Rebellion Against Insurance Firms Grows
Encouraged by the California Supreme Court’s affirmation of Proposition 103, a coalition of consumer groups proposed Monday a reform package designed to save consumers $15 billion to $23 billion in auto insurance bills through major changes in regulation of the industry.
“The consumer rebellion against exorbitant rates is under way,” consumer advocate Ralph Nader told a news conference sponsored by Public Citizen, the Consumers Union, the National Insurance Consumer Organization and other backers of the plan.
The proposals announced included repeal of state laws that prohibit insurance agents from offering discounts and prevent groups from buying auto insurance; re-establishment of a 5-mile-an-hour crash resistance standard for car bumpers; elimination of the industry’s antitrust exemption, which now permits pooling of rate-setting data and the assignment of sales territories, and formation of consumer watchdog groups to intervene before state insurance boards on rate issues.
Insurance reform efforts in various state legislatures “have been on hold” while Proposition 103 was under judicial review, but now can move forward because the legal status of rate rollback approaches has been resolved, Nader said.
For the first time, consumer groups are united to “support Proposition 103-type efforts in Washington and through the states,” said Steve Brobeck of the Consumer Federation of America, another supporter of the plan.
Joan Claybrook of Public Citizen said auto insurance rates have risen three times as fast as inflation since 1981 without justification. There are 2,500 fewer persons killed each year in auto crashes than there were in 1981, and the price of auto repair parts has been cut by foreign competition, she said.
The insurance industry denounced the consumer groups’ proposal, with industry representatives waiting outside the news conference to provide their criticism.
The new proposals would “increase bureaucratic red tape and raise rates,” said David F. Snyder, counsel for the American Insurance Assn., which includes some of the largest firms writing automobile insurance.
Auto insurance already “is a highly competitive market,” with 1,200 companies selling policies, Snyder said. Most states have more than 250 firms in the business. “Premiums vary--that means there is a lot of competition,” he said. “If you believe in the free market, any waste and inefficiency will be worked out,” he said.
Franklin Nutter, president of the Alliance of American Insurers, which held a meeting recently with consumer advocates, said: “We do share the common goals of increased auto and driver safety, no-fault insurance, anti-fraud and anti-theft programs and strong consumer information.” However, he said the changes suggested by the consumer groups “will not realize the savings” claimed.
About $77 billion was spent in 1988 by the auto insurance industry, according to the consumers groups. Major items include $23 billion in payments for personal injuries and $27 billion in payments for damage to cars.
The consumer groups assert that adequate protection could be provided for $15 billion to $23 billion less. A 30-page study prepared by the consumer groups said the industry is relatively inefficient, with 35% of the money going for internal expenses, the “costs incurred in underwriting, selling and servicing auto insurance policies.”
Prices Vary Widely
According to the study, “the price range of virtually identical products can be more than 100%” between companies. “In most states, there is no one place consumers can go for comparable price information on a range of policies.”
Special insurance consumer groups could provide comparison shopping information, Nader said. He wants the states to allow these consumer organizations to solicit for members through a message enclosed with insurance premium mailings.
The Alliance of American Insurers said it still hopes to work with the consumer groups on insurance improvements. Two weeks ago, “we offered our hand in a ‘truce in the war of words,’ ” Nutter said. “Despite a few teeth marks on our fingers, we still make that offer today.”
