Despite several rounds of reform across the country, auto insurance rates continue to climb and car owners are madder than ever.
Nationally, auto insurance premiums per passenger vehicle rose an average of 47 percent from 1984 to 1988, the latest year for which figures are available. Ten states and the District of Columbia experienced increases of more than 60 percent."There's a major consumer revolt going on, particularly in places with big cities," says Robert Hunter, president of the National Insurance Consumer Organization.
Insurers say premiums outpaced the consumer price index because of steep increases in auto repair and replacement costs, health-care costs and attorneys' fees. They also blame a sharp increase in auto thefts and a growing number of uninsured drivers who force higher costs on those who are insured.
Consumer groups concede that these factors drive up insurance costs and that some companies might lose money on auto insurance in some years.
But consumer activists say the real culprits are the industry's inefficiency and quest for more investment income; the lack of strong government regulation; state and federal antitrust exemptions that allow insurers to share cost and rate information; and a system that relies too heavily on litigation.
Several states have followed the lead of a 1988 California initiative and tried to force rollbacks of auto insurance rates. Others are eyeing tougher "no-fault" laws. Some consumer advocates are urging Congress to eliminate the federal antitrust exemption.
Insurers expect more turmoil. "I see continuing movement in a lot of different directions," says David Snyder, a counsel to State Farm insurance and former counsel to the American Insurance Association.
Rate rollbacks are controversial even among those who take a consumer's viewpoint.
Jeffrey O'Connell, a University of Virginia law professor who helped popularize the no-fault concept in 1965, thinks it's ludicrous for lawmakers to try to cut consumer prices.
"It would be nice if we could have cheaper furniture," he says, "or picture-framing or cars or clothes. But anybody who knows anything about economics knows you can't pass a law saying you must roll prices back without doing anything about the underlying costs."
A more effective way to lower the price of insurance and promptly pay accident victims, O'Connell says, is through no-fault insurance.
Such plans allow policyholders to recover actual financial losses from their own insurance companies, regardless of fault. While this can speed reimbursement for injuries, the trade-off to keep costs down is that policyholders are usually limited in their rights to sue for "pain and suffering" - emotional trauma and non-economic damages.
The nation's trial lawyers vehemently object to restricting a victim's right to sue. And they argue that those responsible for accidents ought to pay for them.
"I don't believe that any consumers are crying out for no-fault," says Michael Maher, president of the Association of Trial Lawyers of America. "I think the industry sees it as a vehicle to make more money."
The most damning aspect of no-fault insurance, Maher says, is that it hasn't reduced premiums.
Advocates of no-fault retort that it hasn't been effective in most states because trial lawyers browbeat legislators into keeping the barriers to legal action too low.
What is called no-fault now exists in 26 states, the District of Columbia and Puerto Rico. However, strictly speaking, the term should apply only to systems that limit the policyholders' right to sue for recovery beyond out-of-pocket costs. The laws of 14 states and Puerto Rico meet this criterion.
But most of these states have set such a low dollar threshold for permissible suits that there has been little impact on insurers' costs and, consequently, their rates. In Connecticut, for instance, if an accident victim's medical expenses exceed $400, he can take the other driver to court for compensatory damages for pain and suffering plus out-of-pocket costs.
Says O'Connell, "As long as there's litigation over fault and payment for pain and suffering, the system is going to be wildly expensive and out of control, especially in urban areas."