Auto Insurance
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The offices of State Attorney General Louis J. Lefkowitz and the State Insurance Department are being inundated by a wave of consumer complaints about insurance companies’ unwillingness to renew automobile policies.
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INSURANCE RATES ON CARS DISPUTED; Pennsylvania Official Says Companies Pick Clients
The automobile insurance industry’s contention that inadequate rates had necessitated “pick-and-choose” underwriting practices was challenged today at a Senate hearing. [
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Buffett Moves To Acquire All of Geico
Warren E. Buffett is returning his focus to one of his earliest successes. Berkshire Hathaway Inc., which he controls, announced a $2.3 billion cash offer yesterday to buy the 49 percent of the Geico Corporation it does not already own.
Geico, the country’s sixth-largest car insurer, has been a solidly profitable company in recent years with a good record for low losses and low expenses in comparison with others in its business. These results have been possible because the company bypasses agents, selling directly to the consumer, concentrating on low-risk drivers.
For Mr. Buffett, the renowned investor, the cash offer was for the company that caught his eye more than four decades ago. “In 1951, when I was 20, I invested well over half of my net worth in Geico,” Mr. Buffet said. In the mid-1970’s, when Geico was reeling from heavy losses, Mr. Buffett sharply increased his investment, which rose in value many-fold as the company recovered.
In yesterday’s announcement, Mr. Buffett did not elaborate on his views of Geico or the auto insurance business in general, except to say that he was happy with the old investment and “equally comfortable” with the new purchase.
Ira Zuckerman, an insurance analyst at UBS Securities, said the Geico investment could be an indirect result of the Walt Disney Company’s $19 billion bid to acquire Capital Cities/ABC Inc., in which Berkshire Hathaway owns 20 million shares. That stake would be worth $1.5 billion if all the shares were sold to Disney.
“There is a big chunk of cash coming in from the Cap Cities/ABC shares that has to be redeployed,” Mr. Zuckerman said, “and I think that he looked around and decided he did not see anything that was more attractive than the Geico business, which he already knows.”
The Berkshire Hathaway offer of $70 a share was 26 percent higher than Thursday’s closing price for Geico of $55.75. Geico stock closed yesterday at $68.625.
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Rise in Auto Insurance Minimums Is Voted
As they sped toward their summer recess, state lawmakers today approved the first mandatory increase in minimum automobile insurance limits in nearly 40 years, a measure that would provide greater protections for accident victims but would drive up premiums for every driver in the state.
Also today, after hours of chaotic negotiation and intense lobbying, the Republican-led Senate and the Democratic-controlled Assembly passed a resolution that could start New York down the path toward legalized casino gambling. [ Page B6 ] .
The Senate majority leader, Joseph L. Bruno, a Rensselaer County Republican, and the Assembly Speaker, Sheldon Silver, a Manhattan Democrat, had agreed on Wednesday to language for a constitutional amendment that would end the state’s century-old prohibition against casinos.
But Mr. Bruno had trouble through much of today putting together the votes needed to pass the legislation. Only after cajoling more than a dozen members to change their positions was Mr. Bruno finally able to put the resolution on the floor, narrowly avoiding a major embarrassment for the leadership.
With the 1995 session expected to end tonight or Friday, many legislators still said they expect to be back in the fall for a special session.
A number of significant blls died today for lack of a consensus between the two houses, including proposals to require disclosure of H.I.V. test results for newborns, to force insurance companies to pay for experimental drug treatments for patients with cancer or AIDS, to raise the state’s minimum wage above $4.25 an hour, and to provide property tax incentives for new development in lower Manhattan.
The lower Manhattan bill had strong support from Mayor Rudolph W. Giuliani but apparently was killed by Mr. Bruno because the bill’s sponsor, Senate Minority Leader Martin Connor of Brooklyn refused to provide Democratic votes for the casino gambling resolution.
