Car Talk

On average, Americans spent $774 to insure each of their cars in 1996, reports the National Association of Insurance Commissioners. The problem, says House Majority Leader Dick Armey (R-Texas), is that this money buys each policy holder a mandatory ticket in a "tort lottery." Bipartisan "auto choice" legislation championed by Armey promises to lower insurance costs and make entering that lottery voluntary–and less lucrative for the winners, most of whom are trial lawyers.

Armey cites studies by the Rand Corp. and the congressional Joint Economic Committee. The JEC finds that 28 cents of every dollar Americans spend to insure against bodily damage, which constitutes roughly half of total car insurance premiums, lands in an attorney's pocket. And while victims of minor accidents make out well under the current system, a 1991 Rand study found that individuals who are badly injured recover only a small portion of their total damages. Individuals who suffered losses ranging between $500 and $1,000 typically received 2.5 times the amount of damages in compensation, but those who suffered losses of more than $100,000 recovered only 9 percent.

Legislation sponsored by Armey and Rep. Jim Moran (D-Va.) and Sens. Mitch McConnell (R-Ky.), Joseph Lieberman (D-Conn.), and Daniel Patrick Moynihan (D-N.Y.) aims to reduce the costs of auto insurance by giving Americans the choice of purchasing no-fault protection.

Under auto choice, individuals could buy a no-fault policy (called Personal Protection Insurance) or stick with traditional insurance. Those who obtain Personal Protection Insurance would be reimbursed by their own insurance companies for losses in an accident but would forgo their right to recover damages for pain and suffering. Those who continue to carry traditional insurance policies and are involved in an accident would retain the right to sue but would pay for the privilege of doing so.

Proponents of auto choice say the option of buying Personal Protection Insurance would for the first time make the cost of entering the lawsuit lottery explicit. The JEC estimates that auto choice could potentially reduce premiums by as much as 24 percent, for an average reduction of $184 per vehicle. Savings over the next five years could reach $193 billion.

Armey has declared auto choice his top legislative priority. Bills are expected to reach the floors of the House and Senate in July.