1 MOTORCYCLES UNDER THE HAWAII NO-FAULT LAW SUSAN K. CLAVERIA Researcher March, 1984 Legislative Reference Bureau State Capitol Honolulu, Hawaii
2 FOREWORD This report is submitted to the Legislature pursuant to House Resolution No. 391 which was adopted during the Regular Session of Insurance ratemaking is an intricate process and the cause of high motorcycle rates for personal injury protection is even more complex-- involving more than the fact that motorcycles are included in the no-fault law. This report does not purport to have the final answer to resolve the motorcycle insurance problem, but it is hoped that the findings and conclusions reported herein will enlighten all interested parties on the facts and set the direction for meaningful legislative deliberation. The data presented and the findings and conclusions reached in this report could not have been achieved without the assistance of those in the fields of motorcycle insurance and highway safety, and the motorcyclists themselves. Due to the highly technical nature of the application of the nofault insurance law and the complexity of the motorcycle rates issue, the Bureau relied heavily on the expertise of the Insurance Division. The Bureau is indebted to the lnsurance Division for the many hours spent in discussing the problems surrounding the motorcycle issue and in providing necessary data. Special thanks are extended to Hit-am Tanaka and Shelley Santo for their valuable assistance, without which this report could not have been completed. The Department of Transportation provided the Bureau with access to the list of registered motorcycles from which the random sample for the motorcyclist survey was extracted and, through its Motor Vehicle Safety Office and Research and Statistics Unit of the Highways Division, contributed the data on traffic accidents. For this assistance, the Bureau is deeply gratef ui. The Bureau also extends its appreciation to the Hawaii Insurers Council, the Hawaii Independent lnsurance Agents Association, Criterion lnsurance Company, the Hawaii bledical Services Association, the Commander in Chief Pacific, Kuan Cot-poration dba Wheels Hawaii, Two Wheels, Montgomery Motors, Wheels Kaneohe, Street Bikers United, Kona Motorcyclist Association, Big Island Motorcycle Association, The American Motorcyclist Association, the motorcyclists who responded to our survey, and the lnsurance Departments of the no-fault states, all of whom submitted information and comments regarding the exclusion of motorcycles from the no-fault law. Special acknowledgment is made for the arduous work of the Bureau's clerical staff, especially Joyce Aramaki and blaizie Mukai, in processing this report under extremely tight time constraints and for assistance on the surveys by Dan Aono, Karl Motoyama, and Colleen Nakatsu. March 1983 SAMUEL B. K. CHANG Director
3 TABLE OF CONTENTS... FOREWORD INTRODUCTION... 1 Problems Prompting this Study... 1 Conduct of Study HAWAII'S NO-FAULT LAW... 4 Enactment of the Law... 4 How the Law Works THE MOTORCYCLE COMMUNITY... 9 Driver Licensing Requirements... 9 Motorcycle Safety Equipment Requirements... 9 Special Laws for the Opei-ation of Motoi.cycles... 9 Profile of Motorcyclists Motorcycle Dealers Motorcycle Insurers MOTORCYCLE INSURANCE RATES The Open Rating System Regulation of Rates by the Insurance Division How Rates Are Developed Relativity to Automobile Rates Why blotorcycle Rates Are High Shopping for Low Insurance Rates Special Provisions for Motor-cycles to Reduce Rates The Added Cost of Optional Insurance Coverage Problems with Agents MOTORCYCLE ACCIDENTS Accident Involvement Data Motorcycle Accidents and Helmet Use SURVEY OF NO-FAULT STATES CONCLUSIONS AND RECOMMENDATIONS The Consequences of Removal.. Recommendations... FOOTNOTES... 47
4 PAGE.. Tables Number of Registered Motor Vehicles Insured by Vehicle Type Motorcycle Loss Ratio, 9/77-6/82... lnsurance Companies with Active Motorcycle lnsurance Pokicies as of 12/31/82... Type of Motor Vehicles Involved in All Accidents, State of Hawaii, Vehicle Registration and lnvolvement in All Accidents, State of Hawaii, Type of Motor Vehicles lnvolved in Fatal Accidents, State of Hawaii, Vehicle Registration and lnvolvement in Fatal Accidents, State of Hawaii, National and State Motorcycle Statistics... Motorcycle Accidents by Injury and Damage..... Type of Motorcycle Accidents..... Fatal Motorcycle Accidents, Cause/Responsibility Military lnvolvement in Fatal Motorcycle Accidents Driver's License Type, Motorcycle Fatalities Appendices House Resolution No. 391, House of Representatives, Twelfth Legislature, 1983 Regular Session, State of Hawaii... Chapter 291, Motorcycle Vehicle Accident Reparations, Hawaii Revised Statutes... Survey of Registered Motorcycle Owners... No-Fault lnsurance Premium Guide Letters from Montgomery Motors, Ltd., to lnsurance Division, Department of Commerce and Consumer Affairs, State of Hawaii, and Response of the Insurance Division..... State No-Fault Laws...
