The Economics and Politics of Choice No-Fault Insurance PDF
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THE ECONOMICS AND POLITICS OF CHOICE NO-FAULT INSURANCE Distributors for North, Central and South America: Kluwer Academic Publishers 101 Philip Drive Assinippi Park Norwell, Massachusetts 02061 USA Telephone (781) 871-6600 Fax (781) 681-9045 E-Mail <[email protected] > Distributors for all other countries: Kluwer Academic Publishers Group Distribution Centre Post Office Box 322 3300 AH Dordrecht, THE NETHERLANDS Telephone 31 786392392 Fax 31 786546474 E-Mail <[email protected] > ~. " Electronic Services <http://www.wkap.n1> Library of Congress Cataloging-in-Publication Data The economics and politics of choice no-fault insurance I edited by Edward L. Lascher, Jr., Michael R. Powers. p. cm. -- (Huebner international series on risk, insurance, and economic security; 24) Includes bibliographical references and index. ISBN 0-7923-7467-3 (alk. paper) I. Insurance, No-fault automobile. I. Lascher, Edward L. II. Powers, Michael R. III. Series. HG9970 .E36 200 I 368.5'728'00973--dc21 2001038233 Copyright @ 2001 by Kluwer Academic Publishers All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo copying, recording, or otherwise, without the prior written permission of the publisher, Kluwer Academic Publishers, 101 Philip Drive, Assinippi Park, Norwell, Massachusetts 02061 Printed on acid-free paper. The publisher offers discounts on this book for course use and bulk purchases. For further information, send email to<[email protected]>. THE ECONOMICS AND POLITICS OF CHOICE NO-FAULT INSURANCE edited by Edward L. Lascher, Jr. California State University, Sacramento Michael R. Powers Temple University KLUWER ACADEMIC PUBLISHERS Boston / Dordrecht / London Huebner International Series on Risk, Insurance, and Economic Security J. David Cummins, Editor The Wharton School University of Pennsylvania Philadelphia, Pennsylvania, USA Series Advisors: Dr Phelim Po Boyle 0 University of Waterloo, Canada Dr. Jean Lemaire University of Pennsylvania, USA Professor Akihiko Tsuboi Kagawa University, Japan Dr Richard Zeckhauser 0 Harvard University, USA Other books in the series: Cummins, J David and Derrig, Richard Ao: Classical 0 Insurance Solvency Theory Borba, Philip So and Appel, David: Benefits, Costs, and Cycles in Workers' Compensation Cummins, J David and Derrig, Richard Ao: Financial Models 0 of Insurance Solvency Williams, Co Arthur: An International Comparison of Workers' Compensation Cummins, J David and Derrig, Richard Ao: Managing the 0 Insolvency Risk of Insurance Companies Dionne, Georges: Contributions to Insurance Economics Dionne, Georges and Harrington, Scott Eo: Foundations of Insurance Economics Klugman, Stuart Ao: Bayesian Statistics in Actuarial Science Durbin, David and Borba, Philip: Workers' Compensation Insurance: Claim Costs, Prices and Regulation Cummins, J David: Financial Management of Life Insurance 0 Companies Gustavson, Sandra Go and Harrington, Scott Eo: Insurance, Risk Management, and Public Policy Lemaire, Jean: Bonus-Malus Systems in Automobile Insurance Dionne, Georges and Laberge-Nadeau: Automobile Insurance: Road Safety, New Drivers, Risks, Insurance Fraud and Regulation Taylor, Greg: Loss Reserving: An Actuarial Perspective Dionne, Georges: Handbook of Insurance Sinha, Tapen: Pension Reform in Latin America and Its Lessons for International Polichmakers Lascher, J r 0, Edward L. and Powers, Michael R.: The Economics and Politics of Choice No-Fault Insurance To my mother and step-father, Barbara and Jack Cudmore ELL To my parents, Dorothy and John Powers MRP CONTENTS Foreword ix Michael S. Dukakis Acknowledgments xi I. Background 1 1 3 An Introduction to Choice No-Fault Edward L. Lascher, Jr. Michael R. Powers 2 17 Choice No-Fault Insurance: Efficiency and Equity Edward L. Lascher, Jr. Michael R. Powers II. Economics and Practice 29 3 31 The Effects of Choice Auto Insurance on Costs and Compensation Stephen J. Carroll Allan F. Abrahamse 4 67 The Case against Auto Choice Brent Kabler 5 95 The Effect of No-Fault Auto Insurance on Driver Behavior and Auto Accidents in the United States David S. Loughran viii 6 139 Auto Insurance Claims in New Jersey and Pennsylvania Jia-Hsing Yeh Joan T. Schmit 7 159 Determinants of the Selection of Full or Limited Tort Auto Insurance in Pennsylvania: An Empirical Analysis Laureen Regan III. History and Politics 189 8 191 Giving Motorists a Choice between Fault and No-Fault Insurance Jeffrey O'Connell Robert H. Joost 9 219 Equity in Automobile Insurance: Optional No-Fault Michael R. Powers 10 241 Auto Choice: Impact on Cities and the Poor Dan Miller 11 303 More for Less under Auto Choice Peter Kinzler Jeffrey O'Connell 12 325 The Political Feasibility of Choice No-Fault Insurance Edward L. Lascher, Jr. Index 339 FOREWORD Michael S. Dukakis Northeastern University/University a/California, Los Angeles A lot of us have been trying to reform the way we compensate victims of auto accidents for a long time. In fact, I was the first state legislator in the country to sponsor a no-fault auto insurance bill, and it was ultimately approved by the Massachusetts Legislature and the then-governor, Francis W. Sargent, in 1970. As governor in the 1970s and 1980s, I successfully proposed