Discount Auto Insurance And Auto Accident Insurance Claims

Discount Auto Insurance in No Fault States

With the number of claims down by more than one-third from 1970, the anticipated average cost per claim also fell substantially lower. Unlike fault claims, which take longer to evaluate and become more expensive with time, no-fault claims are settled quickly and at more stable amounts. By applying fault principles to no-fault, the insurance companies over-reserved: About 90 per cent of actual no-fault payments have been used to pay medical bills, with the remaining 10 per cent going for lost wages and substitute employment. Find discount auto insurance online.

The fact that economic losses are far more susceptible to investigation and control than intangible losses has led to a much lower average in claim cost than under fault. The average no-fault claim, paid during the first nine months of 1971, came in at a price of about $140 per claim – almost six times less than a fault claim during 1970, instead of the 50 per cent decrease projected.

The total average of all claims, fault and no-fault, for the same period amounted to $165. This illustrates the slight impact the handful of remaining fault claims had on the total average. Since both fault and no-fault claims were brought together, there are as yet no independent statistics available to separate the performance of the two systems.

Because of the two vital mistakes—claims volume and average claims payment—favoring the insurers, the companies collected much more premium than was warranted. During the first nine months of 1971, a total of 13,900 claims had been paid. These payments amounted to only $2.3 million, which is staggering when compared with the total premium intake of about $123 million.

By deducting the expense ratio, which should have decreased due to a fall in claims volume, the companies were still left with a fund of about $80 million from which to pay claims. Even if every person injured during 1971 in Massachusetts had presented a claim to his insurance company for no-fault benefits, and the average of claim payments had risen from $165 to $200 million, the maximum conceivable amount payable from this fund would have been only $20 million.

Even when increasing the average claim figure to $300, the maximum amount payable by the companies would be only $30 million, compared to the $80 million set aside for claims payments. While it will be a number of years before reserves are adjusted to losses, a conservative estimate of the companies’ profits lies in the range of $50 million. And this figure does not take into account any income earned on investments of reserves.

In setting the 1972 rate, Commissioner Ryan acknowledged that the 1971 compulsory personal injury rate had been excessive by at least 27.6 per cent, an admission by the regulatory agency that the Massachusetts motoring public had been overcharged by the insurance industry by about $35 million during 1971. Even the most ardent supporters of no-fault, including former State Representative Michael Dukakis, felt this figure was unduly conservative in view of the loss experience to date. In any event, in 1971, the insurance companies made a killing.

One wonders whether or not the industry, with its staff of financial wizards and actuarial merlins, could have been honestly mistaken. One suspects that, during the no-fault debate, the companies knew well that the Massachusetts version would bring them enormous profits. Is it any wonder that, on the basis of what has been given them in Massachusetts, the industry is strongly promoting no-fault in other states?


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