5 Chapter 1 INTRODUCTION During the 1983 Legislative Session, the House of Representatives adopted House Resolution No. 391 (see Appendix A), requesting the Legislative Reference Bureau to study the probable consequences of removing motorcycles and other vehicles with less than four wheels from the mandatory personal injury requirement of the Hawaii no-fault law. The Resolution also requested that the study consider the removal of the coverage requirement in light of the following alternatives: (1) That motorcycle owners and operators and their passengers be precluded from receiving no-fault benefits as pedestrians and disqualified from receiving benefits under the assigned claims program of the Hawaii joint underwriting plan; or (2) That motorcycle owners and operators and their passengers be allowed to receive no-fault benefits as pedestrians, and to receive benefits under the assigned claims plans. The Resolution also directed the study to include information on the experience of states which have either removed or added requirements that motorcycles and vehicles with fewer than four wheels be covered for no-fault benefits for personal injury protection. Problems Prompting this Study Motorcyclists and motorcycle dealers in Hawaii have been opposed to the inclusion of motorcycles in the no-fault law ever since the law was being considered by the Legislature in the early seventies. A review of available 1973 legislative committee records at the State Archives revealed testimony in opposition to the inclusion of motorcycles from the motorcycle associations, motorcycle dealers, and even an insurance association. Most of the testimonies cited the effects on the premium rates of motorcyclists as the justification for exclusion and maintained that since the other no-fault states excluded motorcycles, so should Hawaii. Despite the strong lobbying effort, the Legislature included motorcycles under scope of the law. Because insurance rates for motorcycles have been subject to greater increases in recent years, the movement for the exclusion of motorcycles from the no-fault law has been revived. The Insurance Division of the State Department of Commerce and Consumer Affairs, has opposed the exclusion of motorcycles for the following reasons : (1) The medical costs of personal injury incurred by motorcyclists will still be present and exclusion from the no-fault law would mean that such costs will have to be taken care of by the
6 MOTORCYCLES UNDER THE HAWAII NO-FAULT LAW bodily injury liability insurance coverage of other motorists, or by medical insurance plans such as HMSA or Kaiser. This in turn would mean probable increases in insurance rates for the motoring public or the subscribers to health insurance plans. (2) Making an exception for motorcycles will open the door to other groups seeking exclusion such as the registered owners of subcompact cars who can make the same arguments about having to pay higher insurance even though they do not inflict as much damage on another vehicle and its occupants, or the senior citizens who can argue that they seldom drive their vehicles, so they should not be required to purchase the same coverage as others who drive their cars every day. In view of these concerns, the Insurance Division has suggested that if exclusion is granted to motorcycles, the no-fault law should also be amended to: (1) Exclude motorcyclists from receiving no-fault benefits in the same way as pedestrians and bicyclists are covered; (2) Subject motorcyclists to the same conditions as other motorists before the motorcyclist can sue;!3) Require motorcyclists to maintain bodily injury liability and property damage liability insurance coverage for the protection of anyone who is injured, or whose property is damaged by a motorcycle; and (4) Preclude a motorcycle owner/operator, or passenger from obtaining benefits under the assigned claims program of the Hawaii joint underwriting plan. Conduct of Study Nature and Scope - The scope of the study was limited to the treatment of motorcycles and other vehicles with less than four wheels under the nofault insurance laws of Hawaii and other no-fault states. The study focuses on the issue of whether or not motorcycles should be excluded from the personal injury protection requirement of the no-fault law. Although the report focuses on motorcycles, the findings and conclusions are applicable to other vehicles with less than four wheels. Objectives - 1 To ascertain the intent of the Legislature in adopting the Hawaii no-fault law which included motorcycles. (2) To review the experience of other no-fault states with respect to motorcycles and to apply relevant findings to Hawaii's situation.