amendments to the state's no fault law that raised the tort threshold and expanded coverage. I continue to believe that we can do a much better job of protecting people from injuries on our highways at a reasonable cost than the current mishmash of liability laws that govern the way we compensate people for their injuries and losses. For the current system is still a mess. Despite noble efforts to reform our auto insurance laws in Massachusetts and elsewhere, we are still falling short. Urban motorists in particular are burdened with insurance premiums that are often two and three times what their suburban counterparts pay. In inner city Boston neighborhoods, for example, it cost in excess of two thousand dollars a year for the auto insurance that is required of every Massachusetts motorist, and other major cities are even worse. In fact, when Kitty and I arrived in Los Angeles to take up winter teaching duties at UCLA a few years ago, I found myself paying nearly three thousand dollars for insurance for the car we leased in Los Angeles. A number of states have adopted reform plans, and there was a serious and concerted effort in Congress to legislate national auto insurance reform in the 1970s. Back then, however, those of us who were pushing no fault constantly found ourselves facing the argument from our opponents that by advocating no fault laws, we were depriving people of their right to sue the other guy who might have been at fault. Given the waste and unfairness that is inherent in the liability lottery that passes for an auto insurance system, I never bought that argument. But our adversaries did have a point. There was no question that under certain circumstances we were denying people the right to sue a potential wrongdoer and limiting their ability to collect damages for pain and suffering. Auto Choice eliminates that objection. It gives motorists the right to exercise their own judgment about how and to what extent they wish to be compensated in a way that denies nobody their right to sue if that is what they want. What it also does-and to me this is the most important feature of the bill-is provide generous relief from sky high insurance rates, especially for the people who live in our older urban neighborhoods. Nothing in our tax system is as regressive as the way we force people in our cities to pay for their auto insurance. In the meantime, we will hear much from a new administration and a new Congress about the importance of encouraging revitalization and growth in our older cities. Community development block grants and empowerment zones are part of that agenda. We are warned almost daily about the dangers of urban sprawl. But how can we possibly expect to encourage more and more Americans to live, work, and invest in our cities when we make it prohibitively expensive to live there? How can we expect welfare mothers to get off welfare and to work when it costs them over two thousand dollars a year simply to put a car on the road? Furthermore, the savings from Auto Choice are enormous. In my state alone motorists stand to reap premium reductions of between one billion and two billion dollars a year. Best of all, a large percentage of those billions will be going to the people who need them and deserve them the most-the residents of our urban neighborhoods. I'm still looking for some explanation from the opponents of Auto Choice as to why it should not be passed overwhelmingly by a bipartisan Congress and accepted enthusiastically by the states. These days their principal argument against it seems to be that people cannot be trusted to make the right choice. Those of us who strongly support Auto Choice have a lot more faith in the American people. We know that they must make choices about insurance and other products in the marketplace every day, and we know that they are perfectly capable of looking at the options that Auto Choice offers them and making an informed decision. In fact, I will be astonished if the vast majority does not choose the less expensive option auto insurance that will compensate them promptly and generously for their economic losses and save them billions of dollars at the same time. ACKNOWLEDGMENTS We wish to thank the contributors for their enthusiastic participation in this project. They greatly eased our work as editors. We also extend our appreciation to the editorial staff at Kluwer Academic Publishers-especially David Cella and Judith Pforr-for their strong support of this project and their helpful and timely feedback. Edward Lascher wishes to thank his colleagues in the Graduate Program in Public Policy and Administration at CSUS. Their dedication to excellence in both scholarship and teaching is most appreciated. And he wants to thank his family (Liz, Alex, and Avery) for support in ways too numerous to mention. Michael Powers wishes to thank the Advanta Corporation for its financial support of this research through the Advanta Center for Financial Services Studies at Temple University's Fox School. He also thanks Deedee Khovidhunkit for her help with Chapter 8, Trudy McGinley for her extensive assistance with the preparation of the manuscript, and his family (Imelda, Thomas, and Andrew) for their help and encouragement.
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