Highway Robbery

According to the Automobile Insurance Companies, the under–twenty-five male should be married, live on a farm, and drive only to church, slowly, over placid rural lanes. Otherwise, if a young man persists in living in happy bachelorhood in a city, the companies are going to stick him with the highest rates in the business, in order to make up from him what they are now losing for reasons that have nothing to do with under–twenty-five male drivers.

Consider Ken, for instance. He is a twenty-four-year-old man-about-town who has been driving since he was sixteen. Smooth and deft behind the wheel, Ken has yet to dent a fender or get a traffic ticket. But Ken pays three times more for his automobile insurance than anyone else in his city, male or female, of any age (other than his or under), who has an equally clean driving record. Statistics say that the twenty-year-old girl Ken sometimes dates is more accident-prone than he. She has a car of her own, which she uses constantly, but she doesn't pay anything like the $200 that Ken shells out for insurance. She pays precisely $70 for the same coverage, just like all other clean-risk drivers in town who do not have the good fortune to be male, single and under twenty-five.

The $200 premium that Ken pays has little or nothing to do with the likelihood that he, personally, will have an accident, and the insurance companies know it. Yet, because the companies can make a reasonable-seeming statistical case against the whole class of under–twenty-five drivers, Ken is penalized for being young. This would be unfair even if the case against under–twenty-five males had much substance, which, by the way, it does not. At present, male youth is serving the insurance companies as a whipping boy.

Before we take a closer look at the under–twenty-five statistics, certain not-generally-publicized facts about automobile insurance must be made clear. The first is that premium rates are set primarily on the basis of how much it costs to settle damage claims in any given area – not by how many accidents are likely to occur there, nor by how many accidents the policyholders are likely to sustain. Accidents, and claims paid, are two different things, not necessarily related.

Indeed, insurance men concede we would all be paying the cheapest premiums in history if the accident rate alone determined the price of the policy, because the accident rate has been falling these past fourteen years, while the number of cars on the road has doubled, and the number of people buying insurance has increased fourfold. The companies say that we are paying the highest automobile insurance prices in history chiefly because it costs more than ever to settle claims. Then they go on to say that the cost of settling claims has increased for reasons that have nothing to do with driving a car, much less to do with any category of drivers, such as "males under twenty-five."

According to insurance men, the major problem is that sharpshooting lawyers are persuading gullible jurors to give the companies' money away. They also blame high-binding garagemen, crooked insurance adjusters who split with dishonest repairmen and corrupt cops, inflation, higher wages, rising (continued on page 90) Highway (continued from page 80) medical costs and the increasing complexity of automobile design – matters for which under–twenty-five males can scarcely be held responsible.

Presently, the companies say, a large part of each premium dollar finds its way into the pockets of members of the National Association of Claimants' Compensation Attorneys – a league some seven thousand strong which publishes trade journals and newsletters to advise its members of the latest gimmicks and jury-teasers with which to bleed insurance firms. Many lawyers draw their entire livelihood from suing insurance companies, and one, at least, operates in what can only be called interstate commerce, employing runners in several jurisdictions to find people who can be persuaded that they have been greatly injured and need to sue.

Such legal specialists enter the courtroom asking for damages on the basis of whatever the lawyer imagines the victim might have earned during his lifetime, had he not been hurt or killed. They think nothing of demanding half a million dollars for a single client who, even in the best of health, might represent a net social deficit. The reason for the grandiose demands is that the lawyers wish to make money. Ernst W. Bogusch, N.A.C.C.A.'s executive director, is quite candid about it. "We are not against the insurance companies," he told one insurance man. "We love them. We just want to take away their money."

Hence, the lawyers sue on a contingency basis, being paid only if they win, but taking a one-third cut of awards less than $5000 and a fifty-percent cut of anything over. They shoot for the moon, and find that juries are usually willing to give it to them, because of the general public notion that billion-dollar insurance companies have more money than they know what to do with. Even though it is normally grounds for mistrial to let a jury know that an insurance firm is involved in a damage suit, most juries somehow get the idea, and, as one recent juror said, "What the hell, it was the company's money. We figured we might as well give it to this widow."