7 INTRODUCTION 13) To identify the possible consequences of removing motorcycles from the mandatory personal injury protection requirement. (4) To determine whether or not motorcycles should be excluded from the law and to recommend appropriate courses of action to the Legislature. Methodology - Following general research on automobile insurance and no-fault laws, research was conducted at the State Archives on old records of legislative committee hearings and on committee reports and floor debates on House Bill No. 637 (which became Act 203, Session Laws of Hawaii 1973) to obtain the history of Hawaii's law. Survey questionnaires were sent to nofault states and to 800 registered motorcyclists. Letters seeking impact information were sent to insurance companies, motorcycle dealers, health insurance companies, motorcyclist associations, and the military. Data on traffic accidents were obtained through the State Department of Transportation's Motor Vehicle Safety Office and the Research and Statistics Unit of the Highways Division. Finally, most of the background information on the operation of the no-fault law and the data on motorcycle insurance claims and premiums were obtained through personal interviews with the staff of, and a review of records at, the insurance Division of the Department of Commerce and Consumer Affairs. In the course of this study, a significant problem was evident: many of the contentions made by those advocating as well as by those opposing the exclusion of motorcycles could not be substantiated by facts. Perhaps much of the frustration and anger experienced by motorcyclists, dealers, insurance companies, the insurance division, and even the Legislature could have been avoided if unfounded allegations were not allowed to be perpetuated year after year and if obvious misconceptions of the law were corrected. If there is any one purpose to be accomplished by this study, it is to clear the air, once and for all, and to distinguish truth from alleged fact on the motorcycle issue.
8 Chapter 2 HAWAII'S NO-FAULT LAW Enactment of the Law In 1965, Professor Robert E. Keeton, Professor of Law at Harvard University, and Professor Jeffrey O'Connell, Professor of Law at the University of Illinois published a book entitled, Basic Protection for the Traffic Victim. The study contained a revolutionary proposal to change the handling of automobile insurance claims from a system of fault-based tort liability to one of no-fault basic protection insurance, similar in principle to workers' compensation. Following the publication of this study, there was serious and enthusiastic discussion at both the state and federal levels for the adoption of the no-fault concept proposed by Keeton and O'Connell. Massachusetts became the first state, in 1971, to enact a no-fault law. Today, there are 16 states with a no-fault system that limits tort actions.' Another 11 states provide for benefits without regard to fault, but have no restrictions on tort actions.' Legislation at the federal level, however, has never been successful. In 1971, 30 proposals for motor vehicle insurance reform were introduced in the Hawaii Legislature and extensive hearings were conducted on the nofault concept. As a result of the public hearings, legislators found themselves without sufficient information to make a sound decision and called for a comprehensive study by the Office of the Legislative Auditor of Hawaii's existing motor vehicle insurance system. The consulting firm of Haldi Associates, Inc., was contracted to conduct the study and the completed report entitled, A Study of Hawaii's Motor Vehicle Insurance Program, was submitted to the Legislature in January, The Haldi report recommended the adoption of a pure no-fault system for Hawaii. At about the same time, the National Conference of Commissioners on Uniform State Laws completed its draft of the Uniform Motor Vehicle Accident Reparations Act (hereinafter UMVARA) which was a modified no-fault system since it permitted tort actions under certain conditions. The law enacted by the Hawaii Legislature as Act 203, Session Laws of Hawaii, 1973, was patterned after the UMVARA proposal. At the time Hawaii's law was being considered, only Massachusetts, Florida, Connecticut, New Jersey, and Michigan had no-fault laws already in effect. The states of New York, Utah, Kansas, Nevada, and Colorado enacted no-fault legislation in All the states adopted a modified no-fault system; pure no-fault has never been adopted by any state. In both the Haldi pure no-fault and the UMVARA proposals, motorcycles were included in the scope of the law. Hawaii is the only state that includes motorcycles on a mandatory basis while two states, Kansas and Kentucky, include motorcycles on an optional basis.
