Congress Tries to Pare Auto-Insurance Costs

A bipartisan group in Congress has put forward a plan designed to cut Americans' auto-insurance rates by $45 billion a year - an average of $243 per driver.

The proposal does that, say sponsors of the Auto Choice Reform Act, by giving drivers nationwide the option of participating in traditional auto insurance or choosing a "no-fault" policy.

"This is a really sensible idea," Sen. Joseph Lieberman (D) of Connecticut said during a Senate hearing on the measure last week. "The potential here for savings is enormous."

The traditional insurance system allows drivers to sue each other and each other's insurance companies to determine fault and assess damages for "pain and suffering." Change is needed, the bill's sponsors say, because this tort-based system costs consumers too much, clogs up the courts, and funnels huge sums of money away from victims and into the pockets of trial lawyers.

But no-fault insurance is not a new idea - and critics say that in states where it has already been implemented, motorists have seen their premiums rise faster than they would have under the tort-based insurance system.

"After nearly 25 years of experimentation with no-fault ..., the only conclusion that can be drawn is that this grossly unfair system is an absolute failure," says Harvey Rosenfield, architect of California's Proposition 103, a 1988 ballot initiative that rolled back auto-insurance rates and slapped strict controls on insurance companies doing business in the state.

The bill gives drivers a choice: They can stay in their state's traditional program and retain the right to sue for pain and suffering. Or they can choose a "personal-protection system," in which they trade the right to sue in return for prompt reimbursement of economic losses as outlined in their insurance policy - a system usually referred to as no-fault.

A state could adopt the bill as its own insurance law or exempt itself from the provisions. State officials could also exempt their states if they find the no-fault program would not reduce rates at least 30 percent for people with the personal-protection system.

IT'S this partial preemption of state law that alarms opponents, including some states-rights advocates. While no state would be compelled to adopt the measure, these opponents worry the bill might be only the beginning of federal meddling in an area traditionally reserved for the states.

But supporters believe no-fault is the best way to control ever-rising auto-insurance costs. "The culprits behind the high cost of auto insurance are expensive, excessive pain-and-suffering lawsuits and the rampant fraud and abuse that too often accompany those suits," says House majority leader Dick Armey of Texas, a bill cosponsor in the lower chamber. "Between 1987 and 1994, these forces combined to drive rates up 44 percent - 1-1/2 times the rate of inflation."

Both sides cite studies to back their positions. Bill supporters point to a 1995 report by the California-based Rand Institute for Civil Justice, which shows that individuals suffering less than $5,000 in economic losses often get two to three times the amount of their losses under the conventional insurance system. On the other hand, those with economic damages of more than $100,000 often receive only 9 percent.

But a joint study by Mr. Rosenfield's Proposition 103 Enforcement Project and Public Citizen, a national consumer group founded by Ralph Nader, concludes that no-fault states have the highest average insurance premiums - and the premiums are rising 25 percent faster than in other states.

Financial adviser and author Andrew Tobias, who supports the bill, says no-fault has not been fairly tested. Only Michigan has a true no-fault system that prevents most drivers from suing for pain and suffering, he says. And only Michigan offers unlimited medical benefits and "significant" wage-loss protection.

"If this [proposal] is a terrible choice and doesn't save people money, people won't choose it," he says.