The Cayetano plan represents a major rewrite of the state's costly no-fault auto insurance system, which is the second most expensive in the nation behind New Jersey and has been very profitable for local insurers.
"Hawaii's auto insurance carriers enjoyed record profits over the past year," Cayetano said in his State of the State speech yesterday. "It is now time to give Hawaii's consumers a break."
State Insurance Commissioner Wayne Metcalf said the administration is proposing a mandatory rate reduction of 25 percent to 35 percent, starting in Jan. 1, 1998.
The bill does not fully repeal no-fault auto insurance, but moves the system closer to a tort-based one in which accident victims can recover damages by suing drivers who are at fault, Metcalf said.
The measure also aims to:
Eliminate duplicative medical coverages by shifting accident victims' medical costs above $3,000 to the state's prepaid health care system. Medical costs below $3,000 could be picked up under an optional coverage known as a "med-pay" plan, Metcalf said.
Discourage small lawsuits by automatically reducing by $5,000 any award that an accident victim receives from a suit, settlement or arbitration.
Repeal the medical-rehabilitative threshold for lawsuits. Under Hawaii law, car accident victims can sue negligent drivers if damages exceed $13,000. Critics have argued that the $13,000 threshold encourages accident victims to pad their claims.
Reduce fraud through stiffer penalties.
Business leaders have criticized Cayetano's past similar efforts, arguing that shifting medical costs to the state's prepaid health care system would add costs for employers who pick up most of the tab for health care insurance.
Insurers, meanwhile, say the plan will drive up costs by increasing litigation. Eliminating the $13,000 threshold would create more lawsuits, said Paul Ables, legislative chairman for the Hawaii Insurers Council, a trade group.
But Metcalf noted that at most the shift would increase overall insurance rates by 5 percent. The $5,000-award reduction will eliminate many of the small lawsuits, he added.
The proposal comes as local carriers are enjoying healthy profits. One study found an 18 percent profit on each premium dollar collected in Hawaii in 1995.