TIME: Almanac 1993/TIME Almanac 1993.iso/time/022789/02278900.017

Text File | 1992-09-23 | 9KB | 183 lines

                                                                                BUSINESS, Page 52

Fill 'Er Up with No-Fault, Please


A solution to the auto-insurance mess: coverage by the tankful

By Andrew Tobias


    There's a way to fix the auto-insurance mess. And in many
states it's now such a mess, and people are so upset, it could
conceivably lead to an entirely new system, one designed to
serve the public rather than the attorneys and insurance
agents. You could hardly design an auto-insurance system worse
than ours. With minor variations, it works the same in every
state, and it favors only three groups:

    Trial attorneys (no state has true no-fault auto insurance).

    Insurance agents (many states actually have laws forbidding
group auto policies).

    That small subset of accident victims lucky enough to be
injured by millionaires, when it can be proved that the
millionaire was the one at fault.

    Under the current system, about 40 cents of every
auto-insurance dollar goes toward selling policies or
administering claims, not for fixing cars or compensating the
injured. Nearly all that wasted money could be saved. Virtually
every disinterested party who looks at the system -- from the
young law student Richard Nixon in 1936 to the considerably
less conservative Senator Daniel Patrick Moynihan of New York
decades later -- concludes the same thing: the system stinks.
It could be radically improved.

    A sensible, efficient program would save billions of dollars
in two ways. It would, first, all but eliminate sales costs and,
second, all but eliminate legal fees.

    Why sell insurance one policy at a time when we require
everyone, by law, to have it? Imagine the added cost if we had
to sell Social Security insurance one policy at a time. Or if we
outlawed the sale of group health insurance. Or if we required
everyone to contribute to the defense budget -- as in effect we
do -- and then created a special sales force to sign everybody
up.

    More than 15 cents of each auto-insurance dollar is spent
signing people up. (And lots of people don't sign up, pushing
onto the rest of us the cost of any damage they do.)

    Everyone should be covered automatically. Auto-insurance
"premiums" should be added to the cost of gasoline. It would
come to about 50 cents per gal., but there would be no other
auto-insurance premiums to pay. You would be fully covered,
after a $500 deductible. Collecting the premiums automatically
this way would save a fortune in selling and administrative
costs. And it would end the problem of people driving uninsured.

    If we want to penalize young drivers for being accident
prone (But why? They'll get older -- it all evens out), we can
do that automatically too. Just include a surcharge on their
driver's-license fees. Penalize city dwellers for their higher
rate of claims? Sure, but do it automatically, by basing the
amount of the deductible on the place the accident occurs:
higher in cities, lower in the country. (This would also foil
urban drivers who cheat by registering their cars in the
boondocks.)

    Gas guzzlers would pay more than others for insurance, which
would encourage the purchase of efficient cars. But if that's
deemed unfair to big-car drivers, evenhandedness could be
restored through a small adjustment in the
automobile-registration fee.

    There are automatic or computerized solutions to all the
rate-setting questions. For example, since the flat-rate premium
might tend to subsidize the Rolls-Royce set, the deductible
could be set at $500 or 5% of the Blue Book value of the car,
whichever is more (about $6,000 more in the case of a Rolls).

    All this would be lunacy if the idea were to let the state
government take over the insurance business. But that's not the
idea at all. The state government would do just three things. It
would collect that extra gasoline tax (efficiently, along with
the gas tax it already collects). It would divide the state's
licensed drivers into groups of 500 or 1,000 (efficiently, by
computer). And it would invite all the auto insurers to bid for
those blocks of business, much as private insurers now compete
for group health-insurance contracts. The bidding rules would
be designed to prevent abrupt changes in market share from year
to year, but by and large the privilege of insuring blocks of
drivers would go to the insurers who offered to do it at the
lowest cost.

    Upon getting their licenses, drivers would find the name and
phone number of the insurance company that had won their
business printed right on it -- efficiently, by the computer. If
that company mishandled a claim, drivers would do just what they
do now: complain. But the complaint would have more impact,
since the state could restrict or suspend companies with
abnormal complaint ratios from bidding on future business. In
cases of bad faith or negligence on the part of insurers,
abused customers could sue, just as they do now.

    But there would be a lot less suing going on, because we
would stop spending billions of dollars and clogging the courts
to decide who was at fault. Instead, we'd spend those billions
to give accident victims the compensation they deserve.

    If an accident is caused by criminal negligence, most
notably drunken driving, then the full weight of the law should
be brought to bear. And perhaps those laws should include
larger fines, tailored to the resources of the offender.

    But the main thing is to rush the accident victims to the
hospital (chased by rehabilitation specialists, not lawyers) and
pay all their medical costs and lost wages. We don't do that now
for most serious accident victims, but we could afford it with
a true no-fault system.

    I say "true no-fault" because in all the states that now
have purported no-fault, victims are free to sue for damages if
their injury meets some, usually minimal, test of severity. So
it's no-fault in name only.

    Here is how true no-fault would compensate for pain and
suffering (on top of medical expenses and lost wages). First,
there would be a set schedule of payments based on the severity
of the injury. It might peak at just $100,000 or $250,000,
depending on how generous the voters felt (the cost would be
covered by the gasoline surcharge). But at least it would be
swift and sure and undiluted by legal fees. Second -- and this
is important -- anyone who wanted to buy extra insurance
against pain and suffering would be free to do so. Private
insurers would doubtless be thrilled to sell it (and to write
policies covering the $500 collision deductible as well). Like
flight insurance, such a policy might not be a great buy. But
it would be readily available for those who wanted it.

    Almost all the consumer advocates and many insurance
companies that have looked at this issue agree that true
no-fault is the way to go. One who does not, so far, is Ralph
Nader. Given his unique position, this is unfortunate. He
recoils from any restriction on the Little Guy's access to the
courts, because he sees it as the consumer's only practical
defense against the Big Guys. And he's right: the specter of
lawsuits is indeed a disincentive to corporate wrongdoing. But
drivers already have plenty of incentive not to get into
accidents. True no-fault wouldn't make the reckless any more
reckless. And charging for it at the pump would at least get
them to pay a share of the cost instead of driving uninsured.

    "The courts are overwhelmed, swamped, inundated, choked,"
Senator Moynihan wrote years ago. "In a futile quest to carry
out a mundane mission -- deciding who hit whom on the highway
when every day there will be thousands and thousands of such
events -- we are sacrificing the most precious of our
institutions: the independent judiciary."

    In the long run we cannot prosper in the world economy by
busily selling each other auto insurance and suing each other
over claims. We have to make something.

    Pay-at-the-pump no-fault would be good for almost all
drivers (except those who now drive uninsured and pay nothing)
and good for those insurance companies that are efficient
(they'd win even more business than they have now).

    But we may never get a system like this, because selling the
idea takes more than a sound bite. In ten seconds, backed by
tens of millions of dollars in advertising, the trial lawyers
will demolish it: "If you're horribly mangled," they will ask,
"don't you want the right to sue the drunk who wrecked your
life?" In ten seconds the insurance agents will demolish it:
"Don't you think, in America, you should have the right to
choose your insurance company?"  These will be cheap, cynical
shots designed specifically to keep the extra 40 cents or so of
each insurance dollar that goes to them instead of us. But
cheap, cynical shots play well on TV.