Auto Insurance
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One day before a rally planned by drivers demanding lower insurance rates, Gov. Christine Todd Whitman announced today that she would temporarily abandon her proposal to offer motorists less coverage for lower rates and move ahead with other parts of her plan certain to win quick approval in the Legislature.
To help defuse anger among voters frustrated by the nation’s highest auto insurance bills, Governor Whitman and Republican legislative leaders said they would end automatic annual insurance-rate increases and surcharges for drivers ticketed for traffic violations.
They also said they would enact tough laws to combat fraud and abuse and halt the practice of insurance companies dropping good drivers for no reason.
The agreement with Republican legislative leaders, however, would not lead to a major reduction in insurance rates. It does not include the centerpiece of Governor Whitman’s proposal to reduce auto insurance bills: giving motorists the option of lowering their rates by choosing less coverage that would include forfeiting the right to sue for pain and suffering.
Just last month, Governor Whitman said she did not want to ‘’cherry-pick'’ her 120-page legislative proposal for a ‘’quick hit.'’ But with her proposal facing a battle in the Legislature, she agreed not to pursue that part of her plan until after this fall’s gubernatorial and legislative elections.
‘’I remain committed to giving New Jersey drivers the true choice they are entitled to,'’ Governor Whitman said at a late-afternoon news conference. ‘’But clearly, New Jersey drivers deserve help as soon as possible. Just because we may not be able to get everything done right away doesn’t mean we can’t get anything done.'’
The announcement came a day after her $2.75 billion borrowing plan for the state pension system was dealt a legislative setback in the Senate and a day before drivers plan to rally outside the State House to protest New Jersey’s high auto insurance rates.
Mrs. Whitman said that today’s announcement was not intended to blunt the impact of the rally, but she said that it was important for people concerned about the issue to know that her administration and the Legislature were moving ahead to provide some relief.
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Premium Shock
ON a gloomy day in April, Paul Pugliese strapped a wooden barrel around his nearly naked body, glued an auto inspection sticker to his chest and headed to a protest rally at the foot of the State House steps.
For years, Mr. Pugliese, of Long Branch, had paid more than $2,000 a year to insure his 1992 Toyota Tercel and 1981 Chevy van. The barrel, he said, would soon be all he could afford to wear if nothing was done to bring down his rates.
The rally drew hundreds of angry drivers to Trenton. They wanted Governor Whitman to know their disgust at paying the nation’s highest average car insurance rates. Later that day, the Governor said she understood. After all, she and her husband, John, who live on a farm in Hunterdon County, where premiums cost less than in most other counties, paid $2,533 a year to insure a 1993 Volvo 850, a 1992 Mercury Sable and a 1990 Ford pick-up.
But the Governor’s sympathy is not enough for frustrated drivers in this largely suburban state, who have little choice but to own a car because even the local market may be miles away.
Motorists here open their insurance bills each year to find premiums that seem almost haphazard in their calculations. A traffic ticket, a move to a city or a teen-ager who begins to drive can add hundreds or thousands of dollars to the bill.
And then there are drivers who may be paying thousands of dollars more than they need to, simply because they did not shop around.
For example, a couple in Jersey City with a 1995 Pontiac Grand Am and a 1990 Chevrolet Astro van may be offered rates ranging from $1,439 to $3,709 for the same coverage, their final premium depending on which insurance company they happen to call.
But whatever the variations, one thing is clear: the average cost of auto insurance in New Jersey is now more than 50 percent higher than the national average.
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FUND IS OPPOSED ON AUTO INSURANCE; Casualty-Surety Group Sees ‘Creeping Socialism,’ Says Dineen Has Ample Power
The proposal to create a State motor vehicle security fund, which would guarantee performance on all automobile insurance written in New York State, will meet, with substantial opposition now just coming to a head, it was learned today.
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Insurers’ Suit Accuses Doctors of Fraudulent Billing Scheme
Four major insurance companies have filed a joint lawsuit against a group of doctors – including one whose license was revoked three years ago – charging that they sold their names and licenses to chiropractors and other health care workers to steal insurance money.
