The Impact of Public Law Chapter 395 on Premiums in the Maine

The Impact of Public Law Chapter 395

on Premiums in the Maine Automobile

Insurance Market

PREPARED BY THE MAINE BUREAU OF INSURANCE

EBRUARY 2024

JANET T. MILLS ANNE L. HEAD

GOVERNOR COMMISSIONER

TIMOTHY N. SCHOTT

ACTING SUPERINTENDENT

Contents

Introduction .................................................................................................................................................. 3

Survey Description ........................................................................................................................................ 4

Limitations ................................................................................................................................................ 4

Risk and Uncertainty ................................................................................................................................. 4

Personal Auto ............................................................................................................................................ 5

Commercial Auto ...................................................................................................................................... 5

Survey Responses – Overview ...................................................................................................................... 6

Survey Responses – Rate Impacts ................................................................................................................. 7

Personal Auto ............................................................................................................................................ 7

Commercial Auto ...................................................................................................................................... 8

Insurance Services Office, Inc. .................................................................................................................. 9

“Continued” Language in Statute ............................................................................................................... 10

Conclusion ................................................................................................................................................... 10

Appendix A: Public Law Ch. 395, “An Act to Require a Liability Automobile Insurance Policy to Cover the

Costs of Towing and Storing Certain Vehicles.” .......................................................................................... 11

Introduction

In July 2023, the Maine legislature enacted Public Law Ch. 395, “An Act to Require a Liability

Automobile Insurance Policy to Cover the Costs of Towing and Storing Certain Vehicles.” The

law amended Ch. 13 of Title 29-A, which sets out the proof of financial responsibility

requirements for Maine insurance policies. The law added a requirement that Maine

automobile liability policies provide coverage for up to $500 per accident for “the reasonable

towing and storage charges incurred as a result of an accident involving the insured vehicle if

the vehicle is towed at the request of a law enforcement officer.” 29-A M.R.S. § 1605(1)(C)(5),

29-A M.R.S. § 1605-B § A-4.

The law applies to "… all motor vehicle liability insurance policies executed, delivered, issued

for delivery, continued, or renewed in this State on or after July 1, 2024. For purposes of this

Part, all policies are deemed to be renewed no later than the next yearly anniversary of the

contract date." P.L. Ch. 395, Sec. A-4.

Section B-1 of P.L.Ch. 395 directs the Bureau to review proposed rates of insurers to determine

the premium impact and submit a report to the committee no later than February 1, 2024.

However, rate filings for the premium impacts will not be filed in time for the Bureau to

estimate the cost impact that the new law will have on Maine policyholders and report its

findings to the committee so a survey of insurance carriers was conducted.

According to the insurers who submitted estimates, annual personal automobile insurance

premiums are expected to increase an average of approximately 2.6 percent for liability-only

policies and 0.5 percent for all policies. This average cost represents an average of $10 per year

but could be upwards of $100 a year for some liability only polices. Some respondents indicated

that they were going to wait for experience to develop before incorporating towing claims into

their rates so the price impact might be greater over time as costs are added.

Annual commercial automobile insurance premiums are estimated to increase approximately

0.3 percent for policies that already have towing coverage and 0.5 percent for policies that do

not have towing coverage. As explained further below, several insurers were unable to provide

estimates, and there are expected to be premium differences based upon several factors.

No other states have this law in place, so we were unable to leverage nationwide data or other

source data in the estimates.

Survey Description

To gather the information on the potential rate impact of the new law, the Bureau prepared a

survey and distributed it to insurance carriers writing auto insurance policies in Maine that,

together, comprise a significant portion of the Maine personal and commercial automobile

insurance market. Survey responses were requested separately for Personal Auto and

Commercial Auto.

Survey respondents provided an overview of the methodology used to estimate cost impacts

on consumers. The overviews included consideration of how the law change is anticipated to

impact both claim frequency and claim severity. The estimated cost impacts are subject to risk

and uncertainty and in some cases may be based on limited information and the judgment of

the survey respondents.

