Minn. Insurers Line Up against Policy Surcharge for Pensions

A bill under consideration in Minnesota would add a $5 surcharge to every auto coverage policy there to inject additional revenue into underfunded public safety pension plans, but it has drawn the ire of insurers in the state that say the industry is not meant to prop up such programs.

The effort, represented in bills SF 935 and HF 857 that were both introduced late last month, saw its most extensive public discussion yet at a Legislative Commission on Pensions and Retirement hearing on Tuesday. At the hearing, public safety officials said that recent shortfalls in tax revenue and funding have left several pension funds—like the police and firefighters portion of the Public Employees Retirement Association (PERA)—in dire financial straits.

One such official was Dennis Flaherty, executive director of the Minnesota Police & Peace Officer Association, who said at the commission hearing that the $23 million total that the proposal is estimated to bring in from extra charges to auto and homeowners policies would “offset the cost to the employers … and help out the volunteer pension issues and to also put some revenue directly into the funds.”

The $5 surcharge on an estimated 3 million Minnesota auto policies alone would generate more than $15 million, according to Brian Rice, a lawyer for public safety unions. Commission members decided to hold over voting on the bills until next week’s meeting.

Insurers Brand Surcharge as ‘Unfair’

Several representatives from the insurance industry cried foul over the bill, saying its intent to support public safety workers was noble but ultimately misdirected.

“We certainly don’t oppose the police and firefighters trying to make sure their pensions and benefits are funded,” Aaron Cocking, director of government affairs for the Minnesota Association of Farm Mutual Insurance Companies, said at the hearing. “We just don’t think this bill is the issue to deal with that.”

Cocking called the auto surcharge “regressive” and unfairly burdensome to lower-income drivers.

“The surcharge for the $100,000 sports car that [NFL running back] Adrian Peterson’s going to drive to the new Vikings stadium will be $5 and $5 for the $500 car a working mom drives back and forth to her two jobs,” said Cocking.

George Winiecki, a St. Paul-based insurance agent who said he had decades of experience in the industry, said he found out about the surcharge-related legislation last week. Since then, he said, he has brought up the issue to clients, whose “remarks have been very negative.”

“As an agent, I’m in more personal contact with my clients; they’re very upset with this,” he said. “They don’t think it’s something that should be put on their insurance policies.”

Winiecki said that, if such a surcharge was authorized, he would explain it to his customers as “not something the insurance industry did, [but] it’s something that the state imposed on you.”

Bob Johnson, president of the Insurance Federation of Minnesota (IFM), said that pension revenue could be produced in a number of ways that would spare day-to-day consumers more costs. One such way would be to better enforce the state’s requirement to have auto coverage, he said.

According to the Insurance Research Council (IRC), Minnesota has an uninsured motorist rate that is slightly lower than the national average rate: 13 percent vs. 13.8 percent.

Between 500,000 and 600,000 drivers in the state lack coverage, according to Johnson, meaning that bringing them in line with compulsory insurance laws would generate through premium tax revenue around the same amount of funding law enforcement entities are seeking for their pensions.

“Those drivers are breaking the law and they’re guilty of a crime,” said Johnson, adding that he estimated a boost of $10 million to the general revenue from cracking down on the uninsured-driver problem. “Why don’t we take steps to get serious about enforcing the law and have Minnesotans buy the insurance who today are not buying it. If we did that and you just did rough math … [it would] probably bring $10 million more into general revenue.”

State’s Auto Premiums ‘Flattened’

Johnson also said that the state has seen a “flattening of auto premiums” spurred by the economic recession, fewer miles being logged by drivers in the state and lower fatality rates from safety-related achievements. Recent developments showed “good news on a lot of these fronts,” he said.

The level premium amount in the state could be threatened by adding a surcharge, according to Johnson, who added that IFM was familiar with surcharges, having partnered with law enforcement agencies to bring other surcharges to consumers.

One such surcharge is the state’s annual $1 auto policy surcharge that helps fund the state’s Auto Theft Prevention Program. Johnson said that that program’s monies are clearly marked for efforts against auto theft including enforcement against and prosecution of car thieves. That clarity is something that SF 935 and HF 857 lack, he said.

There are “very specific, direct correlations to what the money is collected for,” Johnson said about the auto theft surcharge. “We don’t think that correlation exists on the bills that are before you right now.”

Lieutenant Highlights Relationship between Insurers and Police

Bruce Jensen, a police lieutenant in Minneapolis and representative for the police and fire group of the PERA board of trustees, said that the association had voted unanimously to seek other sources of pension funding without having “specific legislation” in mind.

Then SF 935 and HF 857 were introduced, according to Jensen, who highlighted the contributions policing makes to the insurance industry. The link between insurers and law enforcement should be noted, he said, as the latter group tries to ensure their futures after careers in public service.

“I can tell you, I personally investigated literally hundreds of accidents, from the minor fender-benders downtown that happen at rush hour to extremely complex and very tragic fatal accidents,” Jensen said about the more than four years he spent in the Minneapolis Traffic Unit. “And these accidents took a great deal of time and resources from the police department to investigate and respond to, and I believe that our professional response to these has been able to make it much easier for insurance companies to assess liability.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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