For thirty years a handful of die-hards has tried to sell state governments on the idea of no-fault auto insurance. Having enjoyed little success in state capitols, they've now dressed up the old wine and put it in a new bottle labeled "auto choice."
With the help of politicians like Rep. Dick Armey (R-TX) and Senator Mitch McConnell (R-KY), they are trying to push a federal no-fault bill through Congress.
Federal choice no-fault is a radical departure from the established public policy that insurance regulation is best left to the states.
By federal mandate, no-fault coverage would have to be offered to every driver in the nation. This would be true even in those states (the majority, incidentally) where voters have determined that no-fault is unwelcome.
States may opt out of the plan, but why should state legislatures have the no-fault issue forced upon them by Congress in the first place?
THOUGH IT PROVIDES no funding, the legislation mandates that each state's Commissioner of Insurance maintain a program for "adequately" informing consumers about comparative costs of insurance under no-fault and alternative systems. Commissioners must also "adequately" inform consumers about "the benefits, rights, and obligations of insurers and insureds under each system" in their respective states. "Adequately" is undefined.
OTHER ASPECTS of the legislation would have a dramatic, negative impact upon state laws that provide discounts for good drivers, hold agents and insurers responsible for explaining coverages truthfully, prohibit arbitration clauses in personal insurance policies, and establish certain standards of conduct for the way insurers must treat their insureds.
A National Association of Insurance Commissioners' analysis of the legislation candidly stated the challenge for state governments: "Does a state have the right to choose what type of auto insurance system it will impose upon its citizens?" Under "choice" no-fault, the answer is no.
The conclusion must be that federal "choice" no-fault would seriously undermine state regulation.
SPONSORS of federal no-fault obscure the states' rights issue by sugarcoating their proposal with the claim that it will cut car insurance costs so much it will be "the equivalent of a tax cut."
However, the bill's only cost reducing factor is a provision requiring that a driver's health insurer be primary in paying medical bills attributable to auto accidents. In other words, the only way the bill lowers costs is through a plan conventionally known as "robbing Peter to pay Paul."
A STATE-BY-STATE examination of average premium costs for car insurance further demonstrates that average premium costs in no-fault states consistently exceed comparable costs in states retaining traditional tort based systems.
Indeed, two states with the highest costs, New York and New Jersey, are no-fault states.
Recognizing that no-fault systems are too costly, Georgia (while I was Commissioner of Insurance) and Connecticut repealed theirs enabling motorists in both states to lower their auto insurance costs. (Georgia's repeal, by the way, came I was state commissioner of insurance.)
AT A TIME when states are cracking down on drunk and reckless driving, it is ironical that members of Congress embrace legislation counteracting what states are doing to encourage safer driving habits.
No-fault systems encourage negligent behavior according to William L. Landes and Richard A. Posner, authors of The Economic Structure of Tort Law.
According to Landes and Posner, traditional tort systems, which assess fault, provide incentives for personal responsibility, thereby reducing the number of fatal accidents.
A summary of studies reported in the UCLA Law Review in 1994 found that both auto fatalities and incidences of drunk driving increase in no-fault states, principally because negligent drivers no longer must pay for reckless behavior.
The conclusion is that no-fault discourages a sense of personal responsibility on the roads and forces good drivers to pay for bad drivers. That's not a good choice.
ADVOCATES of federal regulation of car insurance argue that no-fault is tort reform, a means of ending big pain -and- suffering awards when careless drivers maim and kill on our highways.
Perhaps I have missed something in my years as a regulator and litigation support expert: Where are these big pain -and -suffering awards? Yes, there have been big awards involving defective vehicles and tires.. But big awards in plain old car insurance are rare. They are so rare that I have never known of an insurer's attempt to justify a rate increase with evidence of pain -and -suffering losses.
My hunch is that if insurers were required to isolate such claims, the losses paid for "big pain -and -suffering awards" would be miniscule.
The conclusion is that "choice" proponents are misleading people by promoting a "cure" for the wrong ailment. Auto insurance claims are very different from product liability litigation.
FINALLY, "choice" advocates seem to have misjudged our time and our era.
Because of regulatory pressures, an aging population, safer cars, better returns on invested premium dollars and other factors, insurers everywhere are reducing auto insurance rates.
The old way of doing things, state by state, is alive and working well. That's as it should be.
TIM RYLES is former Commissioner of Insurance for the State of Georgia. He is president of an insurance litigation support company, Ryles Consulting, in Newborn, Georgia. His views are not necessarily those of Bridge News.