The lawsuit, filed yesterday with the State Supreme Court in Manhattan, describes a complicated scheme to bill insurance companies through 47 fake medical professional corporations, most of which were set up in New York. Under the scheme, the lawsuit says, doctors lent their names to the medical corporations, where people without medical licenses, like chiropractors and physical therapists, would then practice. Those health care workers would then bill for medical services at the rates doctors would charge.
The suit, which identifies more than 15 doctors among 100 defendants, says the scheme had six masterminds: two doctors from New Jersey; two from Connecticut, one of whom had a license at one point in New York; and one each from Maryland and Virginia. Twenty chiropractors and 15 management companies were also named in the suit.
Under New York law, only licensed medical doctors can own medical corporations. What is more, doctors are allowed to bill at a much higher rate than chiropractors and other health care workers, which is why those accused in the scheme would have needed the doctors’ names to set up shop. Under the terms of the deal, the suit says, the doctors who lent their names were absolved of any actual responsibility for the corporations, including providing care in them.
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Happier Motoring: Choices in Buying Insurance
The proposal from Gov. Christine Todd Whitman of New Jersey last week to allow motorists to buy no-frills, no-fault auto insurance that could pare premiums by as much as one-fourth was a strong endorsement for a fledgling idea that has been unable to take flight nationally. The idea is known as auto choice, and the seal of approval from an adroit Republican who has her sights on bigger things, may finally be the step that lifts it off the ground.
‘’Once people understand auto choice means lower premiums and better coverage, it’s a no-brainer,'’ argues Peter Kinzler, director of the Coalition for Auto Insurance Reform, an ad hoc group of consumer activists that operates without funds from the insurance industry.
From the perspective of reformers, the Whitman endorsement could not come at a more opportune time. Next week Mr. Kinzler’s group, along with the University of Wisconsin’s Auto Compensation Project, is sponsoring a conference in Washington to highlight the virtues of auto choice and to publicize the introduction of legislation by Senators Joseph I. Lieberman, Democrat from Connecticut; Daniel Patrick Moynihan, the New York Democrat, and Mitch McConnell, Republican from Kentucky.
One reason auto insurance is so expensive is that it costs a fortune to determine liability in court. Plaintiffs’ lawyers typically take one-third to one-half of any compensation. Moreover, the ability to sue for payoffs far exceeding injury victims’ medical bills and lost wages encourages fraud. In 1995 Louis J. Freeh, the Director of the Federal Bureau of Investigation, estimated that fraud added $200 to the average household’s insurance cost.
No-fault insurance, requiring insurers to cover their own clients’ economic losses regardless of fault and permitting suits only when injuries are severe, was supposed to contain this colossal waste. But trial lawyers have maintained the upper hand by keeping it relatively easy to get to court in most states.
Stricter no-fault laws that barred all suits against offending drivers whose behavior is short of criminal would do the trick. But this approach is a nonstarter, in no small part because of opposition from Ralph Nader, who sees no-fault as an unacceptable interference with every American’s right to a day in court. That’s where auto choice fits in.
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Robert A. Beck, 71, Dies; Former Head of Prudential
Robert A. Beck, who rose from door-to-door selling to the top position at the Prudential Insurance Company of America, died yesterday at his home in Vero Beach, Fla. Mr. Beck, who also had a home in Rumson, N.J., was 71.
The cause was cancer of the esophagus, his son, Stephen, who lives in Manhattan, said.
In nine years as chairman and chief executive of the nation’s largest insurance company, beginning in 1978, and as president for four years before that, Mr. Beck played a leading role in the expansion of Prudential’s operations beyond its traditional life insurance base.
He took the company into residential home sales and the credit card business and broadened its operations in group health insurance, homeowners’ and auto insurance and reinsurance, which is sold to other insurance companies. He also directed the purchase in 1981 of the Bache Group Inc., parent of Bache Halsey Stuart Shields, then the nation’s eighth-largest brokerage firm, now known as Prudential Securities.
