Insured Chaos

Call the spectacular show that is shaping up “Insurance Wars.” These wars will be fought here in California, unfortunately, and not in a galaxy far, far away, but in many ways the coming battles over auto-insurance reform will resemble the “Star Wars” movies--long on noise and confusion, short on plot, with sequels reaching into eternity.

The first shot was fired last week as the sponsors of two initiatives filed petitions to place their measures before the state’s voters in November. The filings by Assemblyman Richard Polanco (D-Los Angeles) and the Insurance Consumer Action Network, an organization funded by the California Trial Lawyers Assn., don’t necessarily preempt action by the Legislature, whose leaders still talk, vaguely, about producing some sort of elusive compromise. But, practically, there is now no way to avert an initiative showdown; the pettions cannot be withdrawn. Two more initiatives may yet join the fray if their sponsors--the insurance industry and a grass-roots coalition backed by consumer advocate Ralph Nader--can muster the signatures to qualify.

Californians desperate for lower auto-insurance premiums are going to be swept up in this war of initiatives because the Legislature has failed them. Instead of taking the lead, the lawmakers left it to the insurance companies, the trial lawyers and the consumer groups to work out a compromise. That, of course, was not to be, because neither the insurers nor the trial lawyers would make any financial sacrifices; each side wanted the other to bear the entire burden of reform.

To reduce premiums that run as high as $4,000 annually, what is clearly needed is some measure that lowers the cost of the entire system of auto accident compensation and also ensures that the resulting savings are passed on to consumers.

The way to cut costs is to limit litigation, perhaps by adopting a no-fault insurance system--endorsed by the insurers and bitterly opposed by the trial lawyers--that would require each party in an accident to collect from his own insurance company for his own auto repairs, medical expenses and lost wages, regardless of which driver was responsible. Under the current tort system, victims of even the slightest fender-bender too often develop whiplash and other inexplicable pains because they and their lawyers see an accident as a potential windfall. By some estimates, permitting lawsuits only when injuries are serious and permanent might cut the insurance companies’ costs by a third.

To make sure that drivers share in those savings, the next step in any reform package must be state regulation of insurance rates--a notion endorsed by trial lawyers but, not surprisingly, rejected by the insurers. We believe that a state insurance commissioner, granted independence from the governor as well as access to insurers’ balance sheets, could devise a system that could both serve the needs of consumers and guarantee a reasonable profit to insurance companies.

Sadly, none of the initiatives likely to end up on the ballot meets all these criteria; each falls short.

Assemblyman Polanco’s proposed initiative, backed by two maverick insurance companies, calls for a one-time 50% rollback in the bodily injury portion of insurance premiums, to be paid for by severely restricting the damages that a victim could recover for pain and suffering--but it would prohibit state regulation of insurance rates. The trial lawyers’ initiative provides for a 20% premium reduction for “good drivers” and some rate regulation but would ban no-fault or any other tampering with legal fees. The insurance industry, now struggling to qualify its second initiative after an earlier effort was torpedoed by a court challenge from the lawyers, embraces no-fault and allows modest premium reductions but rules out all meaningful rate regulation.

The Nader initiative, put together by a coalition of consumer groups called Voter Revolt to Cut Insurance Rates, is the least objectionable; the only measure not funded by either legal or insurance interests, it promises immediate savings for all drivers and an independent commissioner but regulation so stiff and premium reductions so deep that some insurance companies already are threatening to stop writing policies in California.

All sides are expected to mount massive advertising campaigns between now and November,at a cost of tens of millions of dollars--and permanent damage to the eyes and ears and sensibilities of California television viewers. Then, in theory, none of the initiatives could pass--or all of them could, in which case it will take the courts into the next millennium to sort out the mess.Our concern is that, after enduring the insurance wars, Californians will end up no closer to real reform--and perhaps wishing that they lived in a galaxy far, far away.