Happy Accident

You're driving on a busy city street in a light rain. The car ahead of you stops suddenly, and you brake a few seconds late, skidding into its rear bumper at about 5 mph. Getting out of your car, you see a small dent on the other vehicle; the driver says he's fine. Should you breathe a sigh of relief? Not in Philadelphia.

In the City of Brotherly Love, according to a study by the Insurance Research Council, about 75 percent of accidents causing property damage also give rise to a bodily-injury claim. That's five times the rate in Pittsburgh, six times the rate in Harrisburg.

The IRC study examines the number of bodily-injury claims per 100 property damage claims, a rough measure of the likelihood that someone will seek compensation for injuries after an accident serious enough to generate repair bills. It found that the rate varies between states with similar liability laws and even within states. For example, based on figures for 1985–87, the rate was much higher in Cleveland (40 percent) than in Cincinnati (21.4 percent); in Miami (37.5 percent) than in Jacksonville (1 1.2 percent); and in Los Angeles (60.6 percent) than in San Francisco (37.4 percent).

In the 37 states with fault-based insurance systems, the rate rose nearly 30 percent from 1980 to 1989. The five states with the highest rates in 1989 were California, Arizona, Louisiana, South Carolina, and Nevada. With the exception of Louisiana, all of these states have had car-insurance affordability problems serious enough to prompt legislative responses in recent years.

A nationwide study that the IRC conducted in 1989 found that "the areas with high injury claim frequencies have fewer deaths and serious injuries than other areas. The additional injury claims recorded in high-frequency areas are mostly for neck and back sprains."

This finding suggests that higher ratios of bodily-injury to property-damage claims are largely due to fraud. The Insurance Crime Prevention Institute reports that Philadelphia, Los Angeles, and South Carolina all have serious problems with car-insurance fraud, including staged accidents.

Less dramatic abuses abound. "You see the bumper stickers around that say, 'Hit me—I need the money,'" notes R.J. Young Jr., vice president for auto pricing at Allstate Insurance. "It's a way to get some money."

Experts say various factors may explain why people in some areas are more likely to file fraudulent claims, including the average length of residence, attitudes of local attorneys and judges, and levels of income and employment. Young suggests that high insurance rates encourage the padding of claims: "When people pay more, there may be a feeling of entitlement.…They say, 'I paid a lot of money for a long time. I want to get some back."