9 HAWAII'S NO-FAULT LAW How the Law Works The components of the Hawaii law are as follows (see Appendix B for text of chapter 2941: (1) All registered motor vehicles are included; (2) All persons involved in a motor vehicle accident are entitled to benefits, except that no benefits will be paid to the owner of an uninsured motor vehicle or to the operator or user of a motor vehicle engaging in criminal conduct which causes any loss; (3) No-fault benefits are paid secondarily and net of any benefits the person receives from workers' compensation because of the accident but are paid primarily to any other insurance such as health insurance or social security; (4) No-fault benefits must be paid within thirty days after the claimant supplies proof of loss; (5) Pedestrians and bicyclists involved in an accident with a motor vehicle are entitled to no-fault benefits from the insurer of the vehicle that caused accidental harm to the pedestrian; (6) The right to sue is abolished except when (A) death occurs or there is significant permanent loss of use of a part or function of the body, or permanent disfigurement which subjects the injured person to mental or emotional suffering; (B) the medical-rehabilitative limit (presently $4,500)' is exceeded; or (C) the total aggregate limit of no-fault benefits payable to a person ($15,000) is exhausted; (7) Every registered motor vehicle is required to have insurance providing coverages of at least $15,000 for personal injury protection; $25,000 for residual bodily injury liability; and $10,000 for property damage liability; (81 lnsurers cannot refuse to insure an applicant unless the principal operator is not licensed or does not pay a I-easonable portion of the premium; (9) lnsurers are required to offer the following optional coverages: (A) Physical damage coverage with deductibles of $50, $100, and $250, for losses incurred by damage to the insured's vehicle. This includes "collision" coverage for damage to the insured's vehicle resulting from an accident and "comprehensive" coverage for losses other than collision damages resulting from such things as theft, vandalism, a tree falling on a car, fire, or flood; fb) Uninsured motorist coverage of $25,000 a person;
10 MOTORCYCLES UNDER THE HAWAII NO-FAULT LAW (C) lncreased personal injury coverage with limits of $30,000; $50,000; $75,000; and $100,000; 1D) lncreased residual liab~lity coverage with limits of $50,000; $75,000; and $100,000; and (E) lncreased property damage liability coverage with limits of $15,000; 520,000; and 930,000;" (lo) Optional deductibles at appropriately reduced premium rates for no-fault benefits are allowed in the amounts of $100, $300, and $500 for motor vehicles and a $1,000 deductible is also allowed for vehicles with less than four wheels; (11) An equitable allocation of burdens system which requires vehicles to maintain a burden reasonably consistent with their propensity to affect probability and severity of injury so that in accidents involving a vehicle weighing more than 10,000 pounds and a vehicle weighing less than 10,000 pounds, the heavier vehicle's insurer must reimburse 60 per cent5 of the no-fault benefits paid by the insurer of the lighter vehicle and in an accident involving a vehicle with less than four wheels and a vehicle with four or more wheels, the vehicle with four or more wheels must reimburse 75 per cent6 of the no-fault benefits paid by the vehicle with less than four wheels; and (12) A joint underwriting plan (hereinafter JUPf which pr-ovides nofault coverage for certain eligible drivers and certain uses. This group includes drivers with bad driving records; drivers convicted of certain driving-related offenses within the 36 months immediately preceding the date of application; first and second ciass commercial vehicles; vehicles with less than four wheels required to be registered under the highway safety law; and physicaily handicapped drivers. The JUP provides no-fault benefits, under the assigned claims program, to victims for whom no insurance policy is applicable such as the hit-and-run victim who does not have a no-fault policy. The JUP also provides no-fault policies and benefits to welfare recipients who do not pay premiums for their coverage. As a condition of licensure, each insurer is required to pay a minimum fee of $100 a year and the cost for the operation of the JUP program is equitably allocated among the JUP insurers. The cost for covering welfare recipients and assigned claims program is absorbed by the JUP members. Only a few insurers are designated as "servicing carriers" which process the assigned claims and welfare recipient claims. Any agent licensed to write motor vehicle insurance in Hawaii, however, can write a JUP policy. According to the rules governing the JUP, an agent must inform the appl~cant of the premium rates under both JUP and non-jup covet-age. '
11 HAWAII'S NO-FAULT LAW Under the no-fault law, a motor vehicle owner is required to purchase "personal injury protection" (PIP) insurance to cover injuries sustained by the owner or occupants of the owner's vehicle. The owner also is required to purchase: (1) "residual bodily injury liability" insurance to cover costs of up to $25,000 a person in the event the bodily injuries suffered by a person exceed the tort threshold and the owner, or an authorized driver of the owner's motor vehicle, is sued for being at fault; and (2) "property damage liability" to cover up to $10,000 for each occurrence of damage the owner of a vehicle or the driver of the owner's vehicle causes to someone else's property. ' When an accident occurs between two vehicles, the insurer of each vehicle pays, within thirty days of the filing of a valid claim, all benefits claimed by the occupants of that vehicle without regard to fault. If one vehicle happens to be a motorcycle, the insurer of the motorcycle files a claim, under the allocation of burdens provision, for reimbursement from the other vehicle's insurer for 75 per cent of the benefits paid to the occupant(s) of the motorcycle. If the injuries sustained by the occupant(s1 of the motorcycle meets the tort threshold, the motorcyclist may sue the other driver if the other driver is at fault and the motorcycle insurer is entitled to recover from the motorcyclist up to 50 per cent of its allocation of burdens amount if the motorcyclist is successful. If the motorcycle is uninsured, the motorcycle owner is not entitled to no-fault benefits; however, if the driver or passenger of the motorcycle is not the registered owner, that person is entitled to no-fault benefits as an assigned claim under the joint underwriting plan. The registered owner of the uninsured motorcycle, however, is subject to a fine of between 5100 to $1,000 for not having insurance and can be sued by the driver or passenger of the owner's motorcycle or by the insurance company that had to pay benefits because the motorcycle was not insured. The following hypothetical examples of how the no-fault law works were taken from the Insurance Division's consumer's primer on no-fault insurance: Example: Yhile driving, you hit a traffic lightpole and knock it down, causing darnage to your car. Sirice you were at fault, your property damage liability coverage pays for damage to the pole. Damage to your car can be taken care of under your collision coverage, if you had purcliased it. You pay the deductible amount and your company pays the rest. Example: In the same accident above, you were also injured and treated for minor cuts and bruises. You incur a $100 bill and remain at home from work for two days. Under your no-fault benefits coverage, your insurance company pays the doctor bill, including any x-ray or surgical costs, and for two days' loss of wages. Example: A car in front of you stops suddenly at a stop sign. Following too closely, you rear-end that car. The driver of that car endures minor cuts and bruises, four days of lost work and damage to his car. Your car was also damaged, and you and your spouse suffer minor cuts and bruises.
