Auto Insurance
Economic Scene: No-Fault Rises From the Ashes
THE high price of auto insurance got you down? Join the throng. Premiums rose at three times the rate of inflation in the 1980’s. And in many states – most recently, New Jersey – politicians and voters have declared war on insurers, demanding that they charge less than the market will bear.
Squeezing the insurers might work, argues Jeffrey O’Connell, a University of Virginia law professor and an early champion of “no fault” insurance. But not for long. The right point of attack on insurance inflation, Professor O’Connell says, is its bloated underbelly – the 13 cents of every insurance dollar spent fighting over legal liability in accidents, along with the 23 cents awarded a tiny minority of victims for pain and suffering.
His latest fix is a variation on no-fault insurance, which has generated disappointingly modest savings in the past. But the O’Connell plan offers a distinction with a big difference – one that could cut average premiums by a whopping 30 percent, yet preserve the rights of those determined to have their day in court.
The prime reason auto insurance is expensive is that accidents are expensive. “Cars cost a lot of money to repair,” Professor O’Connell points out, “and so do humans.”
Fiercer regulation might force the most torpid insurers to trim costs and the most efficient to settle for smaller profits. But there simply is not enough fat in auto insurance, he says, to pacify long-suffering policyholders: According to a 1990 study by McKinsey & Company in San Francisco, increases in insurers’ administrative costs and insurers’ earnings have actually trailed inflation. The practical alternative, Professor O’Connell argues, is to allow drivers to protect their incomes and property without relying on the hit-and-miss justice of the tort liability system.
More : query.nytimes.com
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