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So much money is involved that it seems to nourish corruption. There are adjusters who take bribes to settle cases, plaintiffs who file inflated claims, witnesses who remember the unrememberable, doctors who commit perjury, and lawyers who squander their talents working for contingent fees (30% of what they win for their clients), which now provide roughly one-third of the U.S. bar's total income.
So great is the cost of lawyers' fees and overhead that it takes an estimated $2.20 in premiums and taxes to get $1 to an accident victim. (Blue Cross delivers $1 in benefits for $1.07.) Nor is inefficiency the only drawback of the ponderous system. Although only 5% of auto cases ever reach trial, they still pre-empt about 65% of the nation's civil-court calendars. It now takes 2½ years to get a civil case tried in most cities.
The fault system also forces insurers to compete almost entirely for "preferred risks"—drivers who seldom drive and people most likely to impress juries if they do get into trouble. As a result, thousands of unpreferred motorists have been unceremoniously stripped of their policies or forced to pay sky-high surcharges, not only because of accidents, but sometimes because they happen to live in "red line" (claim-prone) areas or belong to supposedly risky groups—a category that includes the young, the old, Negroes, actors, barbers, bartenders, sailors, soldiers and men with frivolous nicknames like "Shorty." Divorcees are often blackballed because they might irk women jurors; doctors and clergymen are frowned upon as "preoccupied" drivers. A Manhattan lawyer was banned after someone hit his car in his apartment-house parking lot while he was upstairs asleep; a California housewife with a perfect driving record lost her policy because her husband was a Navy medic—driving an ambulance in Viet Nam.
All states have "assigned-risk" plans, requiring every insurance company to accept a quota of castoffs, whom they sometimes charge 150% above standard rates for minimum coverage. For some accident-prone drivers, even that price may be a bargain, but insurance companies have been so fast and loose about canceling policies that many of those dumped into the assigned-risk pool do not deserve it. In 1964-65, for example, almost 70% of New York's assigned-risk drivers had clean driving records.
Painless Finance
Problems have proliferated so rapidly that soon only the Government may be able to handle the financial hazards of auto insurance. But how? In 1869, the Supreme Court ruled that "insurance is not commerce," thus exempting it from federal antitrust laws and congressional regulation of interstate commerce. In 1945, after the court had reversed itself, the McCarran-Ferguson Act put all insurance under state supervision. But many Congressmen now believe that the states are flunking the auto-insurance part of their job. A Senate subcommittee has called for a "root and branch" investigation of the entire industry. President Johnson echoed the request in his State of the Union message last week, and Senate hearings are due this spring. One likely result is that the McCarran-Ferguson Act may be amended to impose federal standards on lax state insurance commissions.