12 MOTORCYCLES UNDER THE HAWAII NO-FAULT LAW In this situation, the other driver will be reimbursed for his medical expenses and lost wages by his insurance company under his no-fault benefits coverage, even though you were clearly at fault. But your property damage liability coverage pays for his car damage. You and your spouse's medical bills will be paid from your nofault benefits coverage. Your car damages will also be paid under your own collision coverage, with your company paying over the deductible you had selected. For instance, if the damage costs $400 and you have a $100 deductible collision coverage, your company will pay $300 towards the repair after you put up the first $100. Example: While driving through an intersection, you are hit by a driver running the red light. You are taken to the hospital by ambulance, suffering a broken arm and a facial laceration which requires stitches that result in permanent scarring. Your no-fault henefits coverage will cover your medical, surgical, hospital, nursing and ambulance bills, and up to $800 a month in lost wages for the time you are unable to work. Remember, your company will pay up to $15,000 for all the benefits provided under this basic coverage. You can also sue the other driver for your injuries, including pain and suffering due ro the permanent scar which caused your mental and emotional distress. And payment for your car damage will come from the other driver's insurance company under his property damage liability coverage. Example: You are hit by an oncoming car while crossing the street and sustain serious injuries. As a pedestrian, you are entitled to all no-fault benefits in each of the following situations. First, the insurance company of the car that struck you must pay for all no-fault benefits you claim. But if that car carried no insurance, then your company will pay you under your no-fault benefits coverage, providing you own a car and have a basic auto insurance policy. On the other hand, if you do not own a car, then you can get paid under a relative's no-fault benefits coverage, providing he owns a car and is a resident of your household. Finally, if none of the above situations apply and no benefits are readily available to you, you can file a claim with the Hawaii Joint Gnderwriting Plan Assigned Claims Program through the State?lotor Vehicle Insurance Division. Your claim will then be assigned to an auto insurance company and handled just as if you had a nofault policy with that particular company.
