Dear Senator:
Re: 2 Bills for auto insurance savings
The Joint Economic Committee invited support for the Auto Choice Reform Act (S. 625, H.R. 2021) in a press release titled "Attention Women." After careful study of the Act, we drafted the enclosed Per Mile Auto Insurance Option Act. We invite you to consider sponsoring it as a companion or competing bill.
Similarities and differences in the bills include:
The JEC finds, based on a RAND study, that under Auto Choice the "average female driver could cut their insurance premiums by more than $200 a year simply by choosing a different auto insurance plan." Without changing their insurance plan, however, any individual under the Per Mile Option can reduce their premium expense as much or more according to how much driving they do at a cents-per-mile price.
The bills would act on opposite ends of the insurance arrangement: Auto Choice treats payout structure; Per Mile Option treats pay-in allocation within existing territories and risk classes.
The Per Mile Option bill incorporates the Auto Choice bill's federalism strategy of optional acceptance first by state legislatures and then by consumers. Both bills lay out economic arguments as congressional findings to inform state lawmakers. Their findings overlap to some extent, and both note the harmful economic effect that the cost of insurance now has in reducing purchases of automobiles. The Auto Choice bill, however, retains fixed premiums that add to the financing cost of ownership, whereas the Per Mile Option bill makes insurance a controllable cost of operation like gasoline.
Both bills list problems caused by high auto insurance cost in some urban areas. The Per Mile Option bill describes how insurance charged as a fixed cost of car ownership needlessly inflates this cost (Sec.2 (c)(1)).
The JEC press release touches on NOW's primary interest by stating that "[e]ven though insurance companies consider women more responsible drivers, you still pay punishingly high premiums for auto insurance." In fact as a lower income and therefore lower mileage group, women on average now pay nearly twice as much per mile as men for the same coverage. The Findings section of the Per Mile Option bill also notes the disparate impact on women as the family care-takers when catastrophic injuries are inadequately insured (Sec.2 (b)(3)(B)).
Since occupants of heavier vehicles tend to sustain fewer injuries than occupants of lighter cars with which they collide, heavier vehicles should be less costly than lighter vehicles for 1st party insurers to cover, and, by the same token, more costly for 3rd party liability insurers. By increasing the proportion of accident cost paid by 1st party coverage over 3rd party coverage, the Auto Choice Act may result in insurance prices that encourage purchase of heavier cars, raising safety concerns for lighter ones. (Of course to get the Act's savings many car owners would switch to its 1st party no-fault coverage. But even owners staying with the right to sue and be sued on the basis of fault would have their 3rd party liability expense reduced by no longer having fault liability for the no-fault cars they hit, while concurrently having to pay the Act's new 1st party Tort Maintenance Coverage for their own injuries if caused by the fault of drivers who chose no-fault.) In contrast, the Per Mile Option, as pay-in reform only, would not alter existing balances between 1st and 3rd party coverages.
Until now our work on per mile auto insurance has been at the state level in rate litigation and legislation, thereby developing substantial information. Because feasibility has been a key question, we are also enclosing our Pennsylvania Operation study. More information on problems created by the current automobile insurance price structure—and what per mile insurance can do about them—may be obtained by telephoning 331-0066 ext. 727 for Patrick Butler (Insurance Project Director) or ext. 768 for Jan Erickson (Government Relations Director).
The designers of the Auto Choice Reform Act have foreseen the need and mechanism for a national dialog on auto insurance. We hope that you will help to broaden this dialog to include the Per Mile Auto Insurance Option Act.
Sincerely,
Patricia Ireland, President
Enclosures:
Per Mile Auto Insurance Option Act (Comment Draft II)
Operation of an Audited-Mile/Year Automobile Insurance System Under Pennsylvania Law—a Study Prepared for Sponsors of SB 775 and HB 1881 and Other Interested Members of the Pennsylvania General Assembly, 29 pages (plus executive summary),1992