In addition to estimated cost impacts, the survey also requested feedback on areas including

the following:

• Description of how the coverage mandated by the law compares to any current towing

and storage coverage offerings;

• Consumer impact concerns;

• Areas where interpretation of P.L. Ch. 395 needs clarification; and

• Implementation approaches and needs.

To accomplish the intended purpose, the survey was distributed to 26 insurance companies,

which combined, represent about 96% of the personal lines market share by direct written

premium and 81% of the commercial lines market share by direct written premium. Responses

were received for approximately 85% of the personal lines market and approximately 42% of

the commercial lines market.

Limitations

The estimates provided within and derived from survey responses are estimated impacts. The

estimates should not be construed as an estimated impact on any individual consumer.

Consumer impacts will vary from estimated averages due to differences in an individual’s policy

and coverage level characteristics. In addition, rates develop over time as insurers develop

experience, so it is likely that premium impacts will change as insurers incur more or fewer

losses than initially expected.

Risk and Uncertainty

There is inherent risk and uncertainty in cost estimates that influence a consumer’s premium

levels. Actual costs incurred by insurance companies will most likely deviate from expected cost

impacts due to the nature of insurance losses. Ambiguity in legislation can increase uncertainty

in estimates.

Personal Auto

Companies were asked for specific information about their book of business and how they

believe this law will affect their book.

Companies were asked to provide a policyholder and premium distribution by coverage type

(e.g., policies with liability and physical damage were provided separately from liability-only

policies).The Bureau also asked companies to provide the percentage and dollar impacts to

consumers within the following categories:

• Whole book of business premium impacts (dollars and as a percentage);

• Liability and physical damage premium impacts (dollars and as a percentage); and

• Liability-only policy premium impacts (dollars and as a percentage)

The Bureau explicitly inquired into how cost impacts would be specifically influenced by the use

of the word “continued” in the following language (emphasis added):

This Part applies to all motor vehicle liability insurance policies executed, delivered,

issued for delivery, continued or renewed in Maine on or after July 1, 2024. For purposes

of this Part, all policies are deemed to be renewed no later than the next yearly

anniversary of the contract date.

The survey requested feedback on logistical considerations and other compliance costs

perceived by the surveyed companies.

Commercial Auto

Companies were asked to provide a policyholder and premium distribution by coverage type

(e.g., policies with liability and physical damage were provided separately from liability-only

policies).The Bureau also asked companies to provide the percentage and dollar impacts to

consumers within the following categories:

• Whole book of business policy impacts (dollars and as a percentage); and

• Dollar and percentage impacts separately for the portion of the book that already has

towing coverage versus the portion of the book that does not currently carry towing

coverage.

The Bureau also asked about the cost impact of the use of the word “continued” in the law

(emphasis added):

This Part applies to all motor vehicle liability insurance policies executed, delivered,

issued for delivery, continued or renewed in Maine on or after July 1, 2024. For purposes

of this Part, all policies are deemed to be renewed no later than the next yearly

anniversary of the contract date.

The survey requested feedback on logistical considerations and other compliance costs

anticipated by the surveyed companies.

Survey responses presented in the report have been anonymized but left largely intact to

communicate as clearly as possible respondent feedback in areas the Bureau believes to be the

most useful and relevant to the legislative committee.

Survey Responses – Overview

Tables 1 through 4 on subsequent pages demonstrate the estimated premium impacts provided

by survey respondents. The premium impacts vary due to a variety of factors, including the

type of policy and the type of covered vehicle. The average impact on liability-only policies is

expected to be higher than the average impact on auto policies and vehicles that already have

both liability and physical damage coverage. There were also differences in the range of

variation of estimated premium impacts between liability-only policies and those with both

liability and physical damage coverage. There was a wider range of variation of estimated

premium impacts for liability-only policies. Estimated premium impacts were also influenced

by the survey respondents’ current storage and towing coverage offerings in their typical

policies.

The premium impacts provided do not consider organizational or administrative resource costs

to implement the change; some survey respondents provided premium estimates separately

for estimated implementation costs. A few of the survey respondents may be intending to

adopt loss costs recommended by their advisory organization, which would replace initial cost

estimates provided within the survey.

