It might seem impossible for anyone to devise an auto-insurance plan more fouled up than the one now actually in effect in the U.S. Under the present system, drivers pay high premiums, insurers incur heavy losses, and the nation’s accident victims recover only about a fifth of the $5.1 billion a year in medical expenses, loss of income and other tangible damage that they suffer. Massachusetts politicians, however, have almost succeeded in producing something even worse. They have taken a highly promising plan for reform and turned it into a hash that, unless quickly amended, could prevent many Bay State drivers from being able to buy insurance at any price.
The original plan, carefully drawn by Governor Francis W. Sargent in consultation with insurance-industry leaders, would have provided the first clear-cut test in any state of the “no-fault” principle of auto insurance. At present, a person injured in an auto crash must prove that the accident was someone else’s fault before he can collect any insurance award. Many accident victims—35% in Massachusetts—are unable to prove fault and never get a penny; others overload the courts and the insurers’ investigative machinery with claims that take up to four years to settle.
Sargent proposed instead that an auto driver, his passengers and any pedestrians struck by the car be entitled to collect up to $2,000 for accident injuries from the driver’s insurance company without attempting to prove who was at fault. The bill also ordered a 15% cut in premiums on bodily injury insurance. The companies figured that they could afford the lower rates because of prospective slashes in their investigative, administrative and legal expenses. Massachusetts drivers could use the reduction; they pay the highest average premiums in the country. The minimum liability insurance required by law in Massachusetts costs $128.37 v. a national average of $89.
The Democratic-controlled legislature passed the bill, but not before attaching amendments that threaten to wreck the Republican Governor’s plan. One amendment extends the compulsory 15% rate cut to all sectors of auto insurance, including collision, fire and theft, without any change in the coverage to justify the reduction. Another forces insurers, with few exceptions, to guarantee lifetime renewal of liability policies. Says Sargent’s legislative assistant, Christopher Armstrong: “I can be convicted of manslaughter, be caught speeding ten times in one year, get in seven serious accidents resulting in claims of $125,000, and the company still has to renew my policy.” Insurers protest that writing policies under those conditions would be economic suicide. Five large companies, including Travelers Corp., the largest writer of auto policies in Massachusetts, and Aetna Casualty, the third largest, insist that they will pull out of the auto-insurance business in the state completely if these provisions remain in the law.
Falling Dominoes. Lobbyists for the influential American Trial Lawyers Association pushed the amendments that make no-fault insurance unworkable. If the plan fails, the lawyers will keep collecting the fees they now get for representing accident victims, who must prove fault. Some legislators probably also hoped to embarrass Sargent in his re-election campaign. Sargent signed the bill to avoid handing the Democrats an issue.
Last week the Governor also sent to the legislature an emergency bill to repeal the compulsory-renewal provision. If it passes and insurers can overturn the 15% across-the-board rate cut in the courts, the no-fault plan has a chance to work. The legislature’s insurance committee did agree last week to let insurers refuse to renew policies for some bad drivers, but insurers regard the change as inadequate. If the deadlock persists, Armstrong fears, there will be “a domino effect.” Some auto insurers will pull out of the state; other companies, unhappy at the prospect of taking on money-losing business, will either resist writing new policies on unwanted high-risk cases—or else quit the state. Eventually, many drivers with less-than-perfect records will be unable to purchase insurance from anyone.
Even that debacle would not necessarily stop the spread of the no-fault idea, which is the most promising plan around for the overdue reform of the auto-insurance system. The Manhattan-based American Insurance Association expects bills embodying the no-fault principle to be introduced in 16 state legislatures next year. Michigan Senator Philip Hart, a champion of nationwide no-fault insurance, is preparing a package of bills for auto-insurance reform. However, the experience of Massachusetts as the first state to enact a no-fault plan will figure heavily in debates on the idea elsewhere. Auto drivers throughout the U.S. may be the losers if lawyers’ self-interest and the desire of legislators to play political games prevent the first test from being a fair one.
