Crash cow - two alternatives in automobile insurance compensation

Washington Monthly, Dec, 1993 by David Segal

PPN is a variation on the same theme. Instead of paying at registration, drivers would buy insurance every time they filled up with gas through a per-gallon surcharge at the pump. The money collected at the pumps would then go directly to the state insurance commissioner (much the way the government now collects gas taxes) and then be farmed out to insurers under the same driver pool system.

An essential component for either system is this: Coverage would be no-fault, which means that the entire question of who is to blame for a given accident would be moot. If you got in a wreck and damaged your car, you'd get money from your insurance company to fix it. If you racked up a huge medical bill, your company would pay that, too. Gone is the need to sue anybody. Gone also would be awards for pain and suffering and along with them the incentive to defraud insurance companies. Instead, what you'd get is full and fast reimbursement for your losses, all medical costs, and lost wages.

Thus, no more insurance agents and no more lawyers.

In either system, the major winners would be consumers. Remember, by eliminating legal costs, insurance overhead, and those mental anguish outlays, you've taken back what now consumes roughly half of each premium dollar. Yes, your state insurance commissioner will have to hire more people, but keep in mind that the infrastructure for either idea is already in place. The government is already taking in registration fees from drivers and collecting gas taxes at the pump.

Nobody has studied how much the Australian system would cost American drivers, but Andrew Tobias, a Time financial columnist and PPN's leading proponent, contends that a no-lawyer, no-salesman system would reduce costs enough to offer people better coverage at a lower price. He's probably right.

The rosiest estimate of the gas surcharge is 15 cents a gallon. Oil companies have suggested sums as frightening as 40 cents a gallon. Let's use their number. Now, the average driver in California gets 20 miles to the gallon and covers 12,000 miles a year; that's 600 gallons consumed annually. At 40 insurance cents per gallon, the average driver would pay $240 a year for coverage. Obviously, if you drive more or own OPEC-friendly vehicles, you'll pay more. But guess how much we pay for insurance per gallon now? Take the total we spend on auto insurance in a year ($102 billion, according to Best's Insurance Management Reports), divide it by the number of gallons we consume (I 12 billion, according to the American Petroleum Institute), and you realize we're already paying about 90 insurance cents per gallon. Factor all of those uninsured drivers out of the equation--they buy gas but not insurance--and lo and behold, we're already spending about one insurance dollar per gallon. That's for a system which pays forty-five grand on $100,000 of damages.

The Aussie system's advantage is that it allows you to charge riskier drivers more. This approach also ducks the arguments traditionally leveled at gas surcharges: They're regressive and could hurt the economy if the price of gas spikes again. It's also less likely to rouse the lobbying dollars of Big Oil, significant because the plan doesn't lack for natural enemies already.