Crash cow - two alternatives in automobile insurance compensation

Washington Monthly, Dec, 1993 by David Segal

Under PPN, big, safe cars pay more for insurance than small, less safe cars. Why should there be a disincentive to drive a safe car?

Under PPN, gas guzzlers, which tend to be large, safer cars, would pay more for insurance. But not that much more. The Cadillac Fleetwood, for instance, gets 17 miles to the gallon. Using California's averages, a Fleetwood would spend $42 a year more on insurance than the average car--probably not enough to put off anyone undaunted by the Fleetwood's $37,000 sticker price.

Still, PPN does not preclude cost adjustments a la Australia. Not only could high risk drivers get charges added on at registration, but, if people demanded it, there's the option of giving safer cars a price break.

Doesn't getting the government involved in all this sound a bit BOLSHEVIK?

These ideas make as much sense as group health care. In fact, you can think of either plan as a sort of managed competition for your car. Managed competition, whatever its merits turn out to be, is an approach now touted as a private sector solution to produce universal health care and free market costs controls. Insurance companies, not the government, would be your insurer.

High-Octane Coverage

Nobody has tried the pay-at-registration idea in this country, but even insurance executives down under say the basic principle works. "Queensland's motorists are generally quite happy," says Graeme Adams, a senior manager at the National Roads and Motor Association Insurance, one of Australia's private insurers. But because the plan does not account for risk, insurers hate it; where it has been tried elsewhere in the country the industry has fought to change the system back to pay-the-insurer.

Those lobbying efforts would undoubtedly seem genteel compared to what would happen in this country if either of these reforms were attempted. Just look at the response to the nascent push for PPN in California. The idea's February debut in the state legislature looked like a rub-out scene from a Mafia flick. The state's Senate judiciary committee, with some fervent nudging by the insurers and trial lawyers, whacked a PPN bill moments after its birth. "The campaigning began the day we introduced the legislation," says Alan Gordon, an aide to California state Senator Art Torres, who sponsored the legislation. "It was an ugly death." A coalition of consumer advocates spearheaded by the Coalition for Common Sense Auto Insurance, a group funded by Andrew Tobias, is now working to pass PPN as a ballot initiative come November '94. (Tobias, who apparently has taken advice from his own best-selling personal finance books, is spending his own money to reform a system he has railed against for years.)

On the other end of this power see saw are two of the heaviest, deepest pocketed lobbying armies ever to encircle a state capital. Last year, the trial lawyers' California PAC gave $716,722 to state legislators and the insurance industries' gave $604,980 (making them the fifth and seventh most generous, respectively). Insurance companies have pled for no-fault reform for years, and most carriers, after shedding local agents, could expect to do well under either system. But even with the consumer choice variant in play, the industry is dead-set against receiving premiums via the government. The trial lawyers' opposition to PPN is easier to understand; real no-fault reform would send many of them looking for different jobs.