Paying at the Pump Makes Sense : Auto insurance: Several plans would provide universal coverage via a gasoline tax.
Let me reveal my biases up front. Each year, I pay nearly $2,000 for auto insurance to drive a 1990 Ford Taurus perhaps 6,000 miles. That comes to about $6.50 for every gallon of gas I buy.
I spend more for auto insurance than I spend on cars, yet I still can’t afford uninsured motorist coverage. Mostly what I pay for is protection in case I get sued. My own driving record is flawless.
Much has been written lately about California’s inhospitable business climate, which is said to be driving out good firms and skilled people. Although regulations are often cited, the real culprit is high costs, most of which the state can’t control.
But one unsung factor is very much within the power of our elected leaders, and that is the soaring cost of auto insurance.
Californians spend $14 billion a year for this, an average of $904 per policy, which ranks us seventh highest in the country. The high cost of insuring cars is a nasty tax on output in this state, a tax that breeds fraud and erodes competitiveness. To the extent that it helps push the middle class out into the suburbs, where rates are cheaper, it even promotes urban decay.
Not long ago, an elegant solution to the problem of sky-high auto insurance was proposed by financial writer Andrew Tobias. A clever guy, Tobias figured out that if we all paid another 40 cents a gallon for gasoline, it would raise enough for universal auto insurance coverage.
The key would be adopting a no-fault system, meaning, basically, that you can’t sue. Registration and licensing fees could be adjusted to account for riskier cars (and maybe drivers), basic collision coverage would be included, and you’d even be covered out of state for up to 30 days.
For theft coverage, prolonged absences and added collision protection, the marketplace would provide.
Tobias figures that all this would work because of the staggering savings from eliminating selling costs, litigation and fraud, and by getting the uninsured to pony up too.
No one wants to pay more for gas. And not many people pay $6.50 a gallon for insurance, as I do. But the average insured California motorist now pays something like $1.50 a gallon, almost four times what the Tobias plan would cost. Even allowing for higher auto registration fees, the savings would be substantial.
Best of all, the plan relies on the private sector. California auto insurance policies would be grouped into actuarially identical bundles and sold in lots of, say, 5,000, to the same insurers--and perhaps many others--in business today. Competitive bidding would keep down costs.
As a bonus, by raising the price of gasoline the plan would cut down on driving, reduce traffic and smog and sweeten the quality of life. So pay-at-the-pump would improve the business climate in several ways.
State Sen. Art Torres, the Los Angeles Democrat whose constituents suffer high insurance premiums and low incomes, introduced legislation to enact a species of the Tobias plan. The Torres bill wasn’t perfect, but it was a start.
Unfortunately, the Torres bill is basically dead, bottled up in committee even though Torres is chairman of the Senate insurance panel.
I’m convinced pay-at-the-pump is a terrific idea, but you don’t have to agree to recognize that its fate says an awful lot about why the state’s business climate is what it is, and why the Legislature is unable to tackle California’s most important problems effectively.
Understand that the trial lawyers, whose business would be severely curtailed by no-fault insurance, and the insurance industry, which would be reduced to bidding on bundles of policies assembled by the state, wield great influence in Sacramento.
Thus, the Senate Rules Committee referred the Torres bill not just to his own insurance committee, where it logically belongs, but also to the Senate Judiciary Committee, whose chairman, Sen. Bill Lockyer (D-Hayward), is a budding trial lawyer and an opponent of no-fault insurance.
“It’s a commentary that is sad and real on this institution we call the Legislature,” Torres says. “It’s not functioning.”
Neither is the current California auto-insurance system. Despite a legal mandate, easily 25% of California motorists drive without insurance. In cities such as Los Angeles, the proportion is much higher. Most of these people would like to comply with the law, but can’t afford it. Their lack of coverage drives up costs for everyone else.
Pay at the pump is almost a panacea, but not quite. A big factor behind the soaring cost of most insurance in California is the spiraling cost of health care.
According to 1990 data gathered by the National Assn. of Insurance Commissioners, California had the highest average hospital room charges in the country--$452 daily, versus $252 in New Mexico, where Intel Corp. recently announced a major expansion instead of in California. And California ranked ninth in the nation that year in attorneys per 1,000 residents.
Frustrated by legislative gridlock, Torres and Tobias are considering pursuing auto-insurance reform through a ballot initiative. A vote would be required in any case because the state Constitution now requires gasoline taxes to be used for road work.
Let’s hope Torres and Tobias do it. Unlike Proposition 103, which sought to lower insurance rates by incantation, pay at the pump would actually get us somewhere.
Pain and Suffering One reason auto insurance costs so much in California: Cars are getting safer and accident rates are falling, but bodily injury claims are soaring. The chart shows bodily injury claims per 100 accidents generating a vehicle damage claim. By 1989, the latest year for which data is available, California had the worst ratio in the country. Bodily injury claims per 100 accidents in 1989 California: 56 New York: 11.5 Source: Insurance Research Council, Oak Brook, Ill.
