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Symposium on Automobile Insurance, Negligence & Compensation Law, 1 Conn. L. Rev. 1 (J1 68).
Vondra, Comprehensive Motorists' Protective Policy, 1969 Ins. L.J. 339 (JI 69). Weston, & Ring, What Now?, 34 Ins. Counsel J. 526 (O 67).
Widiss, Perspectives on Uninsured Motorist Coverage, 62 N. w. U.L. Rev. 497 (S-O 67).
FOREIGN Aponte & Denenberg, Automobile Problem in Puerto Rico, 1968 Ins. L.J. 884 (1968). Gibson, Non-Fault Automobile Insurance, 11 Can. B. J. 172 (Ap 68).
Gilbert, Le mecanisme du recours are fonds d'indemnisation des victims d'accidents d'automobile, 28 Rev. du B 154 (Mr 68).
Linden, Auto Accident Compensation in Alberta : toward Peaceful coexistence?, 6 Alberta L. Rev. 219 (1968).
Linden, Automobile Accident Compensation in Ontario, 15 Am. J. Comp. L. 301 (66–67).
Motor Vehicle Act (Western Australia), 8 U, Western Aust. L. Rev. 204 (D 67).
Pfennigstorf, Unification of the Protection of Traffic Victims Europe, 15 Am J. Comp. L. 436 (66–67).
Robbins, Mexican Automobile Liability and Insurance Law, 47 Mich. S. B. J. 22 (Ja 68).
Whitehouse, Canadian "Facility", 18 Fed. Ins. Coun Q 44 (Summer 68).
OTHER PROPOSALS Automobile Reparations-Pro & Con: A Symposium, 19 Fed. Ins. Coun. Q. 35 (Spring 1969).
Blum & Kalven, Stopgap Plan for Compensating Auto Accident Victims, 1968 Ins. L. J. 661 (Ag. 68).
Crisis in Automobile Insurance Today, 35 Ins. Coun. J. 607 (0 68). Gathering Storm in Automobile Injury Compensation : A Workable Solution? 22 U. Miami L. Rev. 151 (Fall 1967).
Goodman, A.M.I.A. Looks to the Future, 19 Fed. Ins. Coun. Q. 102 (Fall 1968).
Hodosh, Auto Compensation Plans and the Claims Man, 1968 Ins. L. J. 816 (0 1968).
Hofstadter & Pesner, National Compensation Plan for Automobile Accident Cases, 22 Record 615 (N. 1967).
Holden, Compensating the Automobile Traffic Victim, 42 Wis. B. Bull. 18 (Ap. 69).
Knepper, Automobile Compensation Controversy, 26 Wash & Lee L. Rev. 17 (Spring 1969).
Pretzel, Automobile Insurance Problem, 18 Fed. Ins. Coun. Q. 51 (Summer 68).
Symposium on Automobile Insurance, Negligence, and Compensation Law, 1 Conn. L. Rev. 1 (Je. 68).
Tinker, Guaranteed Benefits v. Keeton-O'Connell Plan, 1968 Ins. L. J. 732 (S. 68).
Vondra, Revised plan for Protective Automobile Insurance, 1969 Ins. L. J. 7 (Ja. 69).
LAW SCHOOL OF HARVARD UNIVERSITY,
Cambridge, Mass., January 6, 1970. Senator PHILIP A. HART, Chairman, Antitrust and Monopoly Subcommittee, U.S. Senate, Washington, D.C.
DEAR SENATOR HART : I am pleased to respond to your request of December 17 that I answer the questions referred to herein.
1. Why should auto accident victims be compensated regardless of fault when a victim of a sidewalk fall still has to show fault to be compensated?
Whenever one of two individuals must bear an accidental loss suffered by one as a result of the activities of the other the fault principle is both a fair and a sensible basis for determining whether compensation is due. A very different situation exists when insurance coverage for a particular type of loss has developed to the point that no individual will bear the loss if compensation is awarded, because it is covered by insurance. In these circumstances, we blindfold ourselves to the facts if we continue to deal with the problem on the assumption that one or another of the individuals must bear the loss.
We have reached this point of near-universal insurance coverage in the automobile accident situation. That is not the case as to sidewalk accidents.
A second reason that sidewalk accidents may be distinguished from automobile accidents is that they do not so often and so clearly involve high risks of injuries to other persons caused by one's own activities.