13 Chapter 3 THE MOTORCYCLE COMMUNITY As of July 1, 1983, there were 10,261 registered motorcyclists in Hawaii. Despite claims of a steadily decreasing motorcycle population, the registrations for 1978 through 1982 indicate a slight but increasing trend (see Table 1). The uninsured motorist statistics in Table 1 also show that there has been an increasing trend of uninsured registered motorcycles. Motorcyclists have claimed that the high cost of insurance is the primary reason for such a high percentage of uninsured motorcyclists. Despite the possibility of paying a fine between $100 and $1,000, many motorcyclists evidently feel it is worth the risk of driving without insurance. Driver Licensing Requirements In order to operate a motorcycle, the law requires a person to obtain a category 2 driver's license which is specifically for the operation of a motorcycle or motorscooter.' An applicant for a category 2 license must take a written, oral, or automated examination which includes questions on rules of the road, highway signs, and the operation of motorcycles. Upon satisfactory completion of the written examination and a vision test, the applicant is issued an instruction permit which is valid for ninety days. In order to obtain a permanent license, the applicant is required to take an off-street skill test which tests the applicant's abilities in steering, stopping, balancing, accelerating, and maneuvering a motorcycle. If the applicant demonstrates good coordination in the off-street test, an on-street test will be administered. Motorcycle Safety Equipment Requirements Since June 7, 1977, when the helmet law was partially repealed, motorcycle operators who are eighteen years of age or older have not been required to wear a safety helmet while operating or riding a motorcycle.' All motorcycle operators and their passengers are required to wear safety glasses, goggles, or a face shield, in the case of a motorcycle or motorscooter that is not equipped with windscreens or windshields.' Special Laws for the Operation of Motorcycles Motorcycles are subject to various special rules under the Hawaii Revised Statutes as follows: (1) Instruction permits for the operation of a motorcycle or motorscooter may not be renewed more than once and may be renewed only if the holder of the permit has taken the examination for a motorcycle or motorscooter license at least
14 ht?;nber OF REGISTERED MOTOR VEHICLES ISSLJED BY VEKSCLE TYPE Note: The percentages displayed below for each vehicle typo are slightly distorted because of a difference in definition of commercial vehicle for insurance and registration purposes. For example, U-drive cars are classified as private passenger vehicles for regisrration purposes, but for iiisuiance purposes vould be considered commercial vehicles. m; -. b'ehicle TYPE i YEAR i ' HOW J>SLI'RED PASSENGER MOTORCYCX COMblERCSAL/--T~~- 1982, Regular 1 67,808 >22,969 I ' Joint Underwriting Plan 745 9,117 Self-insured ' 8,437 i Total No. Insured ' 459,022 4,511 / 76, ,523, Total No. Regisrered 610,456 6 / 48, ,267 b of Registered 1 Vehicles Insured Regular Joint Underwriting Plan Self-insured Toral No. insured Totai No. Registered?, of Registered Vehicles Insured Regular Joint Underwriting Plan Self-insured Total No. Insured Total No. Registered ",f Registered Vehicles Insured Regular Joint Underwriting Plan Self-insured Total No. Insured Total No. Regisrered : of Regisisred Insured Vehicles Regular Joint Underwriting Plan Self-insured Total No. Insured ioial No. Regisrered P of Registered Insured Vehicles Source: Hawaii, Department of Cumserie and Cocscmer Affsais, insurance Giuision, Insured Census Report. 10
15 THE MOTORCYCLE COMMUNITY once before the expiration of the second temporary instruction permit - section 286-l10(f). (2) A driver with a temporary permit may not carry a passenger or drive at night - section e). (3) A motorcycle must have a muffler meeting certain specifications to prevent excessive noise - section (4) Head lamps for motorcycles must meet specified requirements as to power and placement - section (5) Drivers and passengers must ride on a regular, permanently attached seat - section 291C-152. (6) A vehicle must not carry more passengers than the vellicle is designed and equipped to carry, i.e., a passenger must have foot pegs and hand hold straps - sections 291C-152 and 291C-155. (7) The minimum age for a motorcycle passenger is seven years old - section (8) The operator must have both hands on the handlebars when driving - section 291C-152. (9) A motorcycle is entitled to the use of the full width of a traffic lane and may not ride between lanes of traffic or between right lane traffic and the curb or shoulder of the roadway - section 291C-153. Profile of Motorcyclists To obtain information about the motorcycle population in Hawaii and its viewpoints about the no-fault issue, the Bureau utilized information from the motor vehicle registration records and sent a confidential questionnaire to 800 randomly selected registered motorcyclists. (See Appendix C. ) Personal Data - The motorcycle population in Hawaii is a relatively young group with 80.5% in the age group between years of age. According to the motor vehicle registration records as of July 1, 1983, of the 10,261 registered motorcyclists, 3,182 (31%) were in the military and 7,079 (69%) were civilians. The Bureau's survey respondent population consisted of 32.70, military personnel and 66.7% civilians. Only 61.l% of the respondents reported having a permanent Hawaii state motorcycle operator's license while 27.2% had permanent out-of-state motorcycle operator's licenses and 9.30, reported having a motorcycle learner's permit. Most of the respondents have been driving a motorcycle for over five years (66.6%) and slightly over one-quarter of the respondents reported accident involvement ,). The survey found that only of the respondents have taken a motorcycle safe driving course in Hawaii. Most of
