Let's Enact Auto Insurance Reform The Right Way
The U.S. Congress has started reviewing auto insurance reform issues. The most currently proposed federal plan for auto insurance reform would allow individuals to select from two types of auto insurance coverage. Initially introduced during the 104th Congress, the Auto Choice Reform Act of 1996 (S. 1860) would give consumers the right to choose between their state-based insurance system or change to a first-party, no fault option. At the time this article was published, this legislation was slated to be re-introduced after the Congressional Easter Recess.
Under the new first-party option, Personal Protection Insurance, consumers would recover damages solely from their own insurance companies, and would therefore only need to protect themselves. Personal Protection Insurance would allow drivers to receive first-party coverage with immediate, full payment of economic losses regardless of fault. In most cases, those choosing this coverage would not be able to recover for non-economic damages.
Under the state-based insurance option, Tort Maintenance Coverage, consumers would retain the same amount or types of recovery as provided in the insurance laws of their states, unless they have an accident with a Personal Protection Insurance driver. If this occurs, they would receive first-party coverage up to their own policy limits.
Under either option, injured parties could sue for damages (economic and non-economic) against drivers who commit intentional torts, or when drugs or alcohol are factors in the accident.
As we analyze insurance reform in light of the legislation being discussed, we have to take a hard look at what practical benefits consumers will gain, as well as what additional issues should be addressed to ensure consumers receive cost-efficient, quality repairs. This issue has received much attention due to the high auto insurance rates in many states. Reformers seek to give drivers more options, better service and reduced premiums.
New Jersey Gov. Christine Todd Whitman made an excellent case in testimony to the Joint Economic Committee by describing her state's auto insurance costs, which are the highest in the nation. Gov. Whitman said, "New Jersey is the most litigious state in the Union," and she described an environment where 819 lawsuits are filed per 100,000 residents. The average insurance premium in New Jersey is $1,100, and approximately $300 out of every $1,000 in insurance premiums goes to litigation costs.
Advocates of "auto choice," which is the legislative concept of insurance reform that would give consumers more freedom to choose policy types, argue that premiums would be reduced by an average of 28 percent under this proposed reform. Low-income drivers would see their premiums reduced by 45 percent, according to a RAND study.
But a closer look at auto choice reveals a more narrow version of the tort reform ASA and other small business groups have supported for a number of years. Two factors have to be considered with this approach. First, the business community's strongest tort reformers will not allow this bill to move with such a limited scope. If it gathers momentum, it will also grow in scope. Second, the same barriers for broad tort reform are equally there for auto choice; these are the trial lawyers and consumer activists.
Most of the studies indicate that a controlled litigation environment would result in reduced premiums for consumers. In the last Congress, legislators sent a tort reform package to the president, but it was vetoed. The 105th Congress should re-address tort reform and move again with a package broader than just auto choice, which is not the complete answer for the consumer or the small business person. If auto choice is capable of passing through Congress and getting signed by the president, a broad-based tort reform package could do it as well.
A more direct approach to the auto insurance problem would be a reform of McCarran-Ferguson. A state-based insurance regulatory system has produced an insurer-consumer-repairer relationship that is not healthy for the consumer or the repairer. It inhibits competition and denies the consumer the right to an economic environment available in almost every other area of commerce. With the current insurance regulatory system in place, the consumer is the loser. Whether it's a discussion of crash parts or who actually repairs the vehicle, the consumer loses out under our current anti-trust system.
What should also be addressed are the issues of quality involved in our current auto insurance system. With high costs, is the consumer getting the quality product he or she needs to restore the vehicle to its pre-accident condition? Consumers should ask themselves the following questions: Does my state require notification about the use of non-OEM crash parts? What about paint caps? Do I have a choice of who repairs my vehicle?
These are the kinds of discussions Congress should make part of any auto insurance reform initiative. Tort reform is critical but will occur, in time, in a much broader sphere. The 105th Congress might be the one to succeed with tort reform. True auto insurance reform will include the repairer's business relationship with the insurer, and this will clearly translate into a quality product produced in a cost-efficient, competitive environment.
Congress cannot ignore real auto insurance reform, and tort reform itself is not enough.
Bob Redding is ASA's Washington, D.C., representative. He can be reached at (202) 543-1440.
Let's Enact Auto Insurance Reform The Right Way || Product Technology: Today And Tomorrow || E-mail And Its Business Applications || Guest Editorial: New Educational Horizons || Tech To Tech || Tech Tips || News Briefs || Taking The Hill || Around ASA || Shop Profile || Net Worth || Chairman's Message ||
AutoInc. Magazine ®, Vol. XLV No. 5, May 1997