Reforms Needed to Counter Liability Insurance Rip-off

Blaming everybody but themselves, as they arbitrarily cancel policies or rocket their premiums five or ten fold while reducing coverage, these companies, soaring with profits, are hoping that their jolted victims, which include day care centers, municipalities, physicians and many small businesses, will push legislatures to restrict the rights of injured Americans to sue defendants responsible for hazardous products or conditions.
Will the insurance victims turn on the injured victims and lobby lawmakers? Or will they turn on the insurance companies and demand some answers and some reforms? A lot is at stake — tens of billions of dollars and safety rights — depending on which direction is taken.

Let’s look at a few recent scenes from around the country. A few days ago at a public meeting of 700 consumers, business people and physicians in Portland, Oregon, the doctors were shocked to learn that the major medical malpractice insurance company — CNA — had made over 30S return on net worth selling Oregon doctor’s policies from 1976 to 1983.

In Providence, Rhode Island, before an official commission studying the malpractice insurance roller coaster, it was learned that only eleven physicians were responsible for 24% of the entire payout of verdicts and settlements over the past ten years. There are 1700 practicing physicians in Rhode Island. Other states, including Pennsylvania and Florida, have similar situations and all states do a poor job of disciplining incompetent doctors.

In Paramus, New Jersey, Ray Cohen, who started a successful used car rental business by the name of Affordable Rental Cars, found his insurance cancelled in December. His claim record was very low. In desperation he located alternative insurance at three times the price with only 5 percent of the coverage. Now, an aroused Cohen wants to start a self-insurance company for auto dealers.

There is a spreading awareness in the business and non-profit community that the casualty insurance industry is manufacturing the crisis, refusing to disclose detailed data line by line, state by state, and using its abused policyholders as pawns in rolling back victims’ rights to sue and recover compensation. Already just one in twenty victims of medical malpractice receive any money for their injuries; the industry wants to make it more difficult for the one person in twenty to achieve justice in courts.

Four Congressional hearings are scheduled on the liability insurance situation during February and March. Hearings are being held in dozens of state legislatures. And Commissions of Inquiry, such as established by New York’s Governor Cuomo, are underway in several states.

Other groups are discovering the facts by surveying their members. The National Association for the Education of Young Children (1034 Connecticut Avenue, NW, Washington, DC 20009) examined the effects of rising insurance rates and unprecedented cancellations on over 250 child care programs in 43 states. “Payments on all claims reported by child care programs accounted for just 3 percent of premiums they paid during the past year, not taking investment income into account,” reported Dr. Deborah Phillips who conducted the survey. She concluded: “our nation’s child care programs have fallen victim to a fabricated crisis.”

Some insurance agents are informing consumer groups of their outrage over their companies’ lockstep misbehavior. These agents resent being tarnished by underwriting practices they say they cannot control. Yet it is they who have to take the heat from the indignant policyholders.

Taming this inflationary and avaricious push on the insurance customer should riot be difficult. Insurance Commissions need to use their existing authority to crack down on these rip-offs and compel the companies to disclose their line by line revenue, income and payouts. Congress needs to pass legislation providing for standby federal reinsurance that is self-financed by premiums and facilitating self-insurance to permit business and regular consumers to buy group liability policies in the auto, homeowner and business coverage areas. A Federal law is required because years ago the casualty insurance lobby passed prohibitions on such group policies (unlike group health and group life) in most states.

Finally, federal legislation removing the antitrust exemption from the insurance industry arid regulating foreign offshore reinsurance companies like Lloyd’s will bring the industry rapidly to its senses. All these reforms do not burden the budget; they will only stop the binge.

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