AIA: 'Break Through Auto Insurance Gridlock'

N/Ahe tort liability auto insurance systems in many states, fraud and uninsured motorists are wide-spread; seriously injured people are undercompensated; minor or non-existent injuries are grossly overcompensated; and consumers have few meaningful choices, according to the <%=company%> (AIA).

Speaking last week before the National Conference of State Legislatures (NCSL), the AIA said most state auto insurance systems are characterized by two fundamental elements: tort liability compensation rules imposed on consumers without choice and heavy government regulation of insurers, including price controls.

Dave Snyder, AIA assistant general counsel, spoke to the group on behalf of AIA and said most states mandated that their auto insurance be governed by tort liability principles. According to Snyder, "A large portion of benefits that should be paid to injured victims in many states are being lost to lawyers' fees and other tort-system related costs."

He says some states have responded to these problems. "New York and Michigan both have 'no-fault' systems that balance generous automatic payments with modest restraints on litigation, including recovering non-economic damages in serious injury cases."

Beyond the guaranteed benefits that compensate more than 90 percent of losses quickly, the no-fault laws in New York and Michigan have reduced insurance costs by 20 percent from what they would have been under tort liability systems.

Snyder also says that while several industries have benefited from some type of deregulation, auto insurance still remains probably the most heavily regulated private product in America. "Many states still have the legal authority for, and waste significant resources on, price controls of private passenger auto insurance. This creates obstacles to innovation and the ability to adjust to market conditions, and leads to less competition and higher prices in auto insurance."

The federal auto choice bills now being considered by Congress (S. 625 and H.R. 2021) have been attacked as not offering a true choice and as infringing on states' rights. However, Snyder says, "The bills increase consumer choice and potentially reduce costs in auto insurance."

Opponents of no-fault have made accusations that federal auto choice proposals encourage people to drive dangerously, but Snyder sees no validity in this point. "This is based on the ridiculous assumption that people consciously determine what kind of insurance they have before they do stupid things on the highway. Not only does this defy common sense but it is simply untrue." No-fault Michigan, for example, has an auto accident fatality rate of 19.67 per 100,000 registered vehicles, while tort based Louisiana has 25.14, tort based Arizona has 38.69 and tort based Mississippi has 40.77.

"In fact, the tort liability system with its built-in profit in minor injury cases called 'pain and suffering' has clearly been an incentive for causing accidents," Snyder adds. "The profits in faking or causing accidents and injuries to recover subjective 'pain and suffering' is eliminated under good no fault laws because all you get are your actual economic losses."

"Cost and competition can be improved in many states if their auto insurance laws were reformed and if competition in auto insurance were encouraged through moderate deregulation, especially the elimination of price controls. These two reforms alone would assure better benefits for injured accident victims, reduce costs, and provide more choice for customers."