16 MOTORCYCLES UNDER THE HAWAII NO-FAULT LAW the respondents (84.34) more wheels. reported also owning a motor vetiicle with four or Motorcycle Use - Most motorcyclists use their motorcycles for both pleasure and commuting (6300). The size of the motorcycles driven by the respondents tend to be in the medium to low range; only 1600 reported owning the "muscle" motorcycles of over 1,000 ccs. Insurance Coverage - Eighty-nine per cent of the respondents reported being insured. Since the Bureau is aware that only about 40% of the registered motorcyclists are insured, this could mean that those who had insurance were more willing to respond to the survey than those who were uninsured. The questions in the survey relating to the type of insurance coverage and the deductibles the motorcyclists purchased could not be used because the manner in which these questions were asked evidently caused confusion and misunderstanding. Consequently, although 55.90, of the respondents having insurance reported paying $450 or less in annual premiums, the Bureau does not know whether this is only for the required no-fault coverages or whether such persons also have the optional collision and comprehensive coverages. If the former is the case then the cost of full coverage to such motorcyclists would be almost doubled (or $900 a year), but if the latter is the case, then motorcycle insurance for many may not be as prohibitively high as some claim. The Motorcyclists* View on Exclusion from No-fault - On the question of whether motorcycles should be excluded from the no-fault law, 68.2% said yes, said no, and 3.1% did not answer. Many commented that insurance for their motorcycles is too expensive. Of those who did not want exclusion, a few respondents who commented could not understand why the legislature was considering removal of the personal injury protection requirement. They maintained that since motorcyclists are more susceptible to injuries and seldom at fault in an accident, they need personal injury protection more than liability coverage. Motorcycle Dealers The Bureau attempted to obtain the views of the motorcycle dealers in Hawaii through the Hawaii Motorcycle Industry Council. The Council, however, is defunct but through the assistance of its former president, other dealers were informed of the Bureau's study and many dealers submitted individual statements on the issue of excluding motorcycles from the no-fault law. Motorcycle dealers are struggling with declining sales and they attribute their plight primarily to the inclusion of motorcycles under the no-fault law which they claim has caused motorcycle insurance rates to be out of reach for many potential buyers. Consequently, over the past several years, this group has been actively seeking a solution to the high motorcycle insurance rates. As a result of a successful lobbying effort by motorcycle dealers, in 1980, the legislature enacted a law to allow an insurance company to deal exclusively in motorcycle insurance sales.5 While one dealer acknowledged past interest in establishing an insurance company in Hawaii to sell motorcycle
17 THE MOTORCYCLE COMMUNITY insurance exclusively as permitted by this law, the dealer later dropped the plans. Another dealer is actively working with an insurance agency in California to establish an insurance program in Hawaii exclusively for motorcycles. The insurance agency, however, has made this commitment conditioned upon amending the no-fault law to exclude motorcycles from personal injury protection benefits to motorcycle owners in accidents not involving a second vehicle. The insurance agency has also urged the dealers to seek other statutory changes to: 11) stiffen the penalties for not having insurance; 12) requiring the State to contribute a portion of the cost for welfare clients covered by the JUP; and (31 to streamline and simplify the insurer's reporting requirements and lessen the frequency of such reports. The dealers are concerned that if something is not done in the near future to lower the cost of motorcycle insurance, some dealers will be forced to close down their business. Motorcycle lnsurers Many property-casualty insurers do not want the motor vehicle insurance business. From the insurers' perspective, this line of insurance loses money because the number of personal injury claims and the amount of such claims are too high. The Bureau enlisted the assistance of the Hawaii Insurers Council to obtain data from, and the viewpoints of, insurance companies on the motorcycle problem. Of the fourteen insurers that had active motorcycle policies as of June 1983, the Hawaii lnsurers Council represents six: First Insurance, Hawaiian Insurance, Island lnsurance, Pacific Insurance, Allstate, State Farm, and USAA. In addition to the survey sent to the Hawaii Insurers Council, the Bureau also contacted Criterion lnsurance Company, which writes approximately 4000 of the motorcycle policies. When asked about the consequences that might occur if motorcycles were excluded from the no-fault law, the insurers noted the following: 1. The cost of personal injuries from motorcycle accidents would still be present and the exclusion of motorcycles from the requirement of maintaining personal injury protection would shift the cost to others. 2. Tort restrictions for motorcyclists might have to be removed if they are excluded from the law and this could cause an increase in tort actions. If there is an increase in tort actions, the current rates for automobile residual bodily injury liability may be increased. 3. Excluding motorcycles might increase the number of people going to the assigned claims pool if motorcyclists are allowed to receive benefits under the assigned claims program. 4. If motorcycles are excluded from the personal injury protection requirement of the no-fault faw but insurance compantes are
18 MOTORCYCLES UNDER THE HP,WAII NO-FAULT LAW required to offer personal injury coverage as an option to motorcyclists, such optional coverage would probably cost the same if not more than the present cost depending on the type of risks who elect the optional coverage.
