Insurance: Trying for Answers

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Hoping to reform their beleaguered industry on their own terms, 168 auto-insurance companies last week proposed sweeping revisions in the kind of coverage they now offer. The companies, which write 38% of U.S. auto insurance, belong to the Manhattan-based American Insurance Association, whose president, T. Lawrence Jones, admitted that "there is an immense and growing public problem with the existing system of auto insurance." In presenting its own solutions, however, the A.I.A. met with opposition both within and outside the $10 billion-a-year industry.

The plan, based on a 15-month study of insurance claims in 11,000 auto accidents, was aimed at two of the policyholders' biggest headaches: soaring premium rates and slow payment of claims. It was advanced at a time when the auto-insurance industry has come under the scrutiny of Congressional investigators and the Department of Transportation. Auto insurance is also the subject of a reform movement at more local levels, where most of the interest centers on a plan, devised by Law Professors Robert Keeton of Harvard and Jeffrey O'Connell of the University of Illinois, that has been proposed in various forms before the legislatures of ten states.

Jackpot Urge. The new A.I.A. proposals, which would require either overall federal legislation or individual action by the states, share with the Keeton-O'Connell plan the idea that auto-insurance companies should promptly pay off their policyholders regardless of who is to blame for an accident. The A.I.A. contends that by dispensing with the legal need to prove negligence, a requirement that often ties up insurance cases for years, insurers could not only settle accident claims more quickly but could reduce premiums by an average of one-third.

Under the A.I.A. plan, a motorist who desired protection against damage to his own automobile would be obliged to buy regular collision, fire, theft or comprehensive insurance. Instead of the usual liability policy, however, he would carry compulsory coverage under which he (and his passengers) would be reimbursed immediately by his own insurance company—not the other drivers'—for all hospital and medical expenses, damage to property other than automobiles and lost wages of up to $750 a month for an unlimited period.

The Keeton-O'Connell plan aims to minimize legal hassles over settlements but preserves the policyholder's right to go to court to ask for damages in certain cases. The A.I.A. plan, by contrast, would rule out virtually all liability suits. It would also specifically bar payments for "pain and suffering," which presently account for some of the most generous damage settlements arising out of auto accidents. The practice of suing for pain and suffering, charged the A.I.A., leads to "dramatization of injury" and "panders to the 'jackpot urge.' "