On Wednesday, the American Insurance Association (AIA) challenged the findings of a study released by the Foundation for Taxpayer and Consumer Rights (FTCR).
The study, which focuses on the cost of no-fault auto insurance systems, “is self-serving and misleading, with conclusions based upon irrelevant comparisons and hidden special interest agendas,” according to David Snyder, AIA vice president and assistant general counsel. “The study’s flawed conclusions should not be taken seriously to support turning over more consumer rights to the whim of the trial lawyer-dominated tort system. We think American consumers and public officials deserve better. They have the right to all the facts on the cost of a no-fault auto insurance system placed in the relevant context,” Snyder asserted.
The FTCR study compares states with very different levels of both statutorily-mandated minimum coverage limits and driving conditions to allege that no-fault states are invariably more costly for policyholders. According to the AIA, in reality, in high-cost no-fault states, (e.g., New York, New Jersey and Pennsylvania), factors such as severe traffic congestion and higher crash rates actually are the cost drivers. Models which take real world driving conditions into account show that repealing no-fault laws in these states – and replacing them with tort-based claims systems – actually would lead to 10 percent to 15 percent higher premiums and less benefits for injured victims of motor vehicle crashes; this is largely because lawyers would take a significant portion of the claims dollars.
“Choice no-fault systems in New Jersey and Pennsylvania are working,” stated Snyder. “As an example of possible no-fault savings, the U.S. Congress Joint Economic Committee estimated potential savings of $48 billion annually if people could choose a generous automatic payment/low litigation no-fault system instead of being forced into the type of lawyer-controlled litigation system that exists today in most states.
“Although the study refers to the tort-lawyer controlled systems mandated in most states as ‘personal responsibility,’ the reality is that consumers have no ability to exercise this ‘personal responsibility’ by deciding what kind of system they want,” Snyder continued. “Instead, everyone is forced into the tort-liability system.”
According to AIA, perhaps the most egregious allegation in the study is the purported benefits from the massive regulatory bureaucracy built up in California as the result of a narrowly approved set of anti-free-market rules, known as Proposition 103. “Contrary to the claims of the study, Proposition 103’s regulatory behemoth has not produced lower auto insurance rates for California consumers,” stated Snyder. “Rather, improvements in the California auto insurance marketplace have come about as the result of lower liability costs, improved fraud detection and greater public safety.”
Turning to another reported missing link in the FTCR study, Snyder stated that, “this grossly misleading study chooses to overlook the fact that the states listed as reaping significant savings by repealing no-fault never really had a strong no-fault system. In these states, the trial bar gutted the laws to begin with, by carving out huge opportunities to litigate, and then proclaimed that the systems didn’t work. The systems didn’t work because they were never given an opportunity,” concluded Snyder.
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