Fighting Back Against the Crash Tax Trend
With the struggling economy, major U.S. cities such as New York City, Denver, Sacramento and Tulsa as well as a growing number of smaller municipalities have considered charging accident response fees to address budget pressures.
Additionally, third-party collection agencies that profit from these charge-back programs are an important factor in the spread of accident response fee proposals. These groups sell local governments on the idea that there is a pool of "free money" out there for the taking if a municipality simply bills the insurance company for the accident response.
But there is no free lunch.
The very notion that insurance should always cover these fees for routine service is flawed. Coverage is determined by the terms of the policy. While some insurers cover the fees, many do not. These fees generally do not fit the standard definition of either property damage or bodily injury coverage. Although ambulance services often are paid as part of medical expense coverage, police and fire services have always been funded through tax dollars. With these fees ranging from hundreds to thousands of dollars, costs can quickly add up. If insurers were forced to begin covering these services, insurance costs would increase to compensate for the added expense, and that would tend to drive up rates.
By billing for these services, local government is actually imposing a hidden tax on consumers that ultimately could increase the cost of insurance. In return for higher premiums, consumers would have the privilege of receiving a service for which they have already paid through their taxes. We call this an "Accident Tax" or "Crash Tax."
The imposition of such fees has the potential to drive a wedge between policyholders and their insurer if the carrier refuses to cover the costs. This is why it is important to work with the customer pointing out that public safety is a basic role of government and these charges amount to double taxation.
According to a Harris Interactive poll, 76% of Americans believe their taxes cover the time and services provided by emergency responders following an accident. Because of this, they believe additional accident response fees charged by local governments are unnecessary.
On a positive note, there is a countervailing force to the crash tax movement. In 2011, multiple states have taken steps to protect motorists by banning or placing restrictions on local governments charging accident response fees. At press time, 13 states (Alabama, Arizona, Arkansas, Florida, Georgia, Indiana, Kansas, Louisiana, Missouri, Oklahoma, Pennsylvania, Tennessee and Utah) have passed these laws or resolutions.
The crash tax adds insult to injury, literally. Charging for emergency services is simply bad public policy that could ultimately hurt accident victims' relationships with their insurers. Motorists, auto insurers and state and local lawmakers must continue to work together to put an end to crash taxes.
For more information about the fight against accident response fees, visit www.accidenttax.com.
Robert Passmore is senior director of personal lines for the Property Casualty Insurers Association of America (PCI).