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July 13, 1999
RE: S. 837, Federal Auto No-fault Bill
Dear Senator:
We are writing to urge you to oppose S. 837,
the so-called Auto Choice "Reform"
Act. We are attaching several fact sheets on
the failure of no-fault to contain auto
insurance costs to provide you with our
perspective on this harmful anti-consumer
legislation. Among the reasons we oppose this
bill are:
- Federal no-fault means higher
premiums and costs to consumers: Federal
no-fault proponents claim the system will
result in lower insurance premium costs,
but they never promise to actually lower
premiums. In fact, from 1989 to 1995
no-fault systems had the highest premiums
in the nation -- almost 25% higher than
premiums in "traditional tort
law" states. In 1995, 6 of the top 10
states (including D.C.) with the highest
average liability premiums were no-fault
systems.
- Compensation for non-economic losses
would be next to impossible: Under the
federal no-fault scheme, consumers
seriously injured in auto crashes would
completely forfeit their rights to recover
non-economic damages (intangible losses
like permanent disfigurement, serious
impairment of a bodily function such as
blindness, loss of fertility or a limb,
loss of a child, or excruciating pain).
Such a program is so unfair that no state
in the country has adopted it.
- "Choice" no fault is a
sham: Under the bill, the rights of
those who "choose" traditional
tort law coverage depend on the
"choices" made by other drivers.
Full access to the courts under
traditional tort law coverage is
guaranteed only if the at-fault driver
involved in a crash has purchased the same
coverage. However, if the at-fault driver
has chosen no fault, full court access is denied
to the traditional tort law policyholder,
even though the driver may have paid more
to have that right. For instance, if a
child is killed in a car crash by a
reckless or negligent driver who has
chosen no-fault coverage, the child’s
parents would only be able to recover
medical expenses, if there were any, and
burial expenses. In effect, the child’s
life would be worthless and no one could
be held accountable for the child’s
death.
- "Choice" no fault will make
good drivers pay for bad drivers and will
increase the accident rate: Traditional
tort law coverage operates on a basic
principle of fairness -- those who cause
auto accidents should be held fully
accountable for their actions. But under
S. 837, the premiums of bad drivers will
go down while those of good drivers will
increase because they will no longer be
able to recover damages from the bad
driver who caused the accident. With
reduced insurance rates, more bad drivers
will be able to afford to drive resulting
in an increase in accidents.
- No Fault "Choice" is
discriminatory: People with higher
incomes will be able to buy more legal
rights than those who have less income.
Under federal no-fault it will cost a
driver more to be insured to recover for
non-economic losses such as loss of
vision, loss of a limb, years of
excruciating pain or gross disfigurement.
This is unfair to those who earn less
money or have no job. A high-income person
who can afford tort coverage, including
self-coverage for accidents with
"no-fault" drivers, will get
both higher economic losses (lost wages,
income) and payment for non-economic
losses. A low-income person who can’t
afford tort coverage will recover less in
economic losses and recover nothing for
non-economic losses if a
"no-fault" driver caused the
accident. Under the traditional tort
system, non-economic damages have been
less dependent on the injured person’s
income than economic damages and therefore
have helped equalize recoveries between
similarly injured high and low-income
persons.
- Exaggerated cost savings figures are
based on a suspect study: Professional
insurance experts have questioned both the
underlying data and methodological
assumptions adopted by the Rand Institute
in the major study that federal no-fault
proponents use to claim huge cost savings
under S. 837. The original study used a two-week
sample of insurance industry data from
1987 to estimate the supposed savings. An
updated study, using a 1992 data sample,
resulted in a 30% decrease in
estimated savings. AIS Risk Consultants,
an independent New Jersey actuarial firm,
has concluded that, "...the supposed
‘savings’ that Rand found for a
no-fault system are not reliable because
of problems with procedures, assumptions
and methods used by Rand... [T]he
magnitude of the ‘savings’ found by
Rand, and whether there will be any
‘savings’ at all from a no-fault
system, is subject to serious
question." Similarly, the American
Academy of Actuaries has stated that there
are too many variables to put a figure on
cost savings: "[they] will likely
vary significantly from one jurisdiction
to the next and from one insured to the
next."
- No fault means higher profits for
insurance companies: There is a good
reason some segments of the insurance
industry support federal no fault: the
average 1996 profits on auto liability
insurance were 7.3% in no-fault states and
5.4% in traditional tort law states.
No fault is a discredited system that has
been rejected at the state level and is now
being foisted on Americans from the federal
level. No state has switched from traditional
tort law to no fault since 1976. In the two
states that repealed no-fault laws since 1991,
premiums dropped substantially while they
increased in states retaining no fault.
Please do not be taken in by the seductive
rhetoric of choice. This bill gives a great
deal to the insurance industry and offers
nothing to the safe driving public.
Sincerely,
Joan Claybrook
President, Public Citizen
Frank Clemente
Director, Public Citizen Congress Watch
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