Crash Taxes: Q&A with Mary Bonelli of the Ohio Insurance Institute

by Matthew Glans on January 14, 2011

photo by icopythat/Flickr, used under a Creative Commons license

New proposals to create accident or “crash” taxes continue to emerge in town councils across the country.

The prevalence of these proposals has risen as local government officials nationwide struggle to balance their budgets. Elected officials use accident fees as a way to increase revenues. Their proposals frame the tax as a “user fee” for emergency services delivered at the scene of an automobile accident. The fees do not replace, but rather are in addition to, property and other taxes already paid by local residents for local services.

Critics see these fees as auto accident taxes. These “crash taxes” aim to pass on the cost of the accidents from the local municipalities to the insurance companies of the crash victims.

Officials in some locales have responded to citizen complaints by charging only nonresidents. Others charge only drivers who have collision insurance.

Matthew Glans of Out of the Storm News recently conducted a Q&A with Mary Bonelli of the Ohio Insurance Institute, one of the leading insurance groups following the crash tax issue.

Glans: My first question would be, do you consider accident response fees a form of double taxation?

Bonelli: No matter how they’re disguised, these types of fees are double taxation. And the reason we look at it from that standpoint is the fact that citizens and businesses pay taxes for public safety and that includes your fire protection and police protection and emergency medical services.

And when you are asking for additional fees for basic, essential city services, the tax dollars – it’s a form of double taxation.

Glans: Is there a chance these fees will still be passed onto drivers anyway and not be passed onto insurers like some of the local governments might have liked people to believe?

Bonelli: Depending on how the local ordinances are written. There’s a number of ways that cities are looking for this additional revenue. Under the ordinances proposed the insurance companies are intended to pick up the tab for accident, for police or fire showing up at the scene of an accident. If these are medically-related runs meaning that the driver and/or passengers require medical assistance, typically there is coverage under the auto insurance policy and additional coverage could be available depending on the individual’s medical or health insurance policy.

If these runs are for basic fender benders, meaning there are no injuries and where the services provided involve directing traffic and filing a police report, these types of services have been historically paid for by the community. What we’re finding is that in these communities where accident response fees are being proposed, they turned to insurance companies to cover these costs. In most cases, what we’ve found, at least in Ohio, the majority of writers that represent the auto insurance industry in Ohio do not cover these if they are non-medical in nature. And that means that these fees are not only not covered, but the insurers don’t collect premiums for it.

Glans: This means that the insurers are unlikely to pay the claims.

Bonelli: What happens in many situations is that when the bill is sent to the insurance company and is denied, the billing company, which is typically a third party collection company, who collects anywhere 10-15% off the top of every dollar that’s collected, will turn around and attempt to recoup the fee from the driver.

Glans: You have written in recent months that some drivers may not even have to pay these claims due to how the individual ordinances are written, could you explain?

Bonelli: I think it’s very important that drivers understand how these ordinances are written within specific communities. Often times they are written as soft billing ordinances, meaning that an individual who gets socked with one of these bills many not necessarily be required or mandated by law to pay it. They may be subjected to two to three billing statements from the vendor and then if they are not paid, they typically go away. So what we recommend is that if an individual gets one of these bills, that they should turn around and contact the city or municipality and ask for a copy of the accident response fee ordered, and find out if it’s a soft-billing ordinance, and then make a decision as to whether or not to actually pay it.

Glans: Have the cities that have already launched these types of fees seen any success in raising venue, has there been a net loss, or has there been a backlash from the communities?

Bonelli: Well, the concern that we have had since these fees started many, many years ago is that the fact that city officials are lulled into thinking that that these are going to are going to solve their budget crises.

Glans: By collection agencies?

Bonelli: Yes. What happens typically is the collection companies would make a presentation to city government and tell them that the accident fees are a way to generate revenue within a community without raising taxes. And realistically, what collection companies promote as a way to generate thousands and thousands of dollars ends up being quite the contrary. We have been following these for a number of years and have documented instances where these typically raise 10-15% of what’s actually billed out.

And most of the revenue that is recovered by collection companies comes from the accident victims directly and these are individuals that have already suffered financial, physical hardships as a result of being in an accident. If insurers are hit with new charges, for police and fire services such as these that are not covered by a policy, insurance premiums undoubtedly would have to be raised to cover them.

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