Tempest brewing around California uninsured motorist coverage
UM/UIM coverage is designed to offer first-party drivers the same level of coverage that they afford themselves, and no more, in the event that they are involved in an incident with a third-party driver without insurance coverage or without sufficient insurance coverage.
The need for the product is more than academic. Robert Herrell, deputy commissioner and legislative director of the California Department of Insurance, testified that between 9 and 14 percent of California drivers are without insurance. That proportion translates to roughly four million drivers; or, in concrete terms, at least one vehicle at every major intersection.
Against that backdrop, the narratives furnished by the various parties who testified were predicated on fundamentally different assumptions about the public policy role played by UM/UIM. When addressing the central question posed to them by the committee — “does uninsured and underinsured motorist coverage meet consumer needs?” – they cast their analyses from wildly disparate ports.
Proponents of reform see a system shackled by overly onerous fraud-prevention mechanisms and low policy minimums, not raised for decades, which do not reflect the real cost that confront drivers today. The threshold policy analysis was drawn from legislative history and stated inimitably by Robert Peterson, director of the Center for Insurance Law and Regulation at the Santa Clara University School of Law: is the current system sufficient to offer protection to “prudent individuals”?
Professor Peterson illustrated his case for four specific reforms by evincing a terribly unfortunate, if well-named, vessel named “Prudence.” Again and again, in spite of all of her best efforts, and not unlike Prospero’s daughter Miranda, Prudence was subjected to iniquitous outcomes in a series of counterfactual scenarios.
In particular: Prudence was unable to recover from her UM/UIM coverage when the driver that struck her carried liability coverage in the same amount (limit-to-limit trigger); she was unable to access her UM/UIM coverage in a scenario in which a near-miss forced her off of the road (miss-and-run); she was confused and frustrated when she was afforded the difference between her UM/UIM coverage maximum and the third-party insurer payout, instead of her outright coverage maximum (setoff); and she was left without access to her UM/UIM coverage when her settlement did not cross the threshold of the third party’s liability insurance limit (exhaustion).
These arguments for reform are not without merit. In fact, the supporters of the status quo, in at least some of Prudence’s scenarios, likely would concede that, while she is getting the benefit of her bargain with the insurer, she is on the unfortunate side of a larger public policy calculus. That consideration was the basis of their testimony.
While sympathetic to the plight of those who are confused, Hyon Kientzy, a defense attorney and proponent of the status quo, argued that the efficacy of the UM/UIM system is best evaluated on the basis of the system’s overarching affordability and applicability to the majority of cases. Toward that end, while the cost of medical treatment has increased, that fact is rendered largely redundant by a countervailing consideration — the vast majority of UM/UIM claims, around 85 percent, are still below the $15,000 policy minimum.
Proponents of the status quo also urged senators to consider the proposed reforms in light of the auto insurance system as a whole. John Norwood, a longtime legislative advocate and representative of the Insurance Agents and Brokers of California, drew upon considerable institutional memory to remind those present that California’s current UM/UIM system is itself a compromise measure, crafted in 1984 as a conciliatory arrangement amid an escalating auto-insurance affordability crisis.
For their part, the senators on-hand consistently demonstrated interest in educating consumers about the benefits of UM/UIM coverage. While their interest is understandable, it has yet to be seen what further measures are practical, given that UM/UIM coverage already requires conspicuous declination.
What is clear is that, when policymakers consider how and if to proceed with reform, they will need to be keenly aware, as Prospero’s brother Antonio was, that “what’s past is prologue.” Any small reform must be considered in view of the system as a whole, and how it came into its current incarnation.
California, laboring under Proposition 103’s restrictions, has for the past 25 years sat precariously at an inflection point. Increasing the applicability or scope of UM/UIM coverage will, as was conceded by proponents of reform, raise premiums. Who knows what sort of storm that could cause?