Wanted: better no-fault auto insurance
March 17, 2003

In response to 3/17 editorial which concluded HB 1225 would have done good things....Public debate about auto insurance reform must continue in order for meaningful legislation to pass. So far, all consumers have heard about is system abuse and special interest lobbying. There is more to know and consumers were not part of the broadbased coalition you refer to.

Some of what was wrong with HB 1225:

• It took necessary benefits away from average consumers, not just system abusers. It redefined medical necessity and created a new beaurocracy to put medical decisions in the hands of the insurance company, overseen by a program manager.
• Many presented amendments included consumer protections and most of them were defeated. For example: a person riding with an uninsured motorist would NOT be covered by their own policy under the original 1225. The amendment to change that was defeated.
• It offered several plan options, but no requirement for insurance companies to offer all of them or disclose that several plans exist. Consumers would have to know to ask.
• There was no promise of decreased rates. Amendments to guarantee decreases were defeated.

Consumers also need to know:

• State Farm, the largest insurance provider, has announced, "You'll probably see a 9 to 10 percent rise on average nationally in both auto and homeowners insurance rates" in 2003, according to their spokesperson, Dick Leudke. The reason stated is due mainly to losses in the property and casualty companies' stock portfolio. That increase applies to tort and no-fault states.
• The average insurance claims are nowhere near the $900,000 example. According to the Fast Track Monitoring System, those averages are $7,749 for PIP and $17,804 for bodily injury (pain and suffering). Average claims are reasonable. As you noted our current law allowed the spa and gym claim.
• Tort law limits enacted since the mid 1980's have not lowered insurance rates (from Center on Justice and Democracy, Premium Deceit).
• Data from the National Association of Insurance Commissioners reveals that states with severe verbal thresholds have 30% higher premiums than tort states.
• Insurance companies make higher profits with no-fault insurance, 7.4% in no-fault states compared to 5.4% in traditional tort states.
• Only four of thirteen no-fault states do not rank in the top 20 for average auto insurance expenditures.
• States that went back to pure tort systems from no-fault saw rate decreases of 6-7%. If law suits because of the tort option cause higher rates, then why have those states seen decreases?

No-fault laws were passed to reduce paperwork and legal costs to lower rates. That didn't happen. If we severely reduce benefits to average consumers without guaranteed rate reductions, will those cost savings be eaten up by the stock market losses?

We need to find the balance between making sure that insurance companies can offer affordable but profitable products and providing the coverage that consumers really need. Neither HB 1225 nor 1321 did this. And other dramatic changes, like a "modified tort system" may not either.

If what we are being told is true, small adjustments in current law should have the same effect:

• Stop abuse, not benefits that help people to recover as quickly as possible. By redefining the medical protocol to eliminate exorbitant claims, we don't have to limit the consumers' right to sue. People want to maintain that right and tort reforms will not lower insurance rates. Some alternative treatment methods eliminate medication costs while allowing people to work and drive.
• Reduce PIP coverage requirements. Only two states in the country require people to buy more PIP coverage than Colorado: Michigan and New Jersey.
• The wage loss benefit can be made optional. Colorado is one of few states that offer it.

That's not all. The state needs to address our uninsured motorist, theft and aggressive driving problems. Consumers need to understand how rates are calculated. They need to know that vehicle safety and credit history are considered. They need to research vehicle insurance costs before making a purchase.

Let's stop asking good drivers to pay for abuses in the system, flaws in our no-fault law and law breakers. Eliminate those problems by making smaller adjustments in the law and analyzing the results before making any drastic cuts in consumer benefits. Only then will we see if making adjustments will reduce rates.

Renée Beauregard
Executive Director, Consumers United Association

CUA is a nonprofit association with a mission to improve the financial lives of consumers through education and advocacy. For more information visit www.cuacolorado.org.