LPS continuing his prepared testimony). For every ilar í 2×5 benefits that it provides to victims, the study shows it

THE PROPER TIMING OF COMPENSATION BENEFITS

The fort lablity system tends to apportion benefits rather unmay, in some cases paying too late and in others too soon. Three mferent investigations by the Department have demonstrated that despire rommendable efforts to introduce advance or partial payment techniques, the system is still often quite slow in providing benefit payments for even that limited class of victim that it claims to serve; moreover, the system can operate to discourage early rehabilitative eforts and places a premium upon their deferment beyond the time when they could be most effective. An industry study of some 35,000 personal injury claim files clearly establishes that the system pays mest slowly in cases where the need for timely payment is greatest; that is, cases of permanent impairment and disfigurement.

REHABILITATION OF ACCIDENT VICTIMS

Closely related to the problem of delay in the payment of benefits is that of lost opportunities to minimize very large personal injury losses by the timely use of comprehensive rehabilitation programs for seriously injured accident victims. One study project indicated a disappointingly low utilization of rehabilitation even when it was recommended to the victim.

To achieve the maximum potential benefits from the rehabilitation process, the relationship between private insurance benefits and the various rehabilitation agencies, including local, State, and National agencies, must be consciously and explicitly coordinated and rationalized with the auto accident compensation system.

PROPERTY DAMAGE

The Department's study of the compensation system has focused principally on the fate of the bodily injured victim. I believe this was proper for at least four reasons.

First, people are more important than property. Second, the most serious accident losses are associated with people, not property. Third, the present compensation system is doing much better today with property losses than it is with people losses. Fourth, the problems of personal injury losses are far more complicated than those of property losses.

Nevertheless, property damage losses are important; they are very large in dollar value and they affect far more people than injury losses. In recent years, the cost of repairing vehicles has risen sharply with a consequent rise in the cost of insuring for that repair. Experts, many of them within the insurance industry, have rightly traced part of this rise to the designs of the vehicles themselves.

Unfortunately, there is no way for liability insurance to distinguish between damage-resistant vehicles and fragile vehicles, or between very expensive vehicles and those of less value since it is concerned solely with some other car owner's accident likelihood. Moreover, rating systems for collision insurance have only very recently begun

to take any consideration of the vehicle's damageability. Now that we have this clearer perception of the vehicle's contribution to crash losses, we can hopefully expect some countervailing pressure by the insurance institution on car designers to help curb future crash losses.

STRAINS ON INSURANCE INSTITUTIONS

The accumulated problems of the tort liability insurance system are now having their undeniable impact on the insurance industry itself. Underwriting profits have for many companies turned to underwriting losses. It has been alleged that capital may actually be withdrawing from the market; while the threat of such withdrawal is hardly of recent vintage, its actuality, on any large scale, would be new and would present a social problem of very serious proportions. According to the study, auto insurance today appears to be coming more and more difficult for some drivers to buy in the voluntary insurance market. Between 1966 and 1969 the number of motorists having to obtain their insurance from companies not of their own choosing through assigned risk plans grew from 2.6 to 3.2 million, or 23 percent.

The Federal Trade Commission, in part of its work for our study, estimated that 8 to 10 percent of all drivers are in the hard-to-place insurance market. This development comes at a time when their requirements for insurance, overall, are increasing if only because of rising medical and auto repair costs.

IMPACT ON OTHER PUBLIC INSTITUTIONS

Automobile accident disputes are currently placing severe strain on the Nation's judiciary, even as a multitude of other demands threaten to overburden it. According to the study, automobile accidents contribute more than 200,000 cases a year to the Nation's court load. Simply in terms of judge time alone, they absorb more than 17 percent of the country's total judicial resources and long delays and I mean "long" are not uncommon in jurisdictions with severely crowded court dockets, and that applies particularly to Massachusetts. Also, the motor vehicle accident tort liability insurance system has exerted great strains on the existing system of State regulation of insurance. The primary problem of insurer insolvencies has been concentrated among speciality auto insurers serving the high-risk market. The resulting problems for consumers, regulators, and the insurance institution in general have proved so resistant to solution that they threaten to lead to greater centralization and a consequent loss of local initiative and freedom in insurance regulation, to the great detriment of all concerned.

