No-Fault Auto Bill Costs Less Than Rival, Analyst Says

A cost analysis of competing auto insurance bills to be presented to legislators Tuesday by Insurance Commissioner John Garamendi finds fewer problems with the no-fault bill the commissioner has criticized than with the bill by Assembly Speaker Willie Brown that Garamendi has favored.

According to a draft of Garamendi’s presentation obtained by The Times, an analysis by independent actuary Donald Bashlini says that a proposed no-frills, no-fault auto insurance policy for good drivers should probably be priced at an annual $255 instead of the $220 rate now called for.

Bashlini’s analysis finds that the $220 rate proposed by state Sens. Patrick Johnston (D-Stockton) and Frank Hill (R-Whittier) is “within a range of reasonable estimates, but is in the low end of that range.” Garamendi said in an interview that the reasonable range was deemed to extend from $219 to $303 a year.

The analysis was directed in part at determining at what price the proposed minimum state-required policy would be financially self-sustaining. Bashlini said several uncertainties prevented him from giving a definite figure.

The analysis estimated that the minimum liability policy proposed for low-income drivers in Brown’s bill, if priced at $350 a year, would require subsidies from other auto insurance policyholders totaling $850 million.

According to the analysis, for the policy to be sold to 2 1/2 million of the state’s most economically deprived drivers, the other 13.4 million policyholders each would have to contribute about $63.

The analysis estimates that sharp decreases in each driver’s uninsured motorist premiums--resulting from more people carrying auto insurance--would almost compensate for the contribution.

The analysis also finds that the Brown bill would result in an increase of 42.5% in millions of drivers’ collision coverage. This could mean hundreds of dollars of added costs to many policies.

Brown, Johnston and Hill all asked Garamendi to submit the actuarial analysis of the two bills before a scheduled hearing Tuesday before the Senate Judiciary Committee. Garamendi has said he was determined that the analysis appear to all sides to be fair and independent.

By making points that seem to fortify a bill that Garamendi has been critical of, and by raising difficult points for the Brown bill he has been favorable toward, the credibility of the commissioner’s report is likely to be high.

Both bills for the first time would tie annual registration of automobiles to proof of auto insurance, and the analysis estimates that either bill would reduce the number of uninsured motorists by about 75%, to 1 1/4 million from about 5 million.

Both bills would end the state’s current minimum liability requirement of $5,000 coverage to repair automobiles damaged in accidents. For those consumers still desiring collision coverage for their own cars, which is expected to be the majority, it will go up 6.5% under the no-fault bill and 42.5% under the Brown bill, the analysis said.

Under the no-fault policy, medical costs and a portion of lost wages would be paid up to a maximum of $15,000 for each driver and passenger by the driver’s insurance company, regardless of who was at fault in the accident. Brown’s bill would retain the current liability system under which drivers often sue to collect damages from motorists deemed at fault.

Bashlini, in a brief explanation of the analysis, said: “Clearly, the limitations on available data, together with the severe time constraints involved in preparing this report, mean that the actual costs of the bills evaluated here may be substantially different from my estimates. However, I believe that my assumptions are reasonable ones, and that they follow generally accepted actuarial practices.”