Car insurance chaotic in America

Press, Volume CXI, Issue 32613, 22 May 1971, Page 12

Car insurance chaotic in America

(Newsweek Feature Service)

(By

PETER BENCHLEY)

Almost all American motorists are careful to safeguard themselves with some form of insurance, although only three states (Massachusetts, New York and North Carolina) require it. After all, insurance is just good sense, a prudent investment in protection. But as thousands of motorists have been discovering in recent years, car insurance often offers protection in name only, and all that cash paid out annually for premiums might as well have been dropped down the drain. For the $l6-billion-a-year car-insurance industry is in a shocking state of shambles; Drivers who have never had an accident are suddenly finding their policies cancelled on what appears to be mere company whim. Drivers who have been paying their premiums promptly for 10 years or more file their first claim, only to have their policies abruptly annulled or, in some cases, only to discover that the insurance company is bankrupt. Drivers with legitimate claims against reputable companies have to labour through two, three or four years of legal squabble—-during which they must pay their own medical expenses—before they are forced to settle for a fraction of their claims. In fact, a Department of Transportation study revealed that insurance companies pay off on only 16 per cent of the losses of persons who suffer permanent disability from highway accidents. Jury awards Yet in minor cases, involving claims for $5OO or less, plaintiffs are wheedling awards worth more than four times their just claims out of sympathetic juries. And all the while, premiums keep soaring. Federal Bureau of Labour Statistics figures for last November showed that carinsurance costs have gone up 89.6 per cent since 1959. “It’s a problem of social significance now, not laissezfaire private enterprise,” says Mr Clifford, state insurance commissioner of New Jersey. “When a guy is paying $750 a year to insure a $4OO car that he’s taking to a $125-a-week job, there’s something wrong with the figures.”

Exactly what has gone wrong?

The car-insurance industry argues that rising costs of accidents and injuries have forced them to raise their premiums and to be much more selective about the customers they take on. And the statistics they cite are certainly impressive. Between 1957 and 1969, the annual costs of traffic accidents in the United States jumped from $6.4 billion to $16.5 billion. Yearly car deaths climbed from 38,702 to 56,400; injuries doubled to about five million a year; car thefts tripled.

Automobile parts and mechanics’ labour charges have risen steadily; doctors’ fees rose 55.4 per cent between 1959 and 1969, and the cost of a day in the hospital went up 156 per cent.

But the companies themselves are hardly blameless. Critics note that when a company complains it is losing money because of excessive underwriting claims, it is only telling part of the story. The prime source of revenue in insurance is riot premiums but the income derived from investing those premiums.

So when one company 'reported an underwriting loss of $4 million for 1969, it conveniently neglected to mention that its investments —valued at $2 billion—had returned a neat $BB million in the same year. Furthermore, companies are quick to claim a loss any time they have to pay out more than 40 to 60 cents of each premium dollar in benefits. One recent breakdown of the average premium dollar estimated that 42 cents actually provides benefits to claimants, 24 cents goes for lawyers’ fees and court costs, 18 cents pays for sales, and 16 cents falls under the amorphous umbrella of “other expenses.” According to a group called the Insurance Institute for Highway Safety, there is still another villain of the piece: the automobile industry. Detroit, says the Institute, is tacitly refusing to build safer cars. "It is to "the economic advantage of the manufacturers to continue to make their cars as delicate as possible,” says the institute head, Mr William Haddon, “because this insures not only their income from the metal sculpture incorporated in the new vehicles, but more particularly the income from repeated crashes requiring replacement parts.” A few weeks ago, Mr Haddon presented the Senate Commerce Committee with filmed evidence that in headon crashes at 5 and 10 miles an hour, Detroit's 1971 cars are less crashworthy than 1970’s models. “No-fault” cover But assigning blame does nothing to solve the problem. So in at least 26 states, the White House and the halls of Congress, lawmakers are thrashing out variations on a new concept that may well revolutionise the insurance business; and, more important, actually provide motorists with the insurance they pay for. It may also relieve the civil courts of many of the 200,000 automobile cases that clog their dockets every year. The concept is known broadly as "no-fault” insurance and, very simply, it says that in most automobile accidents the question of who is at fault is irrelevant.

Currently, most states work under the principle of "tort liability,” which means that before any insurance claim can be paid there must be a judgment as to who caused the accident so that the guilty party’s insurance company is forced to foot the bill.

The various no-fault plans argue that regardless of who is guilty, each party’s insurance company should pay for any injuries he sustains, up to a specified amount. If anyone wishes to claim further damages, he retains the right to sue. So far, only Massachusetts has enacted a no-fault law, which automatically awards an injured motorist up to $2OOO for bodily injuries. In addition, the insurance companies will pay 75 per cent of all wages lost during recovery, up to a maximum of $2500.

Since the law went into force on January 1, says Massachusetts Insurance Commissioner, Mr C. Eugene Farnham, its effect has been “staggering," The number of legal claims for bodily injury filed in January of this year was down more than 50 per cent from January, 1970. Similar no-fault bills have been introduced in 25 other state legislatures, but the insurance industry is opposing them. It is against nofault insurance on both moral and practical grounds. But any real revolution must come from Washington, where the Senate Commerce Committee is currently mulling over a Federal no-fault law that may provide benefits up to s3o,ooo.—Newsweek Feature Service.