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home / insurance / in the media

Journal of Commerce
Mar 17, 1999

by Ron Lent

Number, Amount of Auto Claims Down in California, Bucking Trend

A new study shows that in this decade California's auto insurers decreased the number and dollar amount of claims paid to victims, bucking the national trend.

A report by the Foundation for Taxpayer and Consumer Rights found those injured in auto and truck accidents in California were likely to get far less than they would have received a decade earlier.

The Santa Monica, Calif., nonprofit organization compared accident settlements in California with those in other states.

The report determined that in most states insurers were paying increasing dollar amounts to vehicular accident victims for injuries, health-care costs and lost wages. While the dollar amounts nationally rose by 16 percent, they were found to have declined by 4.5 percent for California accident victims.

FILED CLAIMS ARE DOWN

The same was true for the number of filed claims. California insurers over the past several years have reduced the number of claims they paid by 26 percent, while nationally that total climbed by 8.5 percent, the study reported.

The study's data were supplied by the National Association of Insurance Commissioners in Kansas City, Mo., and Insurance Services Office Inc. in New York.

Foundation spokesman Doug Heller cited various reasons for California's results. He noted that insurance companies ""have been low-balling vehicular accident claims to force unfairly low settlements with accident victims.

Our study shows that's been going on since the California Supreme Court threw out the third-party liability law in its 1988 decision in the Moradi- Shalal case.''

Third-party refers to a person who was involved in an accident but was not the insured. For instance, a passenger in a car that is hit by another car is the third party.

In the Moradi-Shalal case, the state's highest court overturned a previous Supreme Court ruling that, among other things, had permitted injured third- parties to sue an insurance company covering a motorist who had caused the vehicular accident.

Under current law, while a third party cannot sue an insurance company directly, the person can file a complaint with the state Insurance Department under the Unfair Claims Practices Act.

This statute empowers the Insurance Department to regulate and impose sanctions related to an insurer's claims handling practices for all lines of insurance.

TIMING IS EVERYTHING

When asked about the timing of the study's release, Mr. Heller said, ""We examined California and national auto insurance company claims data in part because the legislature is planning this year to introduce a bill to restore the third-party liability law. It's an idea that we as an organization favor," " he said.

""Our study confirmed that the reductions in auto insurance policy premiums are due to the passage of Proposition 103,'' the 1988 California insurance reform initiative ""and not due to the elimination of a third-party's right to sue an insurance company over an auto accident,'' he said.

Spokesmen for two different California insurance trade organizations in Sacramento agreed with the foundation's data, but disagreed with its conclusions.

""The foundation has twisted the data to fit its party line,'' Jerry Davies of the Personal Insurance Federation of California said.

Mr. Davies attributed the reduction in insurance company claims costs payouts ""because the Moradi-Shalal vs. Fireman's Fund decision repealed the third-party liability law that needlessly drove up insurance premiums.

""California auto accidents increased more than 82 percent when third-party litigation was lawful between 1979 and 1988,'' he continued. ""Since its repeal, those costs have been cut in half, and insurance companies have passed along the savings to their customers.''

OBVIOUS CONCLUSIONS

Barry Carmody, president of the Association of California Insurance Cos., said, ""It's obvious to me that the reason for the results aren't what the foundation is purporting them to be.

""From our standpoint, third-party bad-faith litigation fueled alarming rises in insurance costs. When that factor was removed, premiums decreased accordingly.''

A representative of the California Insurance Department declined to comment because the state regulator had not yet seen the report.


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