Take Another Stab at No-Fault
Prodded by last year’s enactment of Proposition 103, the Legislature this year passed a handful of bills to deal with the state’s auto insurance crisis, and perhaps calm the public anger it has created.
Some of those bills, such as SB 1103, written by Sen. Alan Robbins (D-Tarzana) bolster the state’s regulations for automobile registration and safety and deserve Gov. George Deukmejian’s signature. The pivotal measure, AB 2315, by Assembly Speaker Willie Brown (D-San Francisco), is flawed. Deukmejian should veto it.
AB 2315 is less the handiwork of Brown than of his political allies in the California Trial Lawyers’ Assn. The sections of it getting the most public attention are those designed to deal with one of the most serious side effects of the skyrocketing cost of auto insurance in this state, the large number of uninsured motorists. In a classic Catch-22 dilemma, the high cost of automobile coverage forces many poor drivers to forgo auto insurance. Yet the fact that so many people drive this state’s highways without insurance forces up the premiums that other drivers pay for coverage to protect them in case they are hit by an uninsured motorist.
To break the cycle, AB 2315 would create a state program to offer auto liability insurance to low-income drivers for a flat statewide rate of only $25 per month. The money to underwrite that program would come from subsidies paid by higher-income drivers on their insurance policies. But Brown insists that even after those subsidies are paid, all state drivers will wind up paying less for automobile coverage than they do now because the number of uninsured motorists will drop and the premiums paid for uninsured-motorist coverage will be reduced. Spokesmen for the insurance industry disagree, claiming that Brown’s plan is not actuarially sound. The insurers claim that the low-cost policy Brown wants to offer costs far too little and will quickly cause a budget deficit that can only be made up by increasing premiums for all drivers. As often happens in the complex arguments over insurance economics, each side has statistics and estimates to back up its case.
Certainly the high cost of auto insurance for the poor is troubling and important, but it is only part of the problem. The fact is that auto insurance costs too much for everyone, and both trial lawyers and the insurance industry share the blame. The lawyers are happy with the tort system used to adjudicate claims resulting from auto accidents because it keeps many of them employed and well-paid. The insurance industry complains about this system, but has been willing to go along with it while its own profits did not suffer. Profits have not been a problem as long as the insurance industry was so loosely regulated that it could pretty much charge whatever rates it wanted.
That changed when Proposition 103 was enacted--but work remains to be done.
Most voters who cast their ballots for Proposition 103 did so because of the 20% rate rollbacks it mandated for auto insurance (rollbacks most California drivers have yet to see, for a variety of legal and political reasons). But the most important thing the initiative did was to create a new administrative structure that more tightly regulates how insurers set their rates. Among other things, that structure requires an elected (rather than appointed) insurance commissioner, a larger staff for the Insurance Department and a public process where insurance companies must justify rate increases, as public utilities must do. One reason California drivers have yet to see the rate rollbacks they voted for last November is because state Insurance Commissioner Roxani Gillespie has been slow in putting this new administrative structure into operation.
Once the larger and more aggressive Insurance Department envisioned by Proposition 103 is actually in operation, California will have the structure in place to start cleaning up the auto insurance mess. The main thing missing is what Proposition 103 lacked, a simple no-fault insurance system that would keep most traffic-accident settlements out of the courts and, for that matter, away from lawyers entirely. Unfortunately, that is what AB 2315 is lacking, too.
An earlier version of the bill, authored by Assemblyman Patrick Johnston (D-Stockton), included a basic no-fault auto insurance policy that could have been offered to low-income drivers for an even lower price than Brown’s version. Unfortunately, that plan was dropped from the bill.
Also written into Brown’s bill was an arbitration system, designed by lobbyists for the trial attorneys, that is supposed to be simpler and cheaper than the current tort system. But its proponents admit they have no models in other states to illustrate how it would work in California. That is worrisome, because if the new arbitration system does not work as well as the trial lawyers claim, it could create a new insurance mess.
Rather than take that risk, Deukmejian should veto Brown’s bill, then look to other states for a good no-fault insurance system the Legislature can use to design a similar system for California. The best model, especially given the size and diversity of the state, is New York. That state’s insurance department closely regulates the insurance industry. And there are not many out-of-work lawyers in New York. So everyone seems able to live with it. But New York’s trial lawyers fought implementation of a no-fault system for years until the late Gov. Nelson Rockefeller used his political clout to push a series of bills enacting it through the Albany Legislature in the late 1960s and early ‘70s.
It may yet prove necessary for Gov. Deukmejian to pull out all the political stops, as Rockefeller did, to give California the no-fault auto insurance system it needs. State drivers can only hope he has the gumption. A good start would be a veto of AB 2315. Then Deukmejian should sit down with Brown, Gillespie and the other key players in the insurance debate to begin creating a no-fault system that will further the reform process begun by Proposition 103.
