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Special Update
Making Sense of Colorado's New Auto Insurance Law On July 1, 2003, Colorado switched from a no-fault auto insurance system to a tort, or fault-based system. Under this tort system, the person at fault in an accident, or their insurance company, is responsible for paying medical and rehabilitation expenses and damages (for themselves and others) related to the accident. The new law also dictates that policyholders are no longer able to purchase Personal Injury Protection (PIP), which, under the no-fault system, had provided for medical and rehabilitation expenses, and wage-loss coverage, regardless of who was at fault in an accident. PIP had comprised a sizeable portion of the cost of auto insurance premiums in the no-fault insurance environment, leading the media to proclaim that consumers should experience significant cost savings on premiums. Following is a Q & A with Joe Lesher, CPCU, ARM. Joe is Vice President of Insurance Services for AAA Colorado. Q: Because Personal Injury Protection (PIP) coverage is no longer required, will consumers see significant cost savings on their auto insurance premiums? A: How significant the savings will ultimately be is yet to be seen. While removing PIP from a policy reduces the overall premium, many insurance companies are increasing rates in other policy areas, such as Bodily Injury Liability and Uninsured Motorists, since this is where many claims will be covered in a fault-based environment. While a cost reduction in the overall premium seems appealing, eliminating PIP coverage from the auto policy mix decreases the range of coverage that protects consumers involved in accidents. Consequently, policyholders should be aware that, without PIP, coverage gaps may exist in this new insurance environment. Q: What do you mean by "coverage gaps?" A: For example, if you were injured in an accident under the previous no-fault system, the PIP portion of your insurance policy would provide coverage for your medical expenses and wage loss (up to your coverage limits). This coverage was available regardless of fault, and regardless of the insurance coverage (or lack thereof) carried by the other party. Under the new tort system, how-ever, if you are in an accident where another driver is at fault, that driver's insurance, not yours, is responsible for your medical expenses. But if that driver is uninsured, the problem may become yours, especially if the uninsured driver has little or no assets with which to pay your medical expenses. Keep in mind that recent studies have determined that an estimated 18 percent to 32 percent of Colorado motorists are uninsured. Q: If I am involved in an accident and an uninsured driver is at fault and has no assets, how will I cover my medical expenses? A: If you have purchased uninsured and underinsured motorist coverage, in most cases your insurance company would provide coverage for your medical expenses, up to your policy limits. If you have not purchased uninsured and underinsured coverage, and are unable to collect from the at-fault party, then you or your health insurance will be responsible for your medical bills. Q: How are my medical expenses paid if I am at fault? A: Coverage for your medical expenses would likely come from you, your health insurance, or an optional auto coverage called Medical Payments Coverage (MPC). Most, if not all, insurance companies will offer this coverage. Q: If I was at fault in an auto accident and my health insurance could provide coverage for my medical expenses, why would I opt for MPC? A: MPC, or Medical Payments Coverage, would cover passengers in your vehicle who are injured but not covered under your health insurance. Something else to consider is how your medical expenses will be paid in the short term if determination of fault is in dispute and goes to court. In addition, rising health insurance premiums and volatility in the job market can leave consumers with high deductibles or without any health insurance coverage for periods of time. For these consumers, health insurance may not be an option should they be injured and at fault in an auto accident. Q: What other potential coverage gaps are a concern under this new system? A: Bodily Injury Liability limits. With the at-fault driver now responsible for medical coverage of others injured in an accident, consumers would be wise to review the per person and per accident limits for Bodily Injury Liability. We suggest policyholders review their bodily injury limits with the goal of providing adequate protection for their assets and earning power. Q: What is the most important thing I can do to ensure adequate protection? A: There are no guarantees that your coverages and limits will always be adequate. The best thing you can do as a consumer is: Carefully read your policy; know and understand coverage/limits; and if you have any questions or concerns, call your insurance agency. For questions about this or other insurance-related matters, call AAA Colorado toll-free at 866-399-9836. »» Insurance Link |
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