Both houses did pass legislation that would require health maintenance organizations to offer individual subscribers a choice between two standardized coverage plans. The bill is supported by Gov. George E. Pataki.
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Economic Scene
IS a revamping of the civil justice system another one-day wonder, an issue that lets politicians tut-tut over waste, fraud and abuse before it is nibbled to death by lobbyists?
It certainly is looking that way, as Congressional Republicans shuffle toward unambitious limitations on shareholder suits and product liability and President Clinton threatens to veto almost any change of substance that hits his desk. But there is one area of civil justice that could win political points for Republicans long after the public has moved on to fresher outrages: auto insurance overhaul.
Indeed the potential political gain is magnified by evidence of the link between auto insurance revisions and medical care costs. As a new study by the Rand Corporation’s Institute for Civil Justice suggests, changes in incentives to overuse medical care after auto accidents could prove crucial in meeting the Republican commitment to balance the Federal budget.
While accident rates are stable, there are still lots of reasons why auto insurance premiums have gone through the roof in the last two decades. Cars cost more to fix and medical care is costlier. And on the whole, Americans are more inclined to sue each other. But the monster in the auto insurance box is the growth in successful claims for intangible injuries – what lawyers call pain and suffering.
Newly published estimates by Rand break down by state the potential savings from prohibiting the recovery of damages for pain and suffering. Drivers in Connecticut, Hawaii and Massachusetts would see their premiums fall by 40 percent or more. Even New York, which limits access to juries by means of a tough “no fault” law, stands to save 35 percent. Over all, the potential saving is 31 percent of auto insurance premiums – some $26 billion annually.
Pain and suffering suits have an unintended side effect that has only recently been highlighted by Michael Horowitz of the Hudson Institute and Jeffrey O’Connell of the University of Virginia Law School. In less-than-catastrophic injury cases, they argue, claimants often run up big medical bills because their lawyers have learned that settlements for pain and suffering are generally figured as a multiple of medical expenses. Rand estimates that in 1993 more than one-third of claimed medical costs were fraudulent, adding $4 billion to the nation’s health care bill and $9 billion to $13 billion to payouts for pain and suffering as well as legal fees.
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New Car Insurance Law Requires New Decisions
CONNECTICUT motorists face new decisions when they buy automobile insurance and more risk of detection if they drive without insurance.
The Auto Insurance Reform Act, which took effect Jan. 1, repeals mandatory no-fault coverage and changes the way uninsured-underinsured motorist coverage works. Regulations establish computerized tracking of – and new penalties for – people who cancel or fail to renew their auto insurance.
“Everyone must make educated, informed decisions,” a Bridgeport lawyer, Dominick Esposito, said. He belongs to the Connecticut Trial Lawyers Association, which pushed for passage of the legislation.
“People have to become sophisticated buyers,” the president of the Professional Insurance Agents of Connecticut, Robert B. Gyle, said. That organization lobbied to get uninsured drivers off the roads and to eliminate stacking, or cumulative uninsured-underinsured motorist coverage, but not to eliminate no-fault, he said. ‘There’s Confusion’
So far, “there’s confusion,” the manager of the insurance office of the Automobile Club of Hartford, James Daniel, said. He cited calls from people still covered by the old-style policies they bought last year, but baffled about what to do when they renew this year.
Under the old law, every automobile insurance policy sold in Connecticut included no-fault coverage. If you were injured in an accident, your insurer paid your medical bills (up to $5,000) and lost wages (up to $200 a week). If another driver was at fault, you could seek additional payment from his or her insurer once you had medical bills over $400. The figures, set in the 1970’s, were widely recognized as unrealistic for the 1990’s.
Under the new law, if you are hurt in an accident caused by another driver, you seek payment from that driver’s insurer. If you cause an accident, you use your own medical insurance to pay for your medical treatment. ‘More of a Fair Shake’
The Connecticut Citizen Action Group strongly supported the legislation. “This gives consumers more of a fair shake,” the group’s lobbyist, Gregg Haddad, said. “People can elect coverage that reflects other coverage they already have.
