Pennsylvania Battles Costs By Turning to No-Fault Plan

UNHAPPY motorists in several states are trying to knock down the high cost of auto insurance. But they keep missing the mark. The latest attempt took place in Pennsylvania last week. After more than a year of wrangling over the issue, the legislature passed and the governor signed into law a no-fault insurance plan.

But few observers here, aside from the politicians themselves, say the new law will actually save much money.

No-fault insurance is supposed to be cheaper because it avoids costly legal battles in all but the most serious auto accidents. Under the Pennsylvania plan, motorists can choose to stick with the current system and get at least a 10 percent discount on their premiums. Or, they can waive some of their rights to sue and receive at least a 22 percent discount.

Pennsylvania trial lawyers, insurance companies, and even some consumer groups are very critical of the plan.

``It's just ridiculous,'' says Jeffrey O'Connell, a law professor at the University of Virginia who is generally regarded as the father of no-fault insurance. The new law's no-fault option offers so little that motorists are better off sticking with the traditional court (or tort) system, he says. ``As much as I support no-fault, I would never advise anybody to give up their tort rights for that piddling amount.''

Rising auto insurance costs have fed political pressure to change the system. From 1979 to 1989, the average auto premium rose 120 percent while the cost of living, as measured by the consumer price index, rose only 71 percent. In Pennsylvania, average rates rose three times as fast as the cost of living from 1984 to 1988.

The first public outcry came in California, which rolled back insurance rates in 1988 without changing the system fundamentally. The move incensed insurance companies and has become entangled in a host of suits. Several states have since taken up the insurance-reform banner, including Nevada, Arizona, Michigan, Virginia, Maryland, New Jersey, and Connecticut.

``I think what happened in California shook up a lot of people on both sides,'' says Douglas Quat, a spokesman for the Travelers Corporation, which is moving out of California in protest.

SO far, though, most of the reform legislation has been defeated, frozen in the courts, or watered down.

After reform failed in Arizona last year, Gov. Rose Mofford (D) called a special legislative session to enact a plan. Nothing passed and the Legislature is now grappling with three reform proposals. Arizona had the 12th highest auto insurance rates in 1989, according to A.M. Best Company.

Here in Pennsylvania, with the nation's fifth highest rates, the new plan also caps medical costs - another factor behind soaring insurance rates. From 1977 to 1987, medical costs more than doubled, rising 124 percent, according to the All-Industry Research Advisory Council, an insurance industry research and public-policy organization. The Pennsylvania law will limit costs by allowing insurance companies to pay out for injuries only 110 percent of what Medicare would pay for the same injury.

``Pennsylvania has been down this path of insurance restructuring two or three times before,'' says Vincent Carocci, press secretary for Gov. Robert Casey (D). ``But frankly, this is the farthest we have gone in terms of cost savings.''

But the Pennsylvania Trial Lawyers Association says the plan will be found unconstitutional because it discriminates against poor people, who can't afford to pay the higher rate and retain the right to sue.

The plan could also take away a good chunk of the attorneys' business. Some 20 percent of all bodily injury liability claims paid by insurance companies went to attorneys in 1987, the advisory council reports.

The Insurance Federation of Pennsylvania, meanwhile, is chafing at the 10 percent cut in rates and other provisions, which it says won't be justified by the plan's meager savings. And at least one consumer group, New Start Consumer Insurance Project, says that the extra 12 percent savings for the no-fault option is much too small. In Michigan, whose insurance system most closely resembles a true no-fault plan in the US, a study found that motorists saved 32 percent in 1987 compared with the cost of a traditional system.