Now that tax reform is law, auto insurance reform is moving high onto the legislative agenda, according to House Majority Leader Dick Armey.
Armey introduced a bill earlier this summer that would drastically alter the auto insurance landscape by creating the first nationally available no-fault auto insurance policy. But the bill got shoved aside while Congress pushed to complete the tax law before summer recess.
Now Armey, who has only sponsored two other bills in his legislative tenure, promises to turn up the heat and get this bill–dubbed “auto choice”–passed before the 105th Congress adjourns.
The Texas Republican says his auto insurance bill would effectively provide another tax cut to most Americans. Low-income families, in particular, often spend an inordinate amount of their income on auto insurance, Armey says. Indeed, some studies have indicated that as much as one-third of a low-income family’s after-tax wages go to paying auto insurance.
With the cost of the average auto policy running $750, auto choice advocates estimate that this policy could save the average driver $243 a year. And the savings could be greater–averaging more than $300 annually–in high-rate states such as California, New Jersey, Connecticut, New York and New Jersey. Two-car families could potentially enjoy double the savings.
“I have five children who are all raising young families,” Armey adds. “This would put $500 back into their pockets by effectively lowering their cost of insurance. I’m very excited about that.”
The cost reductions would result from eliminating a large portion of the litigation surrounding auto accidents. According to a study conducted by the Joint Economic Committee, litigation expenses cost about 28 cents in every auto premium dollar.
Notably, the auto choice concept has generated significant non-partisan support. A parallel bill, co-sponsored by Democrat Sen. Daniel Patrick Moynihan of New York, has also been introduced in the Senate. And a host of academic and business groups have lined up in support.
To be sure, auto choice also has its share of critics. The powerful Association of Trial Lawyers of America (ATLA) is actively fighting the legislation, for example.
What auto choice would do is create a new type of auto insurance policy– called “personal protection insurance”– that could become available in every state. (Insurance is regulated by states, not the federal government. This bill would not change that, so state regulators would ultimately decide whether or not this policy would be offered in their states.) The policy would differ from those offered today in that it would eliminate coverage for liability–the coverage that kicks in when somebody sues you.
Instead, your auto insurance coverage would cover any damage sustained by you in an accident–regardless of whether that damage was inflicted on the car, on your body or on one of your passengers. The other guy’s policy would cover the damage to his car, self and passengers. Bickering over who caused the collision would become obsolete except in cases where economic damages exceed the individual’s policy limits. In such cases, you would be able to sue, based on fault, to recover any so-called “economic” losses that were not already covered.
What’s an economic loss? Anything that comes with a quantifiable price tag: car repairs, medical bills and lost wages, for example.
What would not be covered under this basic policy is compensation for so-called “pain and suffering” damages. These hard-to-quantify damages, which are imposed in litigation to punish wrongdoers and compensate accident victims for the emotional toll of an accident, often amount to three times the cost of economic damages.
If you wanted to retain your right to sue for non-economic losses under the auto choice system, you would have to buy a separate “tort maintenance coverage” policy. And, even then, you wouldn’t necessarily be able to sue the person who caused the accident. You would be suing your own insurer, under your TMC policy, to get compensated for pain and suffering.
By making the people who sue solely responsible for the cost of litigation, auto choice advocates maintain the cost of “personal protection insurance”– basic auto insurance–would drop dramatically.
However, trial lawyers counter that several states already have some form of no-fault insurance and, by and large, these states have higher–not lower– auto insurance premiums.
“It’s true that no state has adopted a true no-fault system,” acknowledges the ATLA. “But that’s the only experience we have to judge no-fault.”
Counters Armey: “When this is passed in my home state of Texas, I predict that 90 percent of the Texas trial attorneys will buy this policy for themselves. And I am very comfortable with that prediction.”
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Comments on this, or other, legislation can be directed to lawmakers by snail mail: U.S. House of Representatives, Washington, D.C. 20515; U.S. Senate, Washington, D.C. 20510. A directory of Congressional E-mail addresses can be found at www.webslingers.com/jhoffman/congress-email.html
