PERSPECTIVE ON AUTO INSURANCE : No-Fault: a Safe Way to Save : Minor accidents would be compensated; we’d keep the option to sue in serious cases; only lawyers would lose.
Californians are angry about their automobile insurance--and they have a right to be. Many motorists pay $2,000 or more; many pay 20% or more on top of that in financing charges because they can’t afford the total cost of a six- or 12-month policy in one bite. Thirty percent of all Californians--perhaps as many as 6 million people--drive without any insurance at all.
A single mother who works in my Los Angeles office spends about 20% of her take-home pay on auto insurance. Another Department of Insurance staff member with a clean driving record was recently offered a basic policy for his new $10,000 car at a cost of $4,000.
No wonder people are fed up with the current system. It must be changed.
That’s why I proposed a comprehensive plan for auto-insurance reform last month. My proposal would create a minimum policy priced at $325 per year and reduce costs for all drivers by controlling many of the varied factors that drive up the price of insurance. Every driver would be required to buy this affordable policy, greatly reducing the cost of “uninsured motorists” coverage.
The most hotly debated element of my plan is the creation of a “personal protection” policy for minor accidents. Under the proposal, drivers who suffer injuries that are neither serious nor permanent would have their medical bills and lost wages paid promptly by their own insurance companies regardless of who was at fault. Lawsuits for pain and suffering would be prohibited in minor cases but could be pursued when injuries were serious or permanent, or when the other driver was under the influence of drugs or alcohol. Since no determination of fault would be made in minor cases, insurance companies could not raise a driver’s rates merely because a claim was filed. I support this concept because it gives more people more benefits more quickly and more fairly than the current system. It eliminates the need for costly litigation to determine who was at fault in minor accidents. It takes money out of the pockets of lawyers and puts it into the hands of people injured in auto crashes.
A 1989 study of California auto-insurance bodily injury claims found that lawyers were involved in 57% of the cases, and those cases took more than a year to be resolved. If a lawsuit was filed, the average case lasted more than two years. During those two years, the injured parties often receive no payment from their insurance company, and they never get a penny if they lose. Some, of course, will score big judgments, but these winners constitute an extremely small percentage of the total cases. And, of course, the lawyers get their 33%-40% off the top.
This game of auto-insurance lawsuit roulette is neither a fair nor efficient way to get injured people the benefits they deserve in minor cases. Personal protection no-fault, on the other hand, provides swift and certain payment for everyone, and lawyers don’t squeeze an extra dime out of the system. That’s why nearly every consumer group in the country supports no-fault, including Consumers Union, the Consumer Federation of America, Latino Issues Forum, the National Insurance Consumer Organization and many other low-income and public-interest groups.
In a recent column on this page, Harvey Rosenfield of Voter Revolt made the misguided assertion that the only reason anyone would support no-fault is to please the insurance industry and undermine Proposition 103. Does he really think that the consumer groups cited above are currying favor with the insurance industry or trying to keep Californians from getting their rollbacks? Hardly. They support no-fault, as I do, because Proposition 103 alone will not deliver a low-cost policy that everyone can afford.
Proposition 103 takes a big bite out of insurer overhead and profits. But Proposition 103 did not address many other factors that contribute to the high cost of insurance, such as fraud, medical inflation, auto repair practices, safety and, of course, legal fees. The reforms I proposed attack all these costs, squeezing savings from the many interests that feed off the current system.
Personal protection no-fault and the other elements of my proposal complement 103--the goal of which was to bring auto-insurance rates under control. I have already adopted a regulatory structure that should deliver $2.5 billion in Proposition 103 rebates to the people of California and keep future rates down by establishing the toughest insurer-efficiency standard in the country. Still, the other costs must be controlled and every driver must be insured.
For nearly two decades, the policymakers in Sacramento failed to take action while the cost of automobile insurance careened beyond the reach of many hard-working Californians. The people responded in 1988 by taking matters into their own hands and voting for Proposition 103.
If their elected representatives remain paralyzed, the voters may have to take the initiative route again. Working with the first governor in decades who has proposed a solution to this crisis and the many public-interest groups demanding action, I intend to press my former colleagues in the Legislature to enact the fundamental reform California’s auto insurance system so desperately needs. If they fail, an initiative is inevitable--and essential.
