Proposition 200 seeks no-fault car insurance

Proposition 200 seeks no-fault car insurance

If passed, measure will hold insurer responsible for bodily
injury claims

By Bess Hubbard

Daily Bruin Contributor

Proposition 200, if passed by Californians in March, will remove
lawyers from the automobile insurance injury claims process
forever.

Called "The Pure No-Fault Auto Insurance Act," Proposition 200
seeks to radically alter car insurance in California by making
insurers liable to their clients to pay bodily injury claims
regardless of fault, up to the amount of coverage purchased.

The ballot measure would also make it impossible to sue for
personal injury claims in almost all instances. Required coverage
would range from $50,000 to $1 million for personal injury
protection, with optional coverage going as high as $5 million. The
proposition also provides for coverage of vehicle occupants,
pedestrians and bicyclists involved in the accident.

Additionally, uninsured motorists could not sue for damages in
an auto accident, should the measure pass.

Supporters of Proposition 200 argued that legal fees, fraud and
payments to uninsured motorists who sue for damages account for 50
percent of all premiums paid and are responsible for the high cost
of insurance in California. In theory, Proposition 200 is believed
to eliminate these costs.

"Common sense tells you (Proposition 200 will reduce these
costs) because it will eliminate the incentive for fraud, it will
eliminate legal costs and it will remove the amount you pay for
uninsured motorists claims – all these are eliminated," said Mike
Johnson, author of the measure. "Nearly 50 percent of premiums goes
to legal fees, fraudulent claims and uninsured motorist
subsidies."

Those savings are mandated by law to be passed on to consumers
by the insurance companies, Johnson said. Proposition 103, a ballot
measure passed in 1988, placed a limit on the amount of profit
auto-insurance companies can earn.

Rather than passing on the savings directly with rebates,
insurers will most likely charge lower rates in step with their
savings from claims and fraud. In turn, California consumers will
be able to buy more coverage for their money.

Johnson cited a recent RAND Corporation study which estimated
that an individual with the currently mandated minimum coverage
could purchase $1 million in personal liability coverage under
Proposition 200 and still save 39 percent in premiums.

"What these cost savings would mean for California drivers
depends on the coverages they purchase and the relationship between
the costs insurers incur on behalf of those they insure and the
premiums they charge," wrote RAND researchers Stephen Carroll and
Allan Abrahamse.

But if a California driver opts to stay at the minimum level of
coverage, he or she would pay 53 percent less for insurance under
Proposition 200, according to the RAND study.

Despite that report, whether Proposition 200 will actually lower
premiums remains uncertain, and is hotly debated by its supporters
and opponents.

Harvey Rosenfield, the author of Proposition 103, is a key
leader in the fight against Proposition 200. He has two
organizations under his leadership: Proposition 103 Enforcement,
working to check attempts by insurance companies to unlawfully
raise rates, and Citizens Against Phony Initiatives, which he
founded to specifically combat Proposition 200, 201 and 202 – that
together are designed to effect major tort reform in
California.

Contradicting Johnson’s assertions, Rosenfield argued that
Proposition 200 will raise, not lower, rates.

"It is an inherently more expensive system," said Rosenfield,
citing a National Association of Insurance Commissioners study that
showed states with some form of no-fault insurance experienced rate
increases averaging 46 percent, while California’s rates went down
slightly between 1989 and 1994 because of Proposition 103.

Though Rosenfield admitted insurers would save in legal fees, he
said their savings would be outweighed by a much heavier load of
personal injury claims.

"The question is: If you cut down on lawsuits, is that going to
offset the higher cost of paying both parties," Rosenfield asked.
"The answer is no; medical care claims payments (take up) most of
the premium dollar."

Despite each side’s claims, no one is quite sure what will be
the net effects of Proposition 200.

In this election’s ballot pamphlet, the Legislative Analyst does
not even address costs and savings to consumers, remaining in the
more easily counted area of cost savings to the government.

In addition, a look at the groups who are for and against
Proposition 200 is difficult to decipher. Gov. Pete Wilson and
several natural and unnatural allies support the proposition. These
include the Calif. Chamber of Commerce, Business Roundtable and
Trucking Association.

On the other side, Consumers Union, the publishers of Consumer
Reports, is against it, calling it "an unacceptable reversal of
consumer rights."

The Insurance Commissioner’s office is noncommittal, pending
completion of its own consumer analysis.Comments to
[email protected]