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Major Insurers May Pull Out Of New Jersey
Companies insuring almost a third of New Jersey’s drivers are considering withdrawing from the state, escalating the battle over auto insurance, which continues to be one of the most charged issues in a state with the highest premiums in the country.
American International Insurance Company of New Jersey, a subsidiary of the giant American International Group, said today that it had filed documents requesting approval to close shop in New Jersey, where the company insures about 4 percent of the 4.8 million vehicles in the state.
The news of the company’s request came a week after the State Farm Indemnity Company, New Jersey’s largest insurer of drivers, said that it planned to withdraw from the auto insurance business in the state, where it insures 17 percent of the market.
Meanwhile, the Liberty Mutual Group, with 11 percent of the state’s business, said through a spokesman today that it, too, was looking toward the exits.
‘’It is nearly impossible for an insurance company to make money in New Jersey,'’ said Glenn Greenberg, a Liberty Mutual spokesman, ‘’and no company, understandably, wants to continue in a market where a financial loss is guaranteed. We are considering all our options.'’
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Pataki’s Foes Act to Exploit Insurance Issue
The high cost of auto insurance, an issue that nearly cost Gov. Christine Todd Whitman of New Jersey her job last year, appears on the verge of becoming a major theme in New York’s gubernatorial campaign, with Democrats blaming Gov. George E. Pataki for high rates.
Now that New Jersey has mandated a 15 percent cut in rates, New York is about to overtake its neighbor as the state with the nation’s highest auto insurance premiums, having risen from sixth place in 1993. Some Democratic strategists say that New York’s dubious new ranking could help give the issue the same political potency here that it proved to have last year in New Jersey.
All four Democratic candidates for governor have recently begun attacking Mr. Pataki, a Republican, over auto insurance prices, and the two front-runners in the polls, Peter F. Vallone, the New York City Council Speaker, and Lieut. Gov. Betsy McCaughey Ross, plan to release within the next few days their own plans for lowering rates.
‘’I'm not going to let this thing rest,'’ Mr. Vallone said in an interview. ‘’I'm going to go after it tooth and nail.'’
Insurance companies make for easy political targets, as attacks on health insurers across the country have shown, and auto insurance as a powerful issue dates back a decade, to Californians’ approval of a 1988 ballot initiative that ordered a rate rollback. For Democrats in New York, taking on auto insurers has the added benefit of playing into their claims that Mr. Pataki has been too cozy with big business.
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19 Are Accused of Running Auto Insurance Fraud Ring
Calling to mind images of ruthless personal injury lawyers chasing ambulances and waving neck braces, law enforcement officials announced yesterday that they had foiled a complex automobile insurance fraud ring in Queens and Nassau County.
The participants, the authorities charged, used illegal methods to find victims of minor accidents and then pressed them to falsify or exaggerate injuries in order to file bogus insurance claims.
The officials arrested 19 people and charged them with conspiring to defraud several insurance companies, including Geico, Allstate and Travelers.
The arrests were a result of an investigation conducted by the New York State attorney general, Eliot Spitzer, and several law enforcement agencies. The 19 people, including local lawyers, insurance brokers and operators of medical clinics, were charged with conspiracy to commit insurance fraud. The charge carries a maximum penalty of four years in prison.
Among those charged were several people the authorities say acted as middlemen, including retired police officers, who were paid by lawyers to find accident victims.
The authorities say the middlemen paid insurance brokers to obtain the names of clients who had recently reported automobile accidents. According to the charges, the middlemen, posing as hospital officials, called the victims and directed them to seek medical care at clinics run by their co-conspirators, and also steered the victims to specific personal injury lawyers, who in turn paid the middlemen for the ‘’referral.'’
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No - Fault Car Insurance May Set Off a Long Debate
Instead of settling the issue, the no-fault auto insurance bill passed last week by the New Jersey Legislature is expected to inspire heated debate for some time to come
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