However, in her column Chang also said that State Farm "doesn't want drastic changes in no-fault laws." That is simply not true. State Farm has been very vocal in advocating major changes to our no-fault system.
Many people assume that State Farm's motive is purely profit-driven. But our motivation is simply our desire to offer our customers the best coverage at the lowest possible price.
It is true that auto insurance companies with stock investors, such as AIG and Allstate, have an economic interest in protecting profit margins. A pure no-fault system would not only significantly reduce premiums for consumers, but also would dramatically reduce revenues.
On the other hand, mutual insurers like State Farm are owned by their policyholders. They have no economic incentive to do anything other than what benefits their customers. It is important to remember that when a mutual company has "profits" in excess of what is needed to cover claims and catastrophes - the excess gets returned to policyholders as dividends. This, in fact, has occurred in Hawaii several times during the past 10 years.
A change to a pure no-fault system would lead to a large decrease in the cost of auto insurance.
One major cost area is associated with the ability of individuals to sue after they exceed $11,000 in medical bills. Many individuals - attorneys and service providers - oppose any restrictions to this right to sue. Those who make their living from fees from auto lawsuits stand to lose tremendous income.
Also, since a pure no-fault system would remove incentives for people to build up their medical claims, many doctors, chiropractors, massage therapists and other medical providers would see a significant drop in the demand for their services in auto-related treatments. Since their incomes also would be diminished, these are some of the real special-interests involved in the no-fault debate.
However, they should not be the focus of attention. The real issue is what is the best auto insurance system for consumers.
And the most recent legislative "go-around" left that question unresolved as two diametrically opposed solutions were considered: pure no-fault and a return to a tort system.
The higher the medical expenses, the larger a potential award for "pain and suffering." A 1995 Rand Study documented that, conservatively, 35-42 percent of claimed medical costs appear to be excess, which adds roughly $100-$130 to every auto insurance policy.
It is the absence of attorney involvement and removal of incentives to build up claims that allows a pure no-fault system to provide more benefits at a lower cost than a tort-based system.
If people want to have "pain and suffering" benefits, this can be a option for those who wish to pay for it. The fact is that the "right to sue" system simply costs too much. It is ineffective, time-consuming and does not adequately compensate the very seriously injured.
The House plan to return to a tort system, which was supported by the governor , allowed for a reduction in premiums primarily by shifting the cost of auto medical coverage to pre-paid health insurance, in addition to reducing mandated coverage limits.
But careful consideration raises a critical question of whether it is fair to shift the cost of auto accident claims to all purchasers of health insurance, when some of them do not drive. In fact, many people who don't drive are among those who can least afford the increase in health premiums, namely the elderly and those with limited incomes. It makes more sense to have those who drive pay for the costs associated with driving.
Since employers in Hawaii pay a large share of employee health insurance premiums, a shift of the cost of auto insurance to health insurance would be paid for largely by employers. At a time when our economy is struggling, does it make sense to impose additional costs on businesses?
Why not create an auto insurance system that implements some of the most successful cost-saving mechanisms currently provided for in pre-paid health plans?
Managed care is a good example. By employing a well-designed managed-care plan in the auto insurance system, the cost benefits are realized without incurring the inequities that result to employers and non-drivers when health insurance is made primary. This approach is currently operating with success in Colorado.
A strong "verbal threshold," as opposed to our dollar threshold, would go a long way toward removing incentives to inflate claims that currently exist. A "verbal threshold" describes the types of injuries, such as broken bones or lost limbs, that are eligible to bring a tort claim and lawsuit, as opposed to setting a dollar amount.
Verbal thresholds are more effective than monetary thresholds in holding down costs, depending on the language used.
Choice "no-fault" insurance is another option to consider. This system works best when those who wish to retain the right to sue (and pay for it) can recover from their own insurance company when the at-fault driver has chosen pure no-fault coverage.
Consumers can't expect to get something for nothing. The level of savings on auto premiums will depend on the cost-cutting changes they are willing to make.
It will not be enough to cost-shift to other areas. Rather, we need to identify and reduce expenses so that real cost savings are realized. Until we address these costs - excessive claiming and unnecessary legal involvement - Hawaii's drivers will continue to pay too much for insurance.