In summary, the existing system is not serving the accident victim, the insuring public, and society as well as it should. We should seek to improve its performance.

APPROACHES TO A BETTER COMPENSATION SYSTEM

The factual findings of the Department's study of the motor vehicle accident compensation system makes it evident to me that improvements can be made in a way to redress losses sustained in auto

accidents. I am convinced that with careful assessment of alternative approaches, we-meaning the Congress, the Department, the States, the insurance industry, the bar, and all the rest who go to make up this complex set of institutions-can find a better way to do the job. In saying this I do not mean to suggest that the insurance companies, the State regulators, or the lawyers who specialize in accident litigation have not, in the past, measured up to their public responsibilities. Rather, the extensive study we have conducted dramatically demonstrates that the scale of the auto accident problem has simply become so immense that the techniques which may at one time have been adequate may be no longer sufficient in every respect to present-day realities. What we must do now, all of us who are seriously interested in this problem, is begin the search for a more effective, more efficient way of meeting this challenge.

Our study has convinced me, however, that the problem of motor vehicle accident compensation is far more complex and far less easily resolved than many appear to believe. One certainly wishes there panacea-an easy and quickly implemented solution that could be promptly implemented and put into practice. But such is not the case. There are many ideas and a large number of proposals which have been advanced over the years, but each presents sizable problems. Further, there is no significant basis of experience for assessing the relative strengths and weaknesses of new approaches. While the present system has its obvious faults, we should not hastily move to a system merely because it is new. Caution, commonsense, and consideration of sound public policy demand that we carefully assess the full range of alternatives and move gradually in the direction of reform, checking actual experience as we proceed.

With the factfinding phase of the study now substantially completed, we will pursue intensively a thorough examination of alternative approaches to the solution of this problem. We anticipate that this next phase will be completed in time so that we can submit detailed recommendations for reform early in the next Congress.

I believe we can agree on some of the main directions of change and the basic principles by which it should be guided. The overriding goal should be a compensation system that is efficient, offers greater flexibility and choice, is fair, gives maximum incentives to loss reduction, and that in the final analysis, does a better job of reparating victims' losses than the one we have today. Let me identify some of the other basic principles.

To begin with, it should cover the bulk of economic losses associated with medical expenses, income loss, funeral expenses, and property losses, among other things, at levels designed to prevent or effectively mitigate any serious economic dislocation for the individual victim or his dependents. Beyond this there are a number of other points that should be taken into account.

I am also persuaded that much greater emphasis must be placed on rehabilitation of those who are injured. They should receive compensation on a timely basis and in such a way to encourage systematic rehabilitation. As you know, much auto insurance is now administered on the so-called first-party basis, as with the medical payments and collision coverage elements of the policy typically held at present by most vehicle owners.

Some experts, including those in the insurance industry itself, have proposed greater reliance on this technique. On its merits this approach warrants a close look to determine its practicality and feasibility.

In considering these factors, and the other elements which go to make up an effective compensation system, we should continue to rely upon private enterprise to operate the auto accident compensation system. Similarly, I am strongly persuaded that in the long run reform offers its best opportunities at the State level. This may require greater Federal cooperation with the State governments, though without direct Federal intervention. Conceivably the National Conference of Uniform State Law Commissioners, with suitable Federal financial assistance, could play a role in moving toward reform.

Mr. Chairman, the problems of automobile insurance and compensation are incredibly numerous and complex. What I have tried to do here today is lay out the broad factual base reported by the study to meet the accident compensation needs of our motoring citizens. We are prepared to work with your committee, State governments, the industry, the bar, and any other interested group or institution in in examining approaches to meet the important problem of auto. insurance.

Thank you, Mr. Chairman. That completes my prepared statement.. We are prepared to answer any questions.

The CHAIRMAN. Before we proceed let the record show those who are accompanying you here.