Survey respondents expressed either confusion or varying interpretations of certain aspects of

the law, particularly as to whether the new law applies to in-force policies as of July 1, 2024,

regardless of their renewal date. A clarification of this issue would be helpful. This could be

achieved by removing the word “continued,” in the section setting the effective date.

Some common concerns expressed by the responding insurers include:

• Premium impacts on consumers, making policies, especially liability-only policies, less

affordable;

• A decreased ability to control towing costs through existing relationships with towing

companies;

• The applicability of the law to policies that are already in force on the effective date and

do not include the mandatory coverage;

• Interpretation of the law as it relates to the definition of an “accident”; and

• Insufficient time for full implementation of coverage changes required by the law.

Some insurers did not express significant concern and noted minimal expected impacts. These

carriers appear to have relatively fewer liability-only policies.

Survey Responses – Rate Impacts

Survey respondents provided an overview of the methodology used to estimate premium

impacts on consumers. The overviews included consideration of how the law change is

anticipated to impact both claim frequency and claim severity. The estimated premium impacts

are based on limited information and the judgment of the survey respondents. No other states

have this law in place, so we were unable to leverage nationwide data or other source data in

the estimates.

Personal Auto

Responses were received by 21 active insurance market participants who represent

approximately 78% of personal auto market share in Maine by direct written premium. This

represents coverage of approximately 1 million vehicles. Estimated premium impacts were

provided by respondents representing about 65% of personal auto market share in Maine

based on direct written premium, the other 13% indicated that they did not estimate premium

impacts of the new requirement. Severity assumptions ranged from $200 to $500 per tow with

some carriers noting there is no incentive for tow companies to charge less than the $500 limit.

The anticipated dollar premium impacts per policy and per vehicle are summarized in the

following table.

Table 1 Impact on Personal Auto Premium

Survey Responders

Annual Premium Impact Per Policy

10th Percentile

Average

90th Percentile

Liability and Physical Damage

Liability Only

$14

$106

Annual Premium Impact Per Vehicle

10th Percentile

Average

90th Percentile

Liability and Physical Damage

Liability Only

$10

$26

The average annual dollar amounts shown represent average dollar impacts indicated by each

survey respondent weighted using each survey respondent’s premium volume. The 10

percentile means that at least 10 percent of survey respondents reported anticipated impacts

less than or equal to the values shown. The 90

percentile means that at least 90 percent of

survey respondents reported anticipated impacts less than or equal to the value shown.

According to the NAIC 2019/2020 Auto Insurance Database Report, the most recently

completed report, the annual average liability-only premium is $372.04, and the annual average

combined premium is $788.84 for 2020. Because automobile premiums have increased in the

last three years, the 2023 annual average premiums will be higher.

The anticipated percentage premium impacts are summarized in the following table.

Table 2 Percentage Impact on Personal Auto Premium

Survey Responders

% Impact on Premium

10th Percentile

Average %

90th Percentile

Liability and Physical Damage

0.0%

0.2%

0.9%

Liability Only

0.0%

2.6%

14.9%

Whole Book

0.0%

0.5%

1.3%

Whole Book impacts are intended to represent the combined impact of both Liability and

Physical Damage policies and Liability only policies.

We observed that some respondents who showed a 0.0 percent cost impact also expressed

concerns about some aspects of the law that would increase costs including increased

frequency of towing and increased costs of tows. Accordingly, it is possible that a 0.0 percent

entry may not mean that a company anticipates no cost impacts. Rather, it could be that the

company faced some limitations in putting together meaningful cost estimates in the time

prescribed to provide survey responses. Other carriers responded they are not going to add the

cost to premiums until it flows through in the experience in their next rate filing.

Commercial Auto

Responses were received by 17 active insurance market participants who represent about 63

percent of the commercial auto market share in Maine based on direct written premium.

Impacts across nearly 200,000 vehicles were represented by the survey respondents.

The anticipated dollar premium impacts per policy and per vehicle are summarized in the

following table.

