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Jun 20, 2005
WHOSE FAULT IS NO FAULT?by Carmen Balber - OpEd
The following Op-Ed commentary by Carmen Balber was published in The Boston Globe on Monday, June 21, 2005:
The Massachusetts auto insurance system is one of the most expensive in the nation because drivers are not responsible for the accidents they cause and everyone has to absorb the extra costs. The system is called "no fault" insurance, and, while it's failed throughout the nation, the plan recently announced by Governor Mitt Romney reinforces the "no fault" model.
Romney also calls for allowing insurers to charge whatever they want without state oversight. The combination of "no fault" and "no regulation" would keep Massachusetts drivers reaching deep into their pockets to pay their insurance bills.
California faced the same dilemma in 1988, when voters chose regulation and rejected no fault. Today, even with congested expressways and near-total reliance on the automobile, Golden State drivers pay rates 38 percent lower than those in Massachusetts.
It's no mystery why auto insurance premiums in no fault states are consistently more expensive: No fault requires insurers to pay both parties in an accident, regardless of who caused the crash. Insurance companies like no fault precisely because it costs more, and they can increase profits by passing higher costs through to the consumer.
That's different from auto insurance systems like California's personal responsibility model, where the driver who caused the accident is held fully accountable and only the victim is paid. This traditional system does not force good drivers to subsidize bad ones as they do now in Massachusetts.
That's why no state in the nation has introduced a no fault auto insurance system since 1976. Instead, six states have eliminated it. When Pennsylvania, Georgia, and Connecticut repealed their no fault laws in the 1990s, their drivers saved an average of $156, $76, and $145 a year. Repealing no fault would save Massachusetts drivers an estimated $200 million annually.
Bay State motorists deserve these savings. Instead, the governor has proposed a one-time payoff to sell his plan to the public: a 5 percent rate rollback for good drivers.
Good drivers should pay less than bad ones. But giving them a small one-time discount without addressing the root problem that no fault insurance costs more ensures that higher premiums will quickly overrun the rebate. When New Jersey legislators tried a similar rate rollback, it was wiped out by rate increases within three years.
Governor Romney blames regulation for the high cost of insurance. But Massachusetts is the only state in the nation where the insurance commissioner sets one-size-fits-all rates across the industry and leaves individual insurance companies unaccountable for excessive costs. This ineffective regulation failed to rein in price gouging and allowed Bay State rates to spiral out of control.
The governor's proposal would further erode industry oversight and give insurers more "flexibility" to set rates. But awarding insurance companies the right to set their own rates, without requiring they demonstrate those rates are fair, is giving insurers a license to steal.
In California, regulation and insurer accountability mean lower rates and more competition. In the mid-1980s, California drivers were paying the second highest premiums in the nation. When politicians pandered to the insurance industry rather than adopt real insurance reform, angry voters took matters into their own hands. They passed Proposition 103, a ballot measure that imposed the toughest regulation of insurance rates and practices in the nation.
Insurers spent $80 million on their failed campaign to defeat 103 but the voters overwhelmingly rejected the industry's plans, including a Massachusetts-style no fault proposal.
Proposition 103 mandates that good drivers get a 20 percent premium discount every year. It requires insurers to open their books and justify future rate increases. The law limits the inflated expenses, phony loss projections, and bloated profits that insurers can pass on to consumers. And, under California's antitrust rules, companies can't collude to share data and set rates jointly, another practice that drives up rates by eroding competition in Massachusetts.
California drivers saved $23 billion thanks to Prop 103, according to a study by the Consumer Federation of America.
The governor's short-sighted plan would please insurance companies but do nothing to lower consumers' auto insurance premiums. Bay State drivers should urge the Auto Insurance Task Force, launched by the governor but sidelined by his decision to act without it, to recommend strong rate regulation and the repeal of no fault to the Legislature.
It isn't Mitt Romney's fault that the Massachusetts auto insurance system was broken when he took office. But, if he insists on clinging to the no fault system and giving insurers carte blanche to set rates, unhappy drivers will know it's his fault now.
Carmen Balber is a consumer advocate with the California-based Foundation for Taxpayer and Consumer Rights.
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