Calif. Consumer Advocate Rosenfield Urges Mass. to Repeal No-Fault, Make Other Auto Changes

Massachusetts should repeal its no-fault law, end its reliance on uniform state-set rates, and remove the state antitrust exemption for auto insurers if it wants to improve its auto insurance system for consumers.

That advice comes from the author of California’s own Proposition 103 that turned the insurance business in that state upside down more than 15 years ago. Harvey Rosenfield flew into Boston from his organization’s home in Santa Monica to share the results of a new study that claims no-fault insurance is a “disaster” for consumers and a “bonanza” for insurers.

“No fault has failed to live up to insurers’ promises of lower insurance rates. Lower premiums can be achieved by repealing failed no-fault laws and instituting strict state regulation,” said Rosenfield, founder of the Foundation for Taxpayers and Consumer Rights.

The study claims that if Massachusetts had repealed its no-fault law five years ago, consumers would have saved $200 million, or an average of $50 per year on a basic policy. It cites even bigger savings in states that have repealed their no-fault insurance systems since 1980, including Georgia ($76), Connecticut ($145), and Pennsylvania ($156).

Overall, premiums are 19 percent higher in no-fault states than in personal responsibility states where drivers sue, according to the study. The report also found that auto insurance premiums rose 92 percent faster in no-fault states than in other states between 1998 and 2002. The study maintains that Massachusetts premiums are 37 percent higher than California’s, in large part because of the no-fault system.

Why is no fault more expensive? According to the study, no-fault is more costly because it results in twice the number of people being covered and eligible for benefits than under a personal responsibility system. Both the innocent victim and the person who caused the accident are paid. Also, the study claims that no-fault’s mandatory payments create incentives to increase medical treatment and encourage fraud. No-fault also fails to reduce litigation because it retains the litigation for property damage. In a final criticism, the report says no-fault encourages reckless driving by people because they are shielded from personal responsibility.

At his press conference near the State House in downtown Boston, Rosenfield maintained that insurance companies love no-fault because of the investable cash flow it produces. For them, he said, no-fault is a “cash cow” and a “bonanza.”

He acknowledged that repeal of no-fault leaves more people to turn to their health insurance for coverage of medical bills, which could in turn raise health insurance premiums. But he maintained the increases would not be as big as the savings in car insurance.

In addition to repealing no-fault, Rosenfield, who was born in Randolph, Mass. and educated in the western part of the state before settling in California, urged Massachusetts to adopt other features of the system now in place in California, where premiums that were well above the national average have fallen to that average since reforms were enacted in 1988. Under Rosenfield’s Proposition 103, auto insurers were required to refund $1.2 billion to insureds. The law also requires each insurer to justify its own rates (Massachusetts sets rates for all insurers) and made the office of insurance commissioner an elected position (in Massachusetts, it is an appointed position). California did not have a no-fault statute, however.

The no-fault study uses statistics supplied by insurers to the National Association of Insurance Commissioners. It was funded by a grant to Rosenfield’s group that came from funds in a settlement against Wal-Mart.