Table 3 Impact on Commercial Auto Premium

Survey Responders

Annual Premium Impact Per Policy

10th Percentile

Average

90th Percentile

Whole Book

$18

$21

Annual Premium Impact Per Vehicle

10th Percentile

Average

90th Percentile

Whole Book

$10

Severity assumptions ranged from $400 to $500 per tow.

The anticipated percentage premium impacts are summarized in the following table.

Table 4 Percentage Impact on Commercial Auto Premium

Survey Responders

% Impact on Premium

10th Percentile

Average %

90th Percentile

Have Towing

0.0%

0.3%

1.0%

Do Not Have Towing

0.0%

0.5%

8.1%

We observed that some respondents who showed a 0.0 percent cost impact also expressed

concerns about the law that would increase costs for example increased frequency of towing

and increased costs of tows. Accordingly, it is possible that a 0.0 percent entry may not mean

that a company anticipates no premium impacts. Rather, it could be that the company faced

some limitations in putting together meaningful cost estimates in the time prescribed to

provide survey responses. Other carriers responded they are not going to add the cost to

premiums until it flows through in the experience in their next rate filing.

Insurance Services Office, Inc.

Insurance Services Office, Inc. (ISO) was also surveyed. ISO is a national advisory organization

and statistical data agent that collects data from multiple carriers and uses it to create loss

costs that then can be adopted by carriers who do not have enough of their own data to create

credible rates. ISO noted that there is a considerable amount of uncertainty in their estimates.

ISO indicated that this law is the first of its kind in the country.

ISO estimated that frequency would be approximately 40% of current towing and labor

frequency due to the fact that the new coverage does not apply unless law enforcement

requests that the vehicle be towed. Severity was assumed to be $225 for personal automobiles

and $400 for commercial. Based on these assumptions, the ISO calculated the following impact

of the law on premiums:

Average Impact of the additional mandatory $500 towing and storage coverage:

Personal Auto

Liability only = +2.7%

Liability with physical damage for a policyholder not currently purchasing towing and labor

coverage = +1.2%

Liability with physical damage for a policyholder currently purchasing towing and labor coverage

+0.8%

Commercial Auto

o Liability only +0.5%

o Liability + Collision + Comprehensive: +0.25% (the impact would be lower for a policyholder

currently purchasing towing and labor coverage)

“Continued” Language in Statute

While the Bureau asked companies to isolate the impact of the use of the word “continued” in

the statute, only two respondents provided an estimate that appears to contemplate mid-

policy addition of this coverage. The use of the word “continued” increased these respondents’

overall estimated cost of the law change.

While other respondents did not quantify this impact, a requirement to add coverage mid-

policy term can be expected to increase costs without the insurer collecting the corresponding

premium.

Conclusion

In the personal automobile insurance market, responding insurers who provided premium

impact estimates reported that annual personal automobile insurance premiums are estimated

to increase approximately 2.6 percent for liability-only policies and 0.5 percent for all policies.

This is consistent with the ISO estimate of 2.7 percent for liability-only policies. This average

cost represents an average of $10 per year but could be upwards of $100 a year for some

liability only polices. Some respondents indicated that they were going to wait for experience to

develop before incorporating towing claims into their rates so the price impact might be

greater over time as costs are added.

In the commercial automobile insurance market, responding insurers who provided premium

impact estimates reported that the annual premium impact on average is estimated to be 0.3

percent for policies that already have towing coverage and 0.5 percent for policies that do not

have towing coverage. This is also consistent with the ISO estimate of 0.25% and 0.5%

respectively.

As noted above, it is also recommended that the “continued” language be clarified to avoid a

requirement for new coverage in an in-force policy.

Appendix A: Public Law Ch. 395, “An Act to Require a Liability

Automobile Insurance Policy to Cover the Costs of Towing and Storing

Certain Vehicles.”

