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From Consumers Union Washington, D.C. Office
4/30/98
Consumers Union believes that America's auto insurance system is broken and needs repair. As lawmakers take steps to address this issue in the 105th Congress, Consumers Union proposes that any auto insurance reform proposal that is considered put consumers first. Consumers want:
Any reforms should also reduce the number of unnecessary claims as well as help to reduce the number of people who drive without insurance.
Some lawmakers are offering proposals to "reform" the auto insurance system. One type of "reform" that is being considered by Congress is the so-called "auto choice" proposal, embodied in the "Auto Choice Reform Act". Consumers Union opposes this legislation.
Under this proposal, drivers will be given two choices: remain with their state's existing insurance system, or opt out of recovery for non-economic damages (which includes injuries like the loss of a limb or loss of eyesight as well as other injuries classified as "pain and suffering") and "volunteer" to lower the threshold for the types of damages that are covered. In exchange for giving away these protections, consumers are being told they would get lower premiums and quicker returns on their claims. Proponents claim the "Auto Choice Reform Act" means large savings for consumers. A report by the Joint Economic Committee (JEC) forecast savings of $45 billion each year. But consumers aren't getting the full story.
The report's conclusions have been challenged by the National Association of Insurance Commissioners (NAIC), the group representing all of the state insurance commissioners around the country. NAIC has questioned the assumptions of the report and called for a thorough review of the document and its conclusions. Consumers Union agrees with the views of NAIC that the JEC report appears flawed on its face and should not be relied upon to advance the "auto choice" proposal.
Aside from questionable projections about savings, there are other elements of the proposal that are dubious as well:
THERE'S NO GUARANTEE CONSUMERS GET LOWER, AFFORDABLE INSURANCE RATES This proposal does not mandate lower insurance premiums. Moreover, even if there are savings, the proposal does not require that savings be passed onto the policyholder. In addition, there are no remedies to end continued delays in payments, unnecessary litigation or spiraling premiums.
AUTO CHOICE IS A FALSE CHOICE THAT PUTS CONSUMERS AT RISK The sub-standard insurance option created by this proposal is a poor substitute for the confidence the motoring public should enjoy: when motorists are involved in auto accidents, they should be confident that their costs will be covered. Instead, this proposal puts consumers at the mercy of the choice of other motorists. Because drivers who chose the substandard plan will be immune from suit, consumers can only hope the costs of an accident will be fully covered, but they can only be sure that will happen when both drivers in an accident have elected to remain in the current system
WHO PAYS? THE TAXPAYER, EVENTUALLY The costs of serious injuries due to auto accident for individuals and society never vanish-they just move somewhere else, while insurance companies are taken off the hook for paying legitimate claims that are currently covered. In the end, taxpayers may be forced to make up the difference when someone is seriously injured by a driver with substandard insurance
AUTO CHOICE PREVENTS AUTO ACCIDENT VICTIMS WITH SERIOUS INJURIES FROM SEEKING JUSTICE Consumers must decide whether to give up the right to sue for serious injuries without knowing what the extent of his or her damages might be in the event of an accident. If consumers choose the substandard plan in exchange for a modest savings on insurance premiums, they will then be barred from seeking full compensation for their injuries. This proposal also puts insurance companies and their agents who sell products that may not be the best for the consumer beyond the reach of the law.
AUTO CHOICE ADDS MORE PAPERWORK AND COMPLEXITY With participating states having two classes of insured drivers, auto accident victims will be facing a system dizzying in its complexity and confusion. Insurance experts predict the so-called "auto choice" proposal will bring a mountain of new paperwork to the insurance claims process.
AUTO CHOICE IS CONFUSING Auto choice lets policy owners waive compensation for non-economic loss if they are injured in exchange for the promise of lower insurance premiums. Unfortunately, consumers cannot know in advance what those non-economic damages might be. The potential for misunderstanding and confusion is enormous, with many consumers not knowing they have given up these rights until it is too late.
Consumers Union believes that a good no-fault system is the most equitable and efficient way to compensate accident victims. Unfortunately, the implementation of systems described as "no fault" in most jurisdictions falls far short of the protections consumers need. 1 As no-fault now works in some states, claimants can bring a court case only if their losses due to injury exceed a certain dollar amount. But setting a minimum dollar threshold encourages victims and their physicians to exaggerate the injuries' cost.
The no-fault system in Michigan is a model worth studying. There, all motorists must carry sufficient basic insurance to cover all but the most severe losses. But accident victims can still get their day in court if they can demonstrate that their injuries exceed a minimum threshold of severity (in contrast to setting a minimum dollar amount), such as the loss of a limb, disfigurement, or other permanent impairment of a bodily function.
The state of Michigan's no-fault system has effectively held down costs while still allowing people with serious injuries access to justice. The National Association of Insurance Commissioners State Average Expenditures and Premiums for Personal Automobile Insurance in 1995 (the most recent report on premiums) reports a nationwide average liability premium of $425.89, with Michigan's average reported at $343.22.
Good no-fault insurance can provide prompt, efficient compensation to most auto accident victims while protecting seriously injured people:
Under no-fault, accident victims are compensated by their own insurance company for injuries they suffer in an accident, instead of having to resort to an expensive lawsuit to assess responsibility. In other words, no-fault is a system in which your own coverage pays for your injuries, regardless of who caused the accident. In a state with a strong no-fault law, the victim may sue for pain and suffering only in limited circumstances, and not over relatively trivial injuries. Under a tort system, the insurer of the person who was at fault is the company that pays for injuries. If you didn't cause the accident, the other driver's coverage pays you, which means that to collect, you sometimes have to sue that other driver and establish in court that the accident was his or her fault. The cost of that process as much as half of which can go toward attorney fees rather than to the victim pushes premiums up.
