Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Conference on the disagreeing vote of the House of Representatives to the amendments proposed by the Senate in H.B. No. 1820, H.D. 1, S.D. 1, entitled:

having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this bill in an amended form.

The purpose of this bill is to allow motor vehicle insurers to adopt more efficient business practices that will ultimately benefit the consumer. This bill:

Your Committee on Conference has amended this bill to reduce the notice requirement for cancellation of a policy for nonpayment of premiums, to 20 days.

Your Committee on Conference finds that undisclosed traffic violations and accidents often result in large additional premiums and necessitate collection activities. To avoid this problem, some insurers ask a prospective insured to obtain an abstract of their traffic record, prior to issuing a policy. This delays issuance of the policy and requires the consumer to visit the District Court, adding to the lines and workload.

The addition of a 60-day "underwriting period" affords the insurer time to perform driving record and claims history searches to ensure that a policy is properly rated. The underwriting period gives the insurer time to access periodically updated magnetic tapes containing traffic abstract data, and makes it possible for more insurers to offer immediate coverage.

A period of extended coverage triggered by a cancellation notice issued after a missed premium payment is a common feature in insurance. It reduces the risk of an inadvertent policy lapse.

While Hawaii's longer period of extended coverage may appear to benefit consumers, there are also disadvantages. The interest of consumers is in having an optimal period that provides the benefit of avoiding an inadvertent policy lapse, without the disadvantages that attach when the cancellation period is too long.

For example, minimum down payments are higher in states with a longer cancellation period. Drivers on a tight budget, while they "save up" for the down payment, sometimes feel the need to use their car. This adds to the uninsured driver problem. Those who abide by the law and do not drive uninsured are inconvenienced during this period of saving for the high down payment.

Even after receiving the larger down payment, many insurers are reluctant to offer monthly payment plans, which are an option preferred by many consumers. With a shorter extended coverage period, more insurers will make this option available.

Further, unrecovered underwriting costs and administrative costs associated with extended coverage are proportional to the duration of the extended coverage period. Because these costs are passed through to all insured drivers, shortening the extended coverage period will reduce the insurer's costs and, in Hawaii's competitive market, will reduce the cost of insurance.

Your Committee on Conference finds that the majority of the states establish a ten-day notice of cancellation and extended coverage requirement. Most of the other states have a 15-day or 20-day notice requirement. Only Hawaii, West Virginia, and the District of Columbia have a 30-day notice requirement.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of H.B. No. 1820, H.D. 1, S.D. 1, as amended herein, and recommends that it pass Final Reading in the form attached hereto as H.B. No. 1820, H.D. 1, S.D. 1, C.D. 1.