Every state has enacted financial responsibility legislation bearing on automobile accidents. This is a clear demonstration of a judgment—and a wise one, I submit—that the automobile accident reparations problem deserves special attention. 2. Should the costs of motor vehicle accidents be borne by :
(a) Negligent motorists?
(c) Society as a whole (including for example, non-motorists, auto manufacturers and highway builders? As Professor O'Connell and I have indicated on pages 256–272 of Basic Proteotion for the Traffic Victim, we believe that the costs of motor vehicle accidents should be allocated so that, first, all motorists bear shares of the cost (because one factor contributing to accidents is the degree of prevalance of motoring generally as distinguished from negligent motoring) and, second, negligent motorists bear somewhat greater shares of the cost. I think it appropriate, also, that other institutions or groups in society bear such portions of the costs as can be fairly adjudged to be within the distinctive risks their activities and enterprises have created. For example, costs of automobile accidents resulting from defects existing in automobiles when released by manufacturers are quite appropriately charged against manufacturers.
3. If a compensation system modifying but retaining fault was adopted, would such a system be more costly to the public than (a) the present system and (b) a complete no-fault compensation system?
A compensation system that modifies but retains fault may be either more or less costly than the present system or a complete nonfault compensation system. The answer depends mainly on the extent to which the modification effectively attacks the main sources of waste in the fault system. It depends also on the level of benefits under the various systems under comparison,
On the basis of actuarial studies already reported, it appears clearly that the Basic Protection proposal (which retains the fault system for extra compensation to severely injured persons, though depending primarily on nonfault compensation), as well as the American Insurance Association complete nonfault compensation system, would be very much less expensive to the public than the present system. The relative cost of Basic Protection and the American Insurance Association system is debatable. In this connection, it should be noted that the American Mutual Insurance Alliance's primary criticisms of the AIA Cost Study are leveled at aspects of the AIA Cost Study affecting their estimate of cost of the AIA Plan but having little if any effect on the AIA estimate of cost of the Basic Protection Plan. For example, an error in estimating the cost of compensating for permanent injuries (which the AMIA Study charges) would have little, if any, effect on the estimate of costs under Basic Protection because Basic Protection has a $10,000 limit on nonfault benefits. The AIA Plan, in contrast, has no overall limit.
Tempora rizing proposals that add some nonfault compensation on top of the fault system and fail to dispense with use of the fault system in the great mass of small and medium-sized cases would plainly be the most expensive of all. They would even cost more than the present fault system, since they preserve its wasteful characteristics and add more costs on top of it.
4. Do you consider the auto insurance premium to be in the nature of a tax on motoring?
I think of the automobile insurance premium as payment for a product and service rather than as a tax on motoring. Insofar as the word “tax” implies a public charge not allocated in proportion to the service or product received, it implies a method of allocating costs among citizens that is contrary to the conception of paying a fair share for the product and service. Arguments on this question can become largely semantic, however. Perhaps some who speak of a "tax on motoring" are thinking of "tax" in a broad sense that allows for fair allocation among "taxpayers" on the basis of the benefits they receive. In that broad sense, even an insurance premium paid to a private insurer rather than a government body may be seen as a "tax."
5. What effect, if any, would a state compensation system modifying but retaining fault have on state court dockets?
The answer to this question depends heavily on the nature of the compensation system.
If the system dispenses with court trials and uses an Administrative Board instead, obviously it has a beneficial effect on state court dockets. But this does not solve the problem of delayed payments, since the administrative tribunal too may become subject to serious delays.
If the modifications of the fault system were substantial enough to eliminate the mass of small fault claims, this too would have a beneficial effect on state court dockets. That is, if the state system were one that retained the right to court trials but eliminated fault as a criterion for liability in the great mass of small and medium sized cases, it would sharply reduce the burden on state court dockets. If, on the other hand, the modifications of the fault system were mere temporarizing measures, such as adding nonfault compensation on top of the fault system, they would not contribute at all to solving the problem of overburdened state courts and they might even make the problem worse.
It should be noted that a solution for the excessive burden on state court dockets must involve not only changes in the automobile compensation system but also adequate provisions for the increasing load of criminal cases incident to Supreme Court decisions of recent years.
6. What effect, if any, would a Federal compensation system modifying but retaining fault have on:
(a) State court dockets?