Page 1 - 131LR0529(03)

LAW WITHOUT

GOVERNOR'S

SIGNATURE

JULY 6, 2023

CHAPTER

395

PUBLIC LAW

STATE OF MAINE

IN THE YEAR OF OUR LORD TWO

THOUSAND TWENTY-THREE

S.P. 666 - L.D. 1661

An Act to Require a Liability Automobile Insurance Policy to Cover the Costs of

Towing and Storing Certain Vehicles

Be it enacted by the People of the State of Maine as follows:

PART A

Sec. A-1. 29-A MRSA §1605, sub-§1, ¶C, as amended by PL 2007, c. 213, §1 and

affected by §3, is further amended to read:

C. Be in the amount or limit of at least:

(1)

For damage to property, $25,000;

(2)

For injury to or death of any one person, $50,000;

(3)

For one accident resulting in injury to or death of more than one person,

$100,000; and

(4)

For medical payments pursuant to section 1605‑A, $2,000.; and

(5)

For towing and storage charges pursuant to section 1605-B, $500.

Sec. A-2. 29-A MRSA §1605-B is enacted to read:

§1605-B

. Towing and storage charges

A motor vehicle liability policy issued for a motor vehicle registered or principally

garaged in this State must provide coverage in an amount up to $500 per accident for the

reasonable towing and storage charges incurred as a result of an accident involving the

insured vehicle if the vehicle is towed at the request of a law enforcement officer. The

coverage required by this section applies only to the reasonable towing and storage charges

of the insured vehicle. This section does not apply to a policy insuring more than 4 motor

vehicles, nor to any policy covering a garage, automobile sales agency, repair shop, service

station or public parking place.

Sec. A-3. 29-A MRSA §1861, first ¶, as amended by PL 2017, c. 120, §1, is further

amended to read:

Page 2 - 131LR0529(03)

A person holding or storing an abandoned vehicle, holding or storing a vehicle towed

at the request of the vehicle's operator, owner or owner's agent or holding or storing a

vehicle stored at the request of a law enforcement officer may hold the vehicle and all its

accessories, contents and equipment, not including the personal effects of the registered

owner, until reasonable towing and storage charges of the person holding or storing the

vehicle are paid, except that a person may not hold the perishable cargo of a commercial

motor vehicle, as defined in 49 Code of Federal Regulations, Part 390.5, as amended, when

the perishable cargo being transported in interstate or intrastate commerce is not owned by

the motor carrier or driver of the commercial motor vehicle being held and the person

holding or storing the towed vehicle is presented with evidence of insurance, as defined in

section 1551, covering the commercial motor vehicle and the vehicle's cargo. For purposes

of this paragraph, "perishable cargo" means cargo of a commercial motor vehicle that is

subject to spoilage or decay or is marked with an expiration date. The owner of the vehicle

shall maintain, at a minimum, the amounts of motor vehicle financial responsibility in

accordance with section 1605-B to pay the reasonable towing and storage charges of the

person holding or storing the vehicle.

Sec. A-4. Application. This Part applies to all motor vehicle liability insurance

policies executed, delivered, issued for delivery, continued or renewed in this State on or

after July 1, 2024. For purposes of this Part, all policies are deemed to be renewed no later

than the next yearly anniversary of the contract date.

Sec. A-5. Appropriations and allocations. The following appropriations and

allocations are made.

PROFESSIONAL AND FINANCIAL REGULATION, DEPARTMENT OF

Insurance - Bureau of 0092

Initiative: Provides a one-time allocation of funds for review of rate plans and forms

associated with motor vehicle liability policy coverage of towing and vehicle storage.

OTHER SPECIAL REVENUE FUNDS

2023-24

2024-25

All Other

$20,250

OTHER SPECIAL REVENUE FUNDS TOTAL

$20,250

PART B

Sec. B-1. Review of impact on premiums. The Department of Professional and

Financial Regulation, Bureau of Insurance shall review proposed rates provided by insurers

offering motor vehicle liability insurance in this State on or after July 1, 2024 to determine

the premium impact on rates of requiring coverage in accordance with the Maine Revised

Statutes, Title 29-A, section 1605-B. The bureau shall submit a report to the Joint Standing

Committee on Health Coverage, Insurance and Financial Services no later than February

1, 2024. The committee may report out a bill based on the report to the Second Regular

Session of the 131st Legislature.