Mr. Beck shifted much of Prudential’s corporate authority to its headquarters in Newark and vicinity and away from the company’s regional offices. All the while, he was a relentless cheerleader for the Prudential salespeople, who looked to him as one of their own.
In the early 1990’s, the company was staggered by a scandal in Prudential Securities and, later, by lawsuits contending that for 13 years, beginning in 1982, during Mr. Beck’s tenure, the company had been enticing life insurance customers to replace old policies with new ones – a practice called churning – in which the main beneficiaries were Prudential and its agents.
Prudential Securities was accused of misleading clients, many of them elderly and with modest nest eggs, selling them investments in high-risk, limited partnerships; it eventually paid $1.5 billion in fines, compensation and legal fees. In a settlement on the insurance case, Prudential agreed to pay at least $410 million in compensation to policyholders, and some analysts say the cost could go as high as $2 billion.
In the insurance complaints, Prudential was not alone. Scores of life insurance companies have been sued, accused of misleading customers in the 1980’s and early 1990’s. Executives who worked with Mr. Beck contend the troubles in the securities and insurance operations were unlikely events to have taken place on his watch.
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Car Insurance Rules for Accident Claims Will Become Stricter on Sept. 1
Stricter no-fault auto insurance regulations that the Pataki administration says are needed to fight fraud are to go into effect in New York State on Sept. 1. They will sharply reduce the time limit for accident victims to notify insurance companies and for doctors to seek payment for treatment.
An attempt to put the tighter deadlines into effect last year was blocked by the courts in a lawsuit by legal, medical and consumer groups. They had argued that the shorter periods would penalize honest victims and medical providers and fail to deter fraud. Several of the groups said yesterday that they still held that view and were seeking to determine if they had a basis to challenge the regulations in court again.
The administrative rules decrease to 30 days from 90 the period an injured party has to report an accident to the proper insurer, and to 45 days from 180 the period for doctors to submit compensation claims.
All policies written on or after Sept. 1 will carry the tighter deadlines. Policies now in effect will retain the old deadlines until renewal.
The state’s previous attempt to put the tighter deadlines into effect was blocked by a state judge in Manhattan on procedural grounds, including the State Insurance Department’s failure to show that the new regulations would reduce fraud and failure to pursue possible alternatives toward meeting that goal.
The department now says it has taken steps to overcome those objections and has addressed other criticisms that opponents of the new rules had cited in arguing that the rules did not sufficiently protect the interests of accident victims and medical providers.
The tighter deadlines are a major part of Gov. George E. Pataki’s package to deal with sharply rising auto insurance rates in the state, which could become a major issue in next year’s state elections; the governor is expected to seek a third term. Mr. Pataki is also seeking legislation to increase criminal penalties for no-fault insurance fraud.
In a common kind of fraud, rings of medical providers and accomplices who pose as victims of staged accidents claim payments for treatment. Insurers say rising fraud is a major reason for proposed premium increases that many companies are seeking. The companies say they need the increases to cover the costs of fraud.
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Whitman Restates Pledge On Taxes and Insurance
Gov. Christine Todd Whitman used her first major speech since her narrow re-election victory last fall to reassure New Jersey voters today that she would address their concerns over paying the country’s highest property taxes and auto insurance rates.
In her annual address to the State Legislature, Mrs. Whitman set a March 30 deadline for passage of a bill that would reduce auto insurance rates, but she offered no specifics. On property taxes, she proposed requiring municipalities to win voter approval for tax increases above the rate of inflation. She also called for major changes in the Civil Service system, including giving cities and towns the option of abolishing Civil Service rules.
But she cautioned that New Jerseyans would have to consider giving up the state’s cherished tradition of local control in exchange for lower property tax rates. She called for a statewide referendum for voters to determine whether they wanted New Jersey to consolidate and merge some of the state’s 616 school districts to help reduce the biggest part of property tax bills: the cost of public schools.
‘’I have long opposed the forced regionalization of schools,'’ Mrs. Whitman said. ‘’Regionalization won’t work if the people of New Jersey don’t want it. So it’s time to find out how New Jerseyans feel about it. We need to discuss whether we’re willing to give up some degree of local control of our school districts for significantly lower property taxes.'’