19 Chapter 4 MOTORCYCLE INSURANCE RATES Under the old tort liability system, a person purchased insurance to pay for damages the person caused to another vehicle's occupants; therefore, the insurance companies provided rating incentives based on the insured's propensity to cause an accident and impose injury to another vehicle and its occupants. The no-fault system, on the other hand, is essentially a first party insurance system under which the insured buys insurance to pay for the insured's own injuries as well as liabilities so the system must provide incentives to vehicles which minimize injuries to the insured vehicle's occupants. Consequently, those motorists who choose to drive vehicles that expose them and their passengers to serious injuries would be expected to pay a higher rate for personal injury insurance coverage. The Open Rating System Unlike other forms of property-casualty insurance in Hawaii which are regulated under chapter 431, Hawaii Revised Statutes, motor vehicle Insurance rates are set on an open competitive basis under chapter 294, Hawaii Revised Statutes. This means that each company sets its own rates for motor vehicle insurance coverages and such rates can become effective, once filed with the Insurance Commissioner, without prior approval by the lnsurance Commissioner. The Legislature, in allowing for open rating, believed that open competition would serve to keep motor vehicle rates at reasonable levels. There appears to be some misunderstanding about the motor vehicle insurance rating system as some motorcylists have accused the lnsurance Division of not holding public hearings on rate increases. After careful review of the chapter 294 and its legislative history, the Bureau believes that this problem is primarily attributable to some obvious drafting errors in the rating sections of the no-fault law. (See Appendix B for text of Chapter 294. ) When the no-fault law was initially enacted, the Legislature provided for a temporary three-year period of open rating from September 1, 1975 to August 31, 1978 wherein each firm licensed to underwrite no-fault insurance in Hawaii would establish its own schedule of rates. After the three-year period, it was intended that the lnsurance Commissioner would be responsible for the setting and regulation of uniform rates. In 1977, the Legislature amended the law to extend the open rating period to August 31, 1983' and in 1982, the Legislature, upon finding that Hawaii does have a competitive market and that open rating is effective in keeping insurance premiums at reasonable levels, provided for a permanent open rating system by deleting the expiration date. The deletion of the expiration date should have been accompanied by the repeal of the sections empowering the commissioner to set rates, since these sections were intended to implement the prior approval system that was
20 MOTORCYCLES UNDER THE HAWAII NO-FAULT LAW supposed to become effective upon the expiration of the temporary open rating period. These prior approval sections provide for public hearings before rate increases and such hearing requirement is not applicable to an open rating system. Regulation of Rates by the lnsurance Division Motor vehicle rates do not require the lnsurance Commissioner's approval before they become effective, but the Commissioner has the power to adjust rates that are found excessively high or unconscionably below the actual costs of providing the assured coverage. The lnsurance Division reported that, in practice, Hawaii has a modified prior approval system because most of the insurers file their rates about sixty days prior to the effective date and request the Division's approval. The reason for this is that it is too time consuming and costly for the insurer to make adjustments after new rates become effective. The absence of a public hearing requirement on rate filings does not mean there is no check on the insurers ratemaking process. The lnsurance Division conducts a thorough examination of each rate filing to ensure that the rates are justified. The examination consists of a review of the general information about the company including its rate history, loss experience, and expense experience. The Division then analyzes the data and methods presented in the filing to test its reasonableness. This analysis is highly technical and since the lnsurance Division has capable rating analysts, the insurers are unlikely to submit inadequate and unreasonable filings. In addition to the examination of rate filings, insurers are required to submit quarterly reports on: (1) a census of vehicles insured; (2) details of experience for motor vehicle insurance policies by class of vehicle and type of coverage; (3) data on applications, renewals, termination, and cancellation of policies; and (4) data on no-fault benefit claims.' Insurers also must submit an annual report containing the experience for each class of motor vehicle insurance and detailed explanations of the methods used to assign expenses and investment income to the Hawaii motor vehicle classes and used to develop reserves for losses and loss adjustment expenses.' Insurers are also required, under the allocation of burdens provision, to submit reports involving no-fault claims for accidents involving two or more vehicles of disproportionate size.' The law also requires insurers to submit all applications for JUP insurance coverage.6 Finally, tfie lnsurance Commissioner is empowered to request any other additional information of insurers under the jurisdiction of the Division and to conduct audits of the records of such companies. How Rates Are Developed Section (a)(1), Hawaii Revised Statutes, requires that motor vehicle insurance rates be approved on (1) past and prospective loss experience within this State; (2) reasonable margin for profit from and contingencies in the administration of motor vehicle insurance sold within the
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