Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Banking and Insurance was held on Tuesday, August 23, 2016, at 10:00 AM, in Room 149 of the Capitol Annex. Representative Jeff Greer, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Jeff Greer, Co-Chair; Senators Julie Raque Adams, Chris Girdler, Christian McDaniel, Morgan McGarvey, Dennis Parrett, Dorsey Ridley, Albert Robinson, John Schickel, and Dan "Malano" Seum; Representatives Ron Crimm, Mike Denham, Joseph M. Fischer, Chris Harris, Dennis Horlander, James Kay, Dennis Keene, Thomas Kerr, Adam Koenig, David Meade, Michael Meredith, Russ A. Meyer, David Osborne, Sannie Overly, Steve Riggs, Bart Rowland, Jonathan Shell, Wilson Stone, and James Tipton.
Guests: Mark Treesh, Executive Director, Insurance Institute of Kentucky; Carl Breeding, Property Casualty Insurers Association of America; and Dr. Amy Carrico.
LRC Staff: Sean Donaldson, Dale Hardy, and Dawn Johnson.
Minutes
A motion by Representative Crimm and second by Senator Parrett to approve the minutes of the June 28, 2016, meeting carried by voice vote.
Mandatory Minimum Coverage for Automobile Insurance Policies
Carl Breeding, representative of Property Casualty Insurers Association of America, explained that the minimum limit on private passenger auto insurance property damage is sufficient to cover the majority of claims. During the last four quarters, the average property damage liability claim in Kentucky was $3,467, which is far below the current $10,000 limit. Mr. Breeding reviewed other states’ coverage limit requirements that range from $5,000 to $25,000. Even with substantial penalties in place, Kentucky has a relatively high uninsured motorist rate. Raising mandatory minimum coverage increases insurance costs, which will impact those most often struggling to afford basic coverage and ultimately causing the number of uninsured motorists to rise.
Mark Treesh, Executive Director, Insurance Institute of Kentucky, reviewed an Insurance Information Institute report on compulsory auto insurance requirements. Mr. Treesh explained that raising minimum coverage amounts results in higher premiums which may drop financially struggling motorists out of the market. A policy decision must be made based on affordability and balancing underinsured motorists versus uninsured motorists.
Responding to Representative Meredith’s question, Mr. Treesh said the financial impact on drivers of raising the minimum coverage requirement to $25,000 would vary based on factors such as driver accident rates. Mr. Breeding offered to provide more detailed financial impact information following the meeting. Representative Meredith said underinsured motorists become a bigger problem as vehicle costs increase. He said the cost is being forced onto other parts of the market.
Senator Schickel said, based on the concern of forcing motorists out of the market, he has changed his mind on the issue. However, he is concerned about low coverage rates and catastrophic bodily injuries.
In response to Representative Harris’ question, Mr. Treesh said there is a significant problem with Personal Injury Protection (PIP) fraud. He said that, if the PIP amount is increased, attention should be given to reducing fraud. Representative Harris asked that the average amount of PIP claims be given to the committee. He said the cost of medical treatment has increased dramatically while PIP coverage remains the same.
Representative Stone said he was undecided on the issue, but he is concerned about pricing financially struggling motorists out of the market.
Chairman Greer said insurance industry representatives do not want to appear self-serving and therefore have chosen not to speak on the issue. The most needed change to minimum coverage limits is in property damage. A not-at-fault driver hit by an underinsured motorist with insufficient coverage must submit a claim on his or her insurance and pay a deductible.
Insurable Interest in Life Insurance
Dr. Amy Carrico testified on the need for amending current statutes to require insurable interests at all times during the period of an insurable interest life insurance policy for the policy to be enforceable. A general dentist from Owensboro, she explained her former arrangement with another dentist to share business expenses. While their two businesses were separate, they jointly owned dental equipment and shared overhead costs, including an office space lease. She and her partner chose to mutually insure each other through term policies to cover insurable interest on the assets. This coverage would, should a partner die, allow the remaining partner to purchase the deceased partner’s interest in equipment and pay off the remaining debt. Approximately nine years after starting her business, Dr. Carrico was diagnosed with cancer. Throughout her illness, she maintained her financial agreement and had hoped to return to her practice once she regained her health. Another dentist treated her patients during her nine month medical leave. Dr. Carrico explained that the partnership became so toxic, she decided to end the business agreement. While she had no trouble negotiating a fair price for her share of the business assets, her former partner refused to exchange life insurance policies even though they no longer had an insurable interest. After months of negotiations, a payout was agreed upon that would expire in ten years based on Dr. Carrico’s survival. Kentucky law contains a loophole requiring an insurable interest be present only at the time of purchase of the policy and asked that the loophole be addressed.
Referring to the proposed language Dr. Carrico provided, Representative Kerr explained that another section of the statute may be more appropriate for language that would terminate insurance when there is no longer an insurable interest.
Responding to Representative Fisher’s questions, Dr. Carrico said she and her partner had a legal agreement providing first right of refusal if either person got sick or died. She had disability insurance. She said their buy/sell agreement did not address distribution of insurance policies at the time the partnership was dissolved. Representative Fisher said a majority of states, like Kentucky, only require an insurable interest at the inception of the policy.
Representative Harris said care should be taken if legislative changes are made so as not to allow insurance companies to continue collecting premiums long term only to determine there was no insurable interest and refuse to pay out the policy.
Representative Riggs suggested a better buy/sell or partnership agreement to avoid this type situation. He said the proposed legislation may affect policies that are gifted to others, such as upon retirement. Dr. Carrico said her attorney failed to address the issue when drafting the agreement.
Representative Crimm said it is difficult to write legislation that would protect a person in this situation and not affect other types of insureds.
Representative Meade said that, as a businessman, he would not want a former partner to continue a life insurance policy on him with no insurable interest and that the issue could be easily addressed legislatively.
Dr. Carrico said she was present to represent other Kentuckians as any changes made would probably not improve her situation.
Chairman Greer commended Representative Riggs for being appointed President of the National Conference of Insurance Legislators.
There being no further business, the meeting was adjourned at 11:20 AM.