Mr. VOLPE. The reporter has already been furnished that information.

Mr. CHAIRMAN. Now I have a couple broad questions. In your statement you say that you anticipate you will submit some detailed recommendations to Congress the next session.

Mr. VOLPE. Yes.

The CHAIRMAN. Now are the problems that you have highlighted as a result of the study and other experiences you have had as Governor of Massachusetts-are they national in scope?

Mr. VOLPE. I would say basically there probably is hardly a State in the Union that does not have this problem to some degree or other. I don't think the intensity is the same in every State, but I think it prevails throughout the Nation.

The CHAIRMAN. Would you say that generally-you mention State cooperation and the reluctance to have Federal investigation in these matters but the solution has to be national, doesn't it? Either a uniformity of State laws or some basic guidelines from the Federal Government; it has to be national, doesn't it?

Mr. VOLPE. Mr. Chairman, this is exactly what I mean. At least as I see the legislation that might be framed. The Federal Government would provide broad guidelines, a framework within which the States should operate and private industry would undertake to carry out its responsibilities, that is, within the Federal framework and that of the State regulatory bodies.

I am convinced we have to provide some leadership in this field as we have done in the highway safety field. But I would prefer to see the States themselves undertake to actually do the job.

The CHAIRMAN. And that would be based upon-I don't suggest any lack of cooperation from the States-but it would be based on

So we look forward this morning to developing more fully the factual picture of this automobile compensation system. And the committee is pleased to have the Secretary here to present his remarks and to answer such questions as the committee may have.

Before we hear from Secretary Volpe, let me state my firm belief that the facts now show fundamental national flaws in our automobile compensation system that demand some innovative national solutions, solutions which this committee will vigorously pursue in the coming months.

Let me say, also, a word about the factfinding phase of the study, which is now complete. The study to date has been conducted in my opinion in a highly professional bipartisan manner.

Its 18 fact-filled volumes represent a major achievement in cooperation between the Congress, the administration, and the insurance industry. These volumes contain an impressive array of information and statistics whose quality is appreciated by the committee and acknowledged by experts throughout the country.

I want to commend the study staff for the excellent job they did in gathering the facts. Usually others get all of the credit for a job well done. But I would like to single out of the staff for special commendation, particularly Richard Walsh, the staff director, and Dr. Lee Huff, who planned much of the study.

So we appreciate having you all here today and we will be glad to hear from you, Mr. Secretary.

STATEMENT OF HON. JOHN A. VOLPE, SECRETARY OF TRANSPORTATION; ACCOMPANIED BY RICHARD J. BARBER, DEPUTY ASSISTANT SECRETARY FOR POLICY; LEE W. HUFF, DIRECTOR OF ECONOMIC STUDIES AND PROJECTS; AND RICHARD F. WALSH, DIRECTOR OF OPERATIONS, AUTO INSURANCE STUDY

Secretary VOLPE. Thank you very much, Mr. Chairman, and members of the committee. May I first of all express our appreciation for your generous remarks, particularly those regarding the nonpartisan nature of our efforts and the commendation you have given to the men who have been most responsible for the study: Dr. Lee Huff on my extreme right; on his left, Dick Barber, the Deputy Assistant Secretary for Policy; and on my left, Mr. Walsh, the staff director.

It is a pleasure for me to be here this morning to discuss the automobile insurance and compensation study directed by Public Law 90-313. The central thrust of that joint resolution is to be found in its statement that "there is needed a fundamental reevaluation of [the existing system of compensation for *** suffering and loss of life resulting from motor vehicle accidents], including a review of the role and effectiveness of insurance and the existing law governing liability."

The bulk of the research findings of the study have already been published in a series of 18 reports beginning last spring. As you can see, they make quite a substantial volume. Some of them, we believe, allow us to see for the first time from a national perspective, how the present system of motor vehicle accident compensation is serving the American motoring public. Others are designed to view the system, especially the tort liability insurance system from particular perspec

See p. 47 for S.J. Res. 129 (Public Law 90-313).