(b) Federal court dockets? As in relation to Question 5 the answer depends heavily on the nature of the compensation system that is assumed.
If the federal compensation system established administrative tribunals for hearings in lieu of court trials, of course this would have a beneficial effect on state and federal court dockets. But this would not necessarily meet the problem of delayed compensation payments, since delays in hearings might develop in the federal system as they have in many workmen's compensation systems.
If the federal compensation system simply established federal criteria for liability in lieu of state criteria but still allowed cases to be filed in both state and federal courts it would have little effect on court dockets unless the federal criteria of liability eliminated fault in the great mass of small and medium sized cases. If this change in criteria were made, it would produce a beneficial effect on both state and federal dockets. Respectfully submitted.
ROBERT E. KEETON.
DECEMBER 17, 1969. Mr. JUDSON B. BRANCH, Chairman of the Board, Allstate Insurance Co., Allstate Plaza, Northbrook, III.
DEAR MR. BRANCH: The Senate Antitrust and Monopoly Subcommittee is in the process of closing its auto insurance hearing record. We are interested in receiving current information and your present views on auto insurance issues.
1. Would you please allocate the 1968 annual statement policyholders' surplus of Allstate Insurance Co. as set forth below:
(a) Paid up capital.
(1) Excess (or deficiency) of book value of securities of affiliated corporations over cost.
(2) Excess (or deficiency) of market value of securities of nonaffiliated corporations over cost. 2. We would appreciate your reviewing the enclosed tables 13–24. Does the information contained in these tables, showing share of the auto insurance market by state, indicate to you a high degree of concentration in the auto insurance business?
3. Would you please review tables 25, 25a, 2a and 29. Does the information contained in these tables accurately reflect a true rate of return on a net worth (policyholders' surplus) basis? We would welcome any comments you care to make.
(You will note in tables 25a and 26a that no adjustments were made to statutory underwriting results nor to policyholders' surplus to reflect any equity in the unearned premium reserves; in tables 25 such adjustments were made.)
4. Does the Allstate Insurance Co. charge less than the Insurance Rating Board's indicated private passenger auto insurance rates in the following states :
(a) California ("suggested" indicated rate)
(e) Ohio If Allstate charges less than the IRB's indicated auto insurance rates in California, Missouri and Ohio, how does it determine the rates to be charged the public in these states?
5. It is our understanding from recent testimony that private passenger auto insurance rates are made basically by relating loss costs per exposure (car year). Some 65% of the private passenger auto insurance premium dollar is earmarked for claim and adjustment costs (permissible loss ratio). These claim and adjustment costs differ as to rural and urban areas, from city to city and sometimes within a city. Furthermore, we understand that medical, repair costs, wages and other items underlying claim payments are not under the control of individual insurance companies.
Would you please explain how "open competition" among individual insurance companies in any given state would reduce (a) claim and (b) adjustment costs or would bring benefits more in line with premiums? (Please see tables 1, 3 and 4 enclosed.) Does Allstate believe that Federal antitrust is a necessary concomitant to competition?
Doesn't "open competition" on the state level place the burden of proving whether or not auto insurance rates are excesive on an unknowledgeable public?
6. Does auto insurance ratemaking in concert, and the pattern of deviating from these rates by independent companies, and larger bureau companies, result in the smaller companies (see tables 13, 14 and 15) actually being the price leaders in terms of the published or indicated bureau rates?
7. On December 8, 1969, Mr. Bernard L. Webb's report to this subcommittee on Collective Merchandising of Automobile Insurance was made a part of our hearing record.
We are enclosing a copy of this repori as requested by your Washington representative. We are interested particularly in receiving your comments as to the material contained in pages 50 through 56.
Mr. Webb deduces from his computations that Allstate can only justify an auto bodily injury insurance rate reduction of 2.1% less than the Insurance Rating Board's gross rate based on savings in the expense factor.
Would you comment on these computations on pages 52-54. If you agree that they are approximately corect, do Allstate's present auto bodily injury insurance rates (either countrywide or on a state by state basis) exceed the 2.1% reduction from IRB's gross rates?
If your present auto bodily injury insurance rates exceed the 2.1% reducton, would you please explain how you justify these percent rates.