And give it away they do – $25,000 for two broken teeth in one case; $73,000 for a broken nose in another; $100,000 for loss of a toe. Perhaps the weirdest thing about these jury awards was the fact that state appellate courts upheld them.

While most court awards are the result of a gifted lawyer's plucking legally, if gaudily, upon a jury's heartstrings, some awards are obtained through outright flummery. At this writing, District Attorney Frank D. O'Connor of New York City is investigating the symbiotic relationship that two lawyers and two doctors apparently enjoy. Mr. O'Connor believes that the two lawyers represent more than a reasonable number of clients who need to sue insurance companies, and that the two doctors bob up as their witnesses with a frequency wholly outside the laws of probability. One of the lawyers, Mr. O'Connor says, was observed speeding to the scenes of auto accidents in the cab of a tow truck. While the D.A. may succeed in nailing this hitchhiking shyster, it is far less likely that he will succeed in nailing the lawyer's friendly witness, because most doctors will not take the witness stand to brand a fellow physician a quack. As long as this situation endures, fraudulent medical testimony will remain almost impossible to prove.

Other cases of fraud are more straightforward. The files of insurance firms are crammed with documented records of faked X rays; of X rays that are quite legitimate, but happen to depict the broken bones of persons other than the claimants; of the names and fingerprints of professional floppers who have masqueraded under dozens of aliases whilst artfully falling unhurt before slow-moving automobiles. As a result of such deceptions; of slipshod thinking on the part of jurors; of the slick maneuvers of legal specialists; and of rising hospital costs, the average settlement for bodily injury claims has doubled nationally since 1946. It has tripled in New York City.

Likewise, in property damage cases, which almost never go to juries, claims again are much higher than in 1946, thanks to inflation, rising labor costs, increasingly difficult-to-repair automobiles, laziness and an increasing amount of hanky-panky. The first three points need little comment, except to note that damage costing $50 to repair in 1946 might well cost $300 to repair in this era of electrically-operated windows and $200 wrap-around windshields. But another reason why the total repair bill is at record height is because not all insurance companies are as diligent as they might be in shopping for the cheapest repairman. For instance, one city's Better Business Bureau checked on a damage claim for $90. The insurance adjuster had merely telephoned the repair shop to which the car had been taken, discovered that the bill would be $90, and authorized payment. The B.B.B. says that if the adjuster had checked with a shop down the street, he would have found that he could have had the same work done for $30.

Apart from this sort of laziness on the part of company adjusters, naked thievery increases the amounts of claims paid, and thereby increases the price of policies. Rates recently went up in the Philadelphia area, for instance, because a syndicate of crooked claims adjusters, insurance company claims department employees and garagemen stole half a million dollars from twenty insurance firms. Acting District Attorney Paul M. Chalfin said the plan was simplicity itself: the adjusters merely presented fake claims, the insurance company employees wrote out the checks, and then everyone split the loot. While this was going on, the insurance companies, suspecting nothing, argued for higher rates because the cost of paying claims was rising, and the State Insurance Department granted the increases. Now, S.I.D. agents are poking into the mess, but there is no indication that the people who paid the higher rates will ever get a refund in the shape of a compensatory decrease – even though the public was the innocent victim of the companies' crooked employees. Meanwhile, in New York City, current investigations indicate that tow-truck operators have been paying policemen to call them in cases of accidents. The cars are towed to repair shops where crooked adjusters agree to jacked-up bills. The insurance companies of course pay the bills, and in some cases, the adjuster and the repairman have split little windfalls of more than $300 on phony repairs to a single car. In another case, a man who grew tired of his station wagon arranged with a tow trucker to haul the thing away to a shop where it was dismantled. Then he reported it stolen, collected the insurance and split with his associates.

Since the companies know that such games are being played with them, one would normally expect them to be doing everything possible to defend themselves, such as hiring better lawyers and efficient detectives. One might also expect them to be campaigning for new laws, modeled on those of England and Canada, that would prevent lawyers from taking cases on contingency. The companies could also demand that court-appointed physicians examine accident victims to determine the extent of permanent injury, if any. They could also ask for new state laws setting forth a scale of compensatory damages, and thus put an end to outrageous jury awards. If the companies are doing anything like this, they are doing so in comparative secrecy. Publicly, they say there is little they can do but pass the bill along to their policyholders.

