Repealing No Fault Fastest Way To Lower Price of Insurance

Beleaguered motorists in no fault states have seen their insurance premiums increase an average of 45.6% between 1989 and 1995, according to a new study of insurance industry data released today by California’s Proposition 103 EnforcementProject and national consumer group Public Citizen. This is nearly one-fourth faster than the average premium increase in states without no-fault. The study’s release coincides with today’s U.S. Senate Commerce Committee hearing to consider legislation to impose a so-called auto “choice” no-fault system on motorists nationwide.

Prop. 103 Enforcement Project director Harvey Rosenfield, who is testifying at today’s hearing, said “After nearly twenty-five years of experimentation with no fault throughout the country, the only conclusion that can be drawn is that this grossly unfair system is an absolute failure. The best way to lower auto insurance premiums is to limit the profiteering and inefficiency of insurance companies, as California did eight years ago.”

According to Public Citizen President Joan Claybrook, “Auto choice makes good drivers pay for bad drivers. It is a testament to the massive power and pervasive influence of the insurance industry that no-fault has suddenly appeared on the congressional agenda, while remaining in effect in some states where beleaguered motorists want to escape its costly tyranny.”

The study summarizes data drawn from annual reports published by the National Association of Insurance Commissioners, State Average Expenditures & Premiums for Personal Automobile Insurance in 1995 (January 1997). Among the findings are:

• No fault states have the highest average auto premiums. In 1995, six of the top ten most expensive states (including D.C.) had no fault systems. Hawaii, as it has since 1991, remained the most expensive in the nation.
  
• No fault premiums rose nearly one.fourth faster than premiums in states without no-fault. States with mandatory no fault systems saw their rates increase an average of 45.6% between 1989.95, nearly one.quarter higher than the average rate of growth of the average premium in states without no-fault, which saw an average 36.8% increase over the same period.
  
• States with no fault are typically among those with the greatest increases in rates. Of the fifteen states with the greatest increases in the nation in auto liability premiums between 1989 and 1995, nine states have some form of no fault–either mandatory or mixed.
  
• Repealing mandatory no fault and regulating insurers lowers auto insurance premiums. The NAIC data demonstrate that repealing no fault and instituting rollbacks and effective regulation of the insurance industry results in substantial rate reductions. California voters passed Proposition 103 in 1988, mandating a rollback in auto, homeowner and business premiums and instituting stringent controls on insurance company profiteering. The average auto liability insurance premium decreased by 0.1% in California between 1989 and 1995, while the average premium throughout the rest of the nation increased 32.2% in the same period.

Consumer advocate Ralph Nader said, “No-fault is an unfair and exceptionally costly system that defies the American tradition of justice and fair play and forces good drivers to pay for bad drivers. It is ironic that members of Congress would take a system that has collapsed in state after state, and been rejected by the people of other states, and attempt to impose it on the entire nation through federal legislation. To lower insurance premiums, the solution is first to improve highway safety, second, to help reduce auto theft, and third, to promptly institute consumer protections against the notorious price-gouging, waste and inefficiencies of the insurance industry.”

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