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• The incentives to sue in the current system cause rampant fraud and abuse:  Under the current liability insurance system, accident victims have strong incentives to make unnecessary visits to health care providers for even the most minor injuries. This is because pain and suffering awards are typically calculated by tripling the amount paid for medical bills and lost wages. Thus, the more medical bills individuals can produce, the higher the amounts they can recover for pain and suffering. As a result, the current system enables people with minor injuries to recover payments, on average, that far exceed their actual loss.

A 1995 RAND Institute for Civil Justice study concluded that more than one-third of medical costs were "excess" – claims  based on costs from staged accidents and unnecessary visits to medical practitioners to build up expenses and thereby increase pain-and-suffering awards. RAND estimated the total bill for this fraud to be between $13 and $18 billion per year. A large portion of such artificially inflated recoveries goes to plaintiffs’ attorneys, who typically receive about 1/3 of the plaintiffs’ award. Most of this excessive recovery is associated with relatively minor injuries.

• The current system fails to compensate serious injuries adequately:
  While people with minor auto accident injuries recover far in excess of their actual losses, people with serious injuries are grossly undercompensated because few drivers can afford sufficient liability insurance to pay for serious losses. On average, victims with medical bills and lost wages totaling between $25,000 and $100,000 recover only about one-half (56 percent) of these losses. Victims with losses over $100,000 recover just 9 percent of their economic loss and, by definition, nothing for pain and suffering.

• The current system is expensive and slow:  Lawyers in auto insurance litigation currently consume more than 25 cents out of every premium dollar, nearly 25 percent more than the amount injured people receive for legitimate medical bills and lost wages. Many injured persons have to wait between two and four years or even more in some metropolitan areas to receive payment from the other driver’s insurer.

• The current system places an unfair burden on low income Americans: A study in Maricopa County, Arizona, found that lower income drivers had to pay nearly 32 percent of their income for auto insurance. Many had to put off payments for food, rent and other necessities.  The JEC found that, as a whole, low income families pay seven times the percentage of household income on auto insurance that the well-to-do spend. Lower premiums would enable many low income workers to afford the cars they need to travel to better-paying jobs and to enable people to move from welfare to work.

If you have questions about the Auto Choice Reform Act, please contact
pkinzler@cox.net