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Inflated Claims. Even the most reputable insurers have some deep-rooted problems. The nation's growing number of autos means more and more accidents. Moreover, chain-reaction smashups involving dozens of cars have become increasingly common. And because of the rising cost of repairs and medical care, individual claims also are getting bigger. Claims are further inflated because many accident victims—backed up by sympathetic juries—seem to be convinced that insurance companies have money to burn. Some of the claimants connive with their doctors, lawyers and garagemen to pad their bills. John Mahoney, New England claims manager for Employees Group Insurance Co., goes so far as to say that "every case is tainted to some degree with fraud."
For their part, insurance companies have only limited control over most accident costs. Says Edward B. Rust, president of State Farm Mutual, the world's biggest auto insurer (annual premiums: $940 million): "The insurance company is basically only the scorekeeper." So high has the score mounted that over the past decade the insurance industry has suffered auto liability underwriting losses (the amount by which claims and expenses exceed premiums) of more than $1.1 billion. Only when investment income is included in their book keeping do auto insurers generally show a profit.
In the face of such problems, a number of companies have found it possible to reduce costs—and create good will—by changing their methods of operation. San Francisco-based Fireman's Fund American Insurance Companies, for example, two years ago started to pay off many accident claims immediately—without first demanding a waiver against future payments.
Most claