Committee Report of the Special Committee on Automobile Insurance Problems The Special Committee (A8) on Automobile Insurance Problems met at the Town House Motel in Omaha, Nebraska, on May 5, 1969, at 1:45 p.m. Commissioner Worthington asked the industry representatives for presentation of their views and the following either responded orally or filed statements with the Committee. These statements are filed with this report and made a part hereof. American Insurance Association American Mutual Insurance Alliance National Association of Independent Insurers State Farm Mutual Automobile Insurance Company Insurance Company of North America After these statements were received, the Committee went into Executive Session. In the Executive Session the Committee discussed the Automobile Insurance Study prepared by Jon Hanson and Bob Dineen of the NAIC staff. It was agreed that this study very adequately set out the history and present status of the automobile insurance problem. After further discussion, the Committee adjourned until May 6. At this time, the Committee decided that the Central Office study should be used as background material for a shorter summary statement of the position of the NAIC. It was further agreed that this statement should be prepared for presentation to the Executive Committee at the June meeting in Philadelphia and the Chairman was directed to notify the interested parties of the scope and content of the statement prior to the June meeting. Hon. Lorne Worthington, Chm. - lowa Allan W. Horne - Arkansas James L. Bentley - Georgia Russell E. Van Hooser - Michigan Horace J. Bryant - New Jersey STATEMENT OF POSITION ON AUTOMOBILE INSURANCE This statement represents the position of the National Association of Insurance Comissioners in reference to automobile insurance. It is in no way intended to be definitive, but rather it is intended to clearly point out some of the problems, strengths and weaknesses in the insurance system and that it make certain recommendations for change which, when implemented, will result in a system that more adequately serves the needs of the insurance buying public. The statement has been prepared after extensive research by the staff of the NAIC Central Office and the members of the Special Committee on Automobile Insurance. It is accompanied by a background memorandum prepared by the NAIC staff. Though the staff memorandum does not necessarily reflect the opinions of the Committee or the NAIC, it does contain very significant data and is a valuable informational document. Our studies indicate that various facets of the automobile insurance question can be categorized under one of four basic topics: II. the economic climate within which the automobile insurance and legal liability systems function; III. the legal liability system upon which the automobile insurance system rests; IV. the automobile insurance system itself! EXTERNALLY CAUSED PROBLEMS Items I, II and III have a fundamental impact on the cost and the operation of the automobile insurance system despite the fact that they are external to the system and not subject to that system's control. Nevertheless they comprise the framework within which the system functions. Although the insurance system has its defects, some of the basic problems are caused externally and can only be remedied outside the system. Congress, various federal agencies and administrations, the judicial system, the providers of medical services, the automotive industry, unions, state activity or lack thereof in traffic safety, etc., all have contributed to the basic problems. 1. Traffic Safety. A fundamental element in the cost and operation of automobile insurance is traffic safety or lack thereof. The statistics as to the traffic fatalities and injuries are staggering. For example, in 1968 more than 55,000 persons died in traffic accidents, over 2,000,000 were injured and the economic cost of these accidents has been estimated to be in the neighborhood of $12 billion. Improved traffic safety would not only alleviate the pressure for higher insurance premiums but, even more important, it would prevent or alleviate tragedy, misery and economic hardship for thousands of our citizens. Both federal and state governments recognize this fact as is evidenced by the National Traffic and Motor Vehicle Safety Act of 1966, the National Highway Safety Act of 1966, and programs pursuant thereto. The effectiveness of traffic safety measures will be influenced by the size and frequency of appropriations at all levels of government as well as cooperation from affected industries and other interested groups. The traditional apathy of the public, legislatures, and government policy-makers must be resisted and overcome to reverse the slippage of traffic safety to a low level on the list of national priorities. The NAIC urges that renewed emphasis be given to the work done by the National Highway Safety Bureau, that the Department of Transportation give high priority to highway safety research and implementation of safety programs, and that Congress give its support to these programs through adequate funding and needed legislation. The cost of automobile insurance, to a great extent, is dependent upon the effectiveness of these and other programs which are external to the automobile insurance system. This fundamental fact should be kept in mind when reviewing and evaluating the performance of that system. II. The Economic Environment. In effect, automobile insurance companies are huge purchasers of goods and services such as automobiles, tires, repair parts, labor, doctor fees, medical and hospital expenses, rehabilitation services and equipment, loss of time and wages. In addition, high court verdicts, lawyer fees, legal and other costs are charged to insurance company costs. Whatever affects the cost of these items affects the cost of insurance. With this understanding, it becomes obvious that a major villain (in addition to the traffic safety problem) is inflation which has significantly raised the cost of the various goods and services which insurance covers. As a part of the inflationary picture, it should be recognized that Congress in enacting the Full Employment Act of 1946 committed the nation to a national policy of full employment. This, coupled with the fiscal and monetary theories of the federal government, set the stage for more or less continuous inflationary pressure. Over the years, Congress and different Administrations made valiant efforts to stimulate the national economy and thereby promote the well-being of our citizens. But, in doing so, inflation has become a major by-product. (The Hart Subcommittee's inquiry into the impact of inflation on automobile repair costs a significant item in automobile insurance premiums - dramatically highlighted an important element in increasing insurance costs.) Resolution of the inflation issue raises a host of major economic issues and policy considerations. Whatever one's views on these issues, this is certain: Congress should not fault state regulation of automobile insurance or the automobile insurance business for those parts of the price structure which are the result of national policy. In short, any accurate and over-all evaluation of the automobile insurance system needs to consider the economic environment in which the insurance system functions and over which it has little control. III. The Legal Liability System. Recently much criticism has been focused on the operation of the automobile insurance system and its legal environment. Of course, the former is separate and distinct from the latter although engrafted upon it and necessarily molded by it. Proposals for reform run the gamut from revisions in court procedures, to a combination of first party and of third party liability coverages (e.g. the Cotter Plan, Keeton-O'Connell, etc.) and to the abolishment of tort liability in its entirety as to automobile cases (e.g. the American Insurance Association Plan). There are also proposals for greater reliance on social insurance (e.g. Saskatchewan Plan, Puerto Rico System, Conard Approach). In attempting to evaluate specific proposals, numerous factors should be considered. These include the role of personal responsibility, deterrence, completeness and incompleteness of the system, delays, the fairness or unfairness of the system, cost in administering the system, the role of pain and suffering, duplicating coverage and premiums, flexibility, rehabilitation, etc. The debate between a comprehensive first party system and the current third party liability system, or some combination of the two, continues unabated. In view of conflicting attitudes and objectives, no solution promises to be a panacea. Many groups are interested in the type of system adopted, e.g. the policyholders, the claimants, the legal profession, the providers of medical services, insurers, agents, brokers, unions, etc. Thus this is an issue involving widespread ramifications far beyond the traditional confines of insurance regulation. Professor Allen M. Linden, in an article entitled "Peaceful Coexistence and Automobile Accident Compensation," (Canadian Bar Journal, Feb. 1966) said: "The decision as to whether the present system should be reformed is not a 'legal' decision nor is it a 'statistical' one; it is a question of values." Thus the type of system adopted is a broad question of public policy. Because factors, concepts, values, and attitudes vary from locale to locale, this public policy decision can best be made on a state-by-state basis rather than at the federal level. This, in turn, affords the opportunity to test and experiment with different approaches on a limited basis. After a period of experience with different plans, the better solution(s) will emerge. The NAIC, therefore, opposes the adoption of basic changes in the liability system on a federal level, but encourages experimentation with different alternatives on a state-by-state basis. Whatever the system, the various state insurance regulators can regulate for the public interest most effectively because of the varied needs of a differing populace in the several states. The public, by its responses to legislation and by the decisions it makes in the market place in accepting or rejecting various coverages and services offered, will ultimately settle the issue. Whatever is decided as to the appropriate legal framework, the NAIC believes that any automobile insurance system should include as a minimum the following elements: A. ready access to insurance for all licensed drivers at prices which are reasonable, with a means to purchase insurance through an assigned risk mechanism for those who cannot purchase it in the voluntary market. B. provision for prompt payment of basic economic loss and improved claims procedures. C. provision for protection from insolvencies, uninsured motorists and hit-and-run drivers, etc. D. meaningful classifications which are broad enough to spread risks and yet not so broad as to lessen availability of coverage. E. a responsive and meaningful pricing and marketing system. F. protection for the insured against arbitrary and unfair cancellation and nonrenewal. G. full disclosure of the nature of the coverage to the purchaser. IV. The Automobile Insurance System Itself. Up to this point, reference has been made primarily to the externally caused problems. This is not to say, however, that the automobile insurance system itself is free from internal defects. Whatever the external environment, every effort should be made to come to grips with and devise solutions for these problems. A. Availability and Continuance of Coverage. The public's ability or inability to procure standard automobile insurance coverage in the voluntary market continues to be a significant issue. The problem of availability can be attacked in at least three ways - ways that supplement one another: 1. Anti-Cancellation and Nonrenewal Laws. The anti-cancellation nonrenewal problem can be attacked in the same way as the over-all question of availability. First, the loosening of the market attributable to a more responsive and meaningful rating environment should reduce the pressure for mid-term cancellation and nonrenewal of policies. Second, provision of an adequate involuntary market facility to handle those which in 39-280 - 71 pt. 17A - 34 |