She also urged that parents and taxpayers get more for their money from public schools. The Governor proposed a pilot project that would allow parents to send their children to public schools outside their school districts. She called for the elimination of tenure for principals. She also suggested extending the amount of instructional time that the state requires from four to six hours a day.
Mrs. Whitman’s 34-minute address outlining her legislative priorities for the year is the first of three major policy speeches that she is to deliver in the coming weeks. She is expected to offer her vision for a second term during her inauguration ceremony next week and her spending priorities for the year when she unveils her proposed budget next month.
She drew the loudest applause from the hundreds of supporters and politicians who packed the ornate chambers of the General Assembly when she referred to the court battle with New York State over Ellis Island. She said that New Jersey has been shaping the future of the country since its earliest days, at ‘’the entrance to America, Ellis Island, New Jersey.'’
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Auto Insurance Rate Rises Halted
The California insurance commissioner today barred automobile insurers from raising their rates for six months while the state grapples with how to put into effect a rate-cutting initiative approved by voters last year.
The California insurance commissioner today barred automobile insurers from raising their rates for six months while the state grapples with how to put into effect a rate-cutting initiative approved by voters last year.
Commissioner Roxani Gillespie took the action after the Farmers Insurance Group, one of the state’s largest auto insurers, said last week that it would raise its rates 5.9 percent on Nov. 1, and other insurers indicated they would follow suit. Farmers was the first big automobile insurer in California to seek a rate increase since the passage of the initiative 11 months ago.
Ms. Gillespie said the freeze would protect consumers while the California Department of Insurance sorted out the confusion surrounding the initiative, which mandates a 20 percent rollback in auto and other property and casualty insurance premiums in California. A number of legal issues are blocking the rollbacks.
The initiative has been closely watched by insurance companies and consumer advocates nationwide, who say it is spurring rate-cutting movements in other states with high insurance premiums. Fair Rate of Return
After a legal challenge by several insurance companies, the California Supreme Court upheld the initiative in May, but at the same time said insurers should be exempted from the rollback if it denied them a fair rate of return. The court did not define what constituted a fair return, and much of the legal maneuvering since then has centered on that question.
Ms. Gillespie said at a news conference in San Francisco today that a final definition of a fair return would be formulated in public hearings that begin Oct. 30.
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Talking Business with Hedien of Allstate Insurance; Insurers Tackle California’s Law
A representative of the Allstate Insurance Company will be the lead-off witness this week in the first public hearing by the California Department of Insurance on how large a return auto insurers should be permitted to earn under Proposition 103. That new law, enacted by voters in November, mandates an across-the-board rollback in auto-insurance premiums.
A representative of the Allstate Insurance Company will be the lead-off witness this week in the first public hearing by the California Department of Insurance on how large a return auto insurers should be permitted to earn under Proposition 103. That new law, enacted by voters in November, mandates an across-the-board rollback in auto-insurance premiums.
Consumer groups and industry representatives are expected to square off at the hearing, with consumer advocates contending that insurers have been overcharging motorists for years in California, where a simple auto policy can cost thousands of dollars a year. Insurers are likely to counter that California has turned into a morass for them, with profits whittled away by large jury verdicts in personal-injury cases and skyrocketing medical costs.
Wayne E. Hedien, the chairman and chief executive of Allstate, a unit of Sears, Roebuck & Company, discussed the issues in a recent interview. Q. Allstate has sought permission to earn a 17 percent return on its investment in California. How did you arrive at that? A. If you look at the returns necessary to attract capital for industry in general, you start off requiring a base return of 8 percent to 9 percent. To that, you must add a generalized risk factor that the stock market demands; that could be another 6 percent to 8 percent. Finally, you must add a couple of percentage points to account for the added risk of being in the property and casualty insurance business. It is not a question of our going broke in California. It is not a question of our solvency. It is a question of providing large enough returns to satisfy investor demands. Q. You have said that more is at stake in California than the health of auto insurers.
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