8. We would also appreciate your furnishing us with your private passenger, nonfleet, auto bodily injury countrywide average pure claims cost per car year for 1968. If this cannot be furnished, Allstate's average pure claims cost per car year for Ohio, New York and Maryland will do. (Please describe what the "pure claims cost” contains.)
9. According to Professor Robert Keeton of Harvard Law School, the following portions of each premium dollar collected for private passenger auto bodily injury liability insurance is paid net to accident victims :
(a) 14.5¢ for out-of-pocket losses not already compensated from other sources, (b) 8% for losses also compensated from other sources, and (c) 21.5€ paid in excess of actual loss (in theory for pain and suffering).
We would welcome any comments you would care to make. (The enclosed hearing record at pp. 38-42 contains his complete analysis.)
What auto insurance system would Allstate recommend to eliminate (a) overlapping of benefits and (b) payments in excess of actual loss?
We are grateful for your continuing cooperation and would appreciate receiving the requested comments and data by January 10, 1970, as we are anxious to close the hearing record. Sincerely,
PHILIP A. HART, Chairman, Antitrust and Monopoly Subcommittee. Enclosures.
ALLSTATE INSURANCE CO.,
Northbrook, II., April 21, 1970. Hon. PHILIP A. HART, Chairman, Subcommittee on Antitrust and Monopoly, Committee on Judiciary,
U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN : The following is the response of the Allstate Insurance Company to the questions set forth in your letter of December 17, 1969.
1. The allocation of our policyholders' surplus (Allstate Insurance Company) as of year end 1968 is as follows: Paid up capital --
$3,000,000.00 Paid in and contributed surplus --
51, 872, 018. 28 Retained earnings------
366, 675, 048. 37 Unrealized appreciation on investments. Excess of book value of securities of affiliated corporations over cost----
54, 309, 004.14 Excess of market value of securities of nonaffiliated corporations over cost------
258, 549, 090.68 Total
734, 405, 161. 47
Paid up capital..
3,000,000.00 Paid in and contributed surplus--
51, 872, 018. 28 Retained earnings----
439, 772, 765. 93 Unrealized appreciation on investments. Excess of book value of securities of affiliated corporations over cost-----
59, 983, 670, 55 Excess of market value of securities of nonaffiliated corporations over cost------------------------------- 151, 550, 411. 01
706, 178, 865. 77 2. We have reviewed the information set forth on tables 13 through 24. The information contained in these tables does not, in our judgment, permit the allegation of "a high degree of concentration in the auto insurance business."
On the contrary, we see evidence in those tables of vigorous competition and a confirmation of what we have observed as we look at the growth of our own company-that is, a tendency for highly competitive companies relying on price competition to grow at a faster rate and hence to increase their market share in comparison with companies who make rates in concert and rely upon more expensive systems for distributing their product.
Even though the growth of companies like Allstate, State Farm, Nationwide, and The Farmers Insurance Exchange has been outstanding during the past two decades, no one of these companies threatens to dominate the automobile insurance business. Allstate, for example, has a percentage of the market for private passenger cars country-wide amounting to only 8.6%. This would hardly suggest the kind of concentration that we see in a host of other industries-e.g., automobile manufacturing, suppliers of steel, aluminum, brass, etc., business machine manufacturers, and a multitude of other manufacturing activities dominated by two, three, or four major companies.
Further, confirmation of the competitive nature of the automobile insurance business is to be found in the tables which you have supplied indicating that 858 insurance companies were operating in 1969 as compared with only 800 in 1958.
3. We have reviewed tables 25, 25A, 26A, and 29. We do not have the data supporting the calculations of the rates of return but have only the footnotes on the tables and the references to sources. The comments which follow, therefore, are based on the limited information available to us.
Unrealized appreciation in investments in stocks is included as an item of return for property-liability insurance companies. We question the validity of isolating one class of assets of property-liability insurance companies, which has appreciated, and including that appreciation as income. It would seem only reasonable to include unrealized depreciation in investments in bonds as a loss or deduction from income if the unrealized appreciation in the investments in stocks is included as income.
Companies in most industries carry assets, depending on the kind of asset, at cost, or cost less depreciation, or the lower of cost or market, or sometimes at nominal amounts. Assets such as plant, equipment, tools, patents, real estate, leases, natural resources and inventories would be carried by these companies tappraised or market values or net selling values if they were afforded a treat