Across the country and in most Midwestern states, insurance companies are facing the growing phenomenon of cash-strapped municipalities billing insurers for police or fire responses to auto accidents, no matter how minor.
Municipalities in no less than 13 states are billing for accident responses. Municipalities typically charge $100 to $300 per “run,” however bills sent to insurers lack specificity. Fire departments in some states have been billing insurers for ambulance services for several years because typical auto insurance policies cover medical expenses, including ambulance transportation, but do not cover expenses related to accident response. Therefore, auto insurers are questioning the logic of paying fees for services not covered or charged for in auto insurance policies.
Providing coverage for accident responses would most likely result in rate increases. Responding to and investigating auto accidents are functions of police departments supported by local taxes. Some municipalities have argued that insurers should pay these fees because accident reports are prepared for the benefit of insurers, however, personal injury lawyers and hospitals also rely on these reports. Why aren’t they being charged these fees?
NAMIC believes such fees are a form of double taxation applied only to those responsible drivers carrying auto insurance. Is it fair to penalize drivers who follow state law and carry insurance?
Not all the blame for this trend can be placed directly on municipalities struggling to balance budgets in order to continue providing vital services. Accident response fees can appear as an attractive alternative to raising taxes. The real culprits are the third-party vendors that are duping municipalities into believing that insurers are the “cash cow” they have been seeking. Chief among these vendors is Cost Recovery Corporation (CRC) of Dayton, Ohio, which has also used the name Safety Services Billing and has been collecting fees on behalf of fire departments for seven years.
In 2005, CRC started soliciting municipalities in several states for the collection of accident-response fees. According to CRC, insurance companies “are sitting on two trillion dollars in assets,” suggesting that only a small portion of this perceived surplus would be needed to pay response fees.
According to news reports and other sources, CRC employs aggressive and threatening tactics to collect accident-response fees. It also claims in marketing materials to municipalities that billing for these fees will not cause insurance rates to increase. CRC has sent letters to insurers that refuse to pay fees suggesting that failure to pay could result in safety service staff reductions, which would jeopardize the lives of accident victims. These letters also threaten that police units will no longer conduct accident investigations for companies that refuse to pay and that they will seek payment directly from the affected policyholder. CRC has been known to contact the policyholder directly and suggest they switch to an insurance company that “truly cares about their insured and recognizes the importance of assisting the police department in protecting you and your loved ones if involved in an accident.”
Despite or possibly because of such questionable tactics, CRC is only collecting a fraction of the amount it is billing. According to the city of Shaker Heights, Ohio, CRC has billed $120,839 on the city’s behalf and only collected $22,486. Shaker Heights recently announced it would continue billing insurers for these fees but would no longer utilize CRC’s services. Also, the Village of Sheffield, Ohio, has given up on collecting the fees altogether because it was realizing only a fraction of what was being billed. “It’s a PR nightmare … It’s really not worth the time and trouble,” said the village mayor, Darlene Ondercin.
Led by the Ohio Insurance Institute (OII), the industry is working toward a solution to the growth of these municipal fees. The OII has launched a Web site, www.municipalfeefacts.org, to answer questions and to help consumers and public officials understand the implications of charging accident-response fees.
The Insurance Institute of Indiana (I.I.I.) reports that attempts to impose local fees on insurers began popping up at the end of 2004. On Dec. 27, 2004, the I.I.I. successfully stopped the Mount Vernon City Council from passing a proposal that would have placed a surcharge on the insurers of “at fault” drivers for accident investigations by police officers.
Since that time, the I.I.I. has fended off subsequent attempts in Huntington, Salem and Wash-ington County, but continues to fight pending proposals in Indianapolis, Franklin and Munster. To date, all of the Indiana proposals have emanated from the marketing attempts of CRC. Most recently, the Institute has effectively gained the cooperation of the Indiana Association of Cities and Towns in distributing a letter to its members outlining the arguments against such surcharges.
NAMIC is working with our state trade partners throughout the country to stop the proliferation of these unfair and unequal backdoor taxes. We have sent letters to all 51 insurance commissioners urging their involvement in this debate and will establish a Web-page dedicated to tracking accident response fees on the NAMIC Web site, www.namic.org.
Tami Stanton is state affairs manager, Central Region, for the National Association of Mutual Insurance Companies. Joe Thesing is NAMIC’s state affairs manager, North Central Region.