It is at this point that the companies stop talking about paying claims, and start talking again about accident rates, but this time with the end in view of shoving off on the under–twenty-five male the major responsibility for paying the high-powered lawyers' fees; for feeding the crooked and the lazy; for (continued on page 141) Highway (continued from page 90) footing the higher hospital bills; for paying for inflation, rising wages and the complexity of automotive design. If the young man complains, the companies have words of comfort for him: "A good driver sets his own rates," the companies say. "The only way to bring down your premium cost is for you to have fewer accidents."

But if like Ken, the young man objects that he is a good driver, who has never had an accident, the companies say: "Drivers under twenty-five are involved in twenty-eight percent of all accidents, although they make up only eighteen percent of the driving population. Those who are involved in more than their share of the accidents should pay for most of the damage. Sure, there are individual hardships when you deal with statistical groups, but as a member of a dangerous group, you are a real risk to us. We can't insure on an individual basis, so we charge you a higher rate, because you're a statistical menace. What could be fairer than that?"

Plenty could be fairer than that, particularly in view of the fact that the number of accidents is not the only factor involved in figuring out the price of the premium, and that no allowance is made within the group for those under-twenty-five drivers whose records are spotless. As for insuring on an individual basis, some actuaries believe this can be done, and the only reason why it isn't is that most actuaries seem to think it would be too complicated.

It has been tritely, if accurately, observed that you can prove almost anything you wish when you begin to toss statistics around, and this is indeed the case with the statement that "Twenty-eight percent of all accidents involve drivers under twenty-five." The statement becomes less ominous when it is remembered that to say "involved in" always produces a larger number than to say "caused by." Many young people are involved in accidents caused by someone else. Moreover, many insured drivers are involved in accidents on which no claims are paid, and which should therefore not be counted for statistical purposes if the cost of settling claims is to be the chief factor in the equation. Furthermore, when the companies say "all accidents" they are also including such cases as those featuring uninsured delinquents who have been driving stolen automobiles.

Even if it were true that under-twenty-five drivers caused twenty-eight percent of all accidents, and that claims were paid in every case, there would still be no real justification in translating this to mean male drivers under twenty-five, and thereupon sticking the guys with the bill. It is true that more men are "involved in" more accidents than women, because more men drive more miles. But a study of New Jersey accident statistics – valid for metropolitan areas and hence particularly applicable to this article – shows no evidence that either sex is involved in, or causes, proportionately more of one kind of accident than another. Therefore, no case can be made that men are involved in worse, and thus more costly, accidents than women. Moreover, the National Safety Council says that on the basis of "miles driven by each sex, females have a higher accident rate than males." Additionally, the N.S.C. says that the accident rate for males has been constantly decreasing since 1952, while that for women has just as steadily grown worse.

Therefore, if the insurance companies should put a surcharge on youth, it would seem logical, if unchivalrous, for them to ask women under twenty-five to pay the highest premiums. But such is not the case. Most companies put no surcharge on under-twenty-five females.

Instead of refining their statistics to give a completely accurate picture of the under-twenty-five group as a whole, and of the under-twenty-five male driver's actual liability in particular, and then making allowances for good drivers, the insurance companies have simply been content to lump all under-twenty-five males into the category of assigned risks. These are risks which underwriters do not care to insure, but which, because of state law or otherwise, must be insured. This insurance is handled through a pool of insurers and assigned to companies in turn.

But here again, the company argument against youth begins to come apart at the seams. In Wisconsin, for example, insurance firms fall all over each other in their scurry to be the first to sign young men to the dotted line. This is because each company must take its quota of assigned risks in Wisconsin, where, if you are a male under twenty-five, you are an assigned risk automatically. But the companies have discovered that young Badgers are relatively good risks. They discovered that fifty-two percent of Wisconsin's assigned risks were owners under twenty-five, shoved into that category solely because of their age, but that some eighty percent of them had never had an accident of any kind, nor any traffic violation charged against them at the time of assignment of insurance. To be sure, many of these young men had probably never driven before seeking insurance, but enough others had so that the Wisconsin insurance companies eagerly seek to fill their assigned risk quotas with under-twenty-five males. The only possible conclusion is that the companies know very well that it is safer to take a chance on a young male than on anyone else in the assigned risk category.

It also turns out that even the most tolerant insurance companies include, for statistical purposes, the performance of all drivers within a classification group – not just the insured drivers. Thus, when the single, urban male under twenty-five buys insurance, the price he pays is figured in part on the accident performance of all young, urban bachelors, including the uninsured, the criminal, the irresponsible, the stupid, and the just plain fool kids, who hot around in everything from stolen Cadillacs to fourth-hand jalopies. Common sense, if not charity, would presume that people who buy insurance are apt to be more responsible, better risks than those who do not. Therefore, if the risk of accident is to have any place in the equation, the statistics should be confined to the histories of the insured drivers.

The companies are equally remiss for not taking into account the driver's education. They have not bothered to collect statistics to prove what everyone knows to be true: that a college-bred male is apt to be more stable, and far more responsible, than an unlettered young hood. Instead, when the companies think about education, they talk about training – driver training. Many offer a ten-percent reduction in the premium price to the under-twenty-five male who has passed a driver training course of which the company approves. The companies say that statistics prove that a young man who passes such a course will be "involved in" fifty percent fewer accidents than one who does not take the course. But here again, the companies' offer is somewhat risible, because if passing the course reduces the risk by fifty percent, then it would seem logical to reduce the price of the policy by fifty percent. To offer ten when the odds say fifty seems as peculiar as for a bookie to offer 333-1 when the odds on the number are 999-1.

All this talk about the risk of accident is clearly beside the point anyway, when we remember that the companies really are not half so worried about the likelihood of a policyholder's cracking up as they are about finding someone to pay the cost of claims. Looking for someone to pick up the tab, they've hit upon the young urban bachelor, fudging on the true meaning of the figures pertaining to the under-twenty-five group; seemingly contradicting themselves by offering special rates within the group; calling young men bad risks and then rushing off to sign them up; and, in the matter of driver training, throwing one lousy sardine to a school of trained seals. Mean-while, they claim they are losing money, even at the high premium rates. They say their losses run anywhere from 40 to 119 percent on under-twenty-five males.

It is incontestably true that they are losing money on some kinds of insurance in special cases, but they are not losing money, period. When the companies talk about claims paid, they do not say that the money they make on the sale of automobile collision and fire and theft policies normally more than makes up for their losses on liability policies covering property damage and bodily injury. One company that is crying the loudest, and is pressing for even higher rates to make good its losses on some kinds of automobile insurance, admits to assets worth more than three billion dollars; has half a billion more stashed away in a surplus fund wholly apart from the huge reserve the law requires it to keep; enjoys an annual income of half a billion more; pays out six million dollars in dividends to stockholders, and is by no stretch of the imagination anywhere near bankruptcy. In fact, during the past three years, when the companies claimed industry-wide losses on automobile liability insurance, they all paid taxes and mailed out dividends.

The question here is not whether the companies are honest. No doubt they are, within the framework of the laws and practices governing the sale of automobile insurance. But there is a question of whether those laws and practices should be changed, and it has been raised within the industry itself.

Forthright economies practiced by a few big, independent concerns have made mincemeat of the argument that everyone is losing money. The lower rates the independents offer are a telling argument against the pressure to raise rates in general. The independents are those firms that do not belong to such organizations as the National Bureau of Casualty Underwriters which – when all is said and done – are genteel clubs devoted to price-fixing. By saying the hell with the clubs some years ago, the independents went gunning for the club members' clientele.

First, they adopted electronic office equipment and central billing practices, and started to cut operating costs. Selling policies over the counter, putting their agents on salaries instead of commissions, they whacked eighteen to twenty percent off the price of the premiums. A spokesman for one of the old-line stock companies moaned that "this cutthroat underwriting has made the automobile insurance business some. thing resembling a gasoline price war." To which an independent official retorted, "His company is a model of how not to run an insurance business."

The big independents are operating well in the black, and one reason is that they fight claims – including claims filed by their own policyholders, not all of whom may be above fibbing. Many oldline firms have been settling out of court at the first hint of suit, rather than take their chances against a quick lawyer and a slow jury. Unfortunately, this practice has merely invited suits, and has run up losses which the companies have blandly passed on to their policyholders in the form of more costly premiums.

By fighting claims and suits, cutting office costs and abolishing agents' commissions, the independents brought their rates down, but they further reduced them by splitting the driving public into increasingly narrow categories. To be sure, this practice – as in the case of the under–twenty-five male – could be carried further, and more accurately, but the net effect has been to reduce the price of the policy for many a good driver past twenty-five. It has also had the effect of raiding the old-line companies' customer lists – leaving them stuck with the bad risks – while attracting to the independents those who do not get into accidents, and who see no reason why they should pay the way for those who do.

Some independents, trying to be more fair (and to get more business), tacitly admitted that it was unrealistic to shove all under–twenty-five males into assigned risk categories. They established different rate schedules within the under-twenty-five group. One company divides the nation into several hundred different rating areas, and within the several areas, sets different rates for more than thirty types of car use.

Thus, it offers a lower rate to an under–twenty-five male owner if he is married and drives to work, than it offers an unmarried male owner, under twenty-five, who drives to work. There are different rates for under–twenty-five males who are not owners, but who are principal users of the family car, than for under–twenty-five males who are not owners, but who drive the family car less than fifty percent of the total annual mileage. Likewise, there are rates for the under–twenty-five unmarried males who do not drive to work; for the ones who do drive, but do not work in the city, and so on. But even the companies that make the greatest efforts to differentiate among under–twenty-five male drivers make no allowance for an individual's spotless record. And they all set the highest prices on policies written for the under–twenty-five urban bachelor. Indeed, this year's new rates for New York City drivers will put an additional burden on the under–twenty-five male, who already may be paying as much as $400 for his insurance, while lowering other rates – particularly those charged other drivers for collision insurance.

Grimly, the old-line companies have begun to adopt some of the independents' practices, particularly in breaking down their clientele into more sophisticated classification groups, and by being quick to cancel on bad risks. But then, by guaranteeing not to cancel during the life of a five-year policy, one of the independents has just made a mockery of the instant cancellations which many firms have practiced.

The simple purpose of canceling a policy is to reduce the insurance firm's clientele to those who never have accidents. It is perfectly legal, and thoroughly reprehensible, particularly when practiced arbitrarily. For example, a firm can decide to get out of a high-risk area merely by refusing to continue to do business there. It can, for instance, send notice of cancellation to all under–twenty-five male owners who live in Columbus, Ohio. Just like that. Of course, the firm refunds the "unused" portion of the premium, but leaves the policyholder standing there, looking dubiously at his money, uninsured and without the legal right to sue the company for its obvious breach of faith.

Moreover, companies will sometimes cancel without bothering to determine whether the policyholder was in fact responsible for his accident. A vice-president of one of the largest life-insurance companies admits that he was afraid to inform his automobile insurance firm of three of the four accidents he sustained last year – none of which were his fault. He reported and collected for the first, but did not report the others because, he said, "I was afraid they'd cancel me."

Perhaps this man was unduly timid, or perhaps he understood the insurance business only too well. In any case, an insurance policy is worthless if it is not at least a partial guarantee of something; you cannot say you are protected if the condition is that you never ask for protection. But, the life insurance man went on to say, "I'm waiting for that big accident."

As he waits, he is wondering whether to switch to the independent company offering the five-year, guaranteed non-cancelable policy. Like thousands of other drivers, he is also wondering, "If the, independents can charge less, and offer more, why can't the rest of them?" This question, and not just the loss of customers, is giving the old-time companies fits, for they know that if it becomes generally asked, government regulatory programs will soon be coming.

This fear was observed in The Wall Street Journal's recent report on the price war raging among insurance concerns. Nothing that nearly all companies were plugging somewhat cheaper "safe driver" policies for accident-free drivers – while simultaneously arranging to soak the under–twenty-five drivers even more in order to cover what they might lose by such schemes – the Journal said:

"Even while they're promoting their new plans, insurance officials are getting jittery about the effect of stepped-up competition. . . . Higher rates for the accident-prone may not be enough to offset lower rates for the majority, and once companies have ballyhooed reductions in some risk categories, they fear public pressure would prevent state regulatory officials from granting needed increases. If the squeeze kills off many small firms and jeopardizes the protection of policy-holders, some insurance men worry they will only have paved the way for dreaded federal regulations."

And well they might worry, in view of the fact that the plain English translation of their procedures seems to be, "Let's unfairly gouge the under–twenty-five males, because we can make a plausible-sounding case against them, and also because they represent only eighteen percent of the driving population."

At this point, we come to the real questions in automobile, or any other kind of insurance – questions that cannot be answered by assuming that any one view of the statistics is correct. For, as Dr. John F. Adams, Temple University professor of insurance, says, "In the end, it must be recognized that one's social philosophy may have as much or more to do with establishing the insurance system finally selected than any documentary arguments, behavior or performance, no matter how cogent."

Some fundamental questions are:

To what extent should government become involved? Is insurance a public utility these days, and should it be so regarded? Should the sale of insurance be a matter of private enterprise? If so, are not the private concerns really engaged in interstate commerce, and therefore should not their regulation be a federal, rather than a state, matter? Finally, is the present system of automobile insurance fair?

At present, in order for a victim or his heirs to recover damages for injury or death, it is necessary to prove a driver's negligence. Under this system, many people receive no compensation at all for damage suffered in accidents that are really nobody's fault, while others regard the system as an inducement to fraud. Special, cheaper policies offered "safe" drivers can logically have only one result: pricing bad drivers off the roads. While there might be something said for this idea, one effect of the "safe-driver" policies is already apparent: people are concealing property-damage accidents from the companies and the cops, thus not only breaking the law, but also failing to receive compensation to which they are entitled and for which they have paid.

Two states – Massachusetts and New York – have compulsory liability insurance laws, and almost no one is happy with them, because you can drive a tank through their loopholes. In Massachusetts, for example, if you have only the state-required minimum policy, you are not covered if you crack up in New Hampshire, nor even if you come to grief in your own driveway. The policy covers you only on Massachusetts roads and streets. Moreover, insurance men say that one effect of compulsory state insurance is to increase the amount you must pay for insurance if you want full coverage. For you must add other coverage to the state minimum. Ordinarily, this sounds like a six-of-one, half-a-dozen-of-the-other proposition, but insurance men say no. They say compulsory insurance makes the public more claims-conscious, with the result that more cases come to court, that higher awards are granted, and that higher rates ensue.

One way out of the mess, now being studied in California and practiced in some Canadian provinces, is to abandon the whole theory of liability and to substitute a compensation program. Under the California scheme, every car must be insured; the Canadian plan says every driver. But in either scheme, compensation is granted for every accident, no matter whose fault it was. And to put an end to ridiculous jury awards, the compensation is paid on a fixed scale: so much for a busted headlight; so much for a broken leg. Compensation for bodily injury is keyed to rates determined by type of injury, length of medical care, and so on. A limit is also fixed on compensation for fatal injury. In Canada, the Saskatchewan Provincial Government sells this insurance and administers the program, on the theory that anyone's loss is the public's. This is regarded as arrant socialism by U.S. insurance companies, but the cry of socialism is raised whenever a social innovation is proposed.

Unless and until the present systems are changed, however, either voluntarily by the companies or by state or federal intervention, the under–twenty-five city bachelor seems destined to be the fall guy. His best hope is that the insurance companies will clean house; that they will fight their own legal battles instead of calmly handing him the bill; that they will work for greater economies in their operations; that if they plan to sell "safe-driver" policies, they will write some for him, too. But this is a frail hope indeed, in view of past records and current practice which so far have unloaded the major burden of paying claims onto one vulnerable group of policyholders, without any real justification for doing so.