprofit, public-education and public policy organization funded by member insurance companies in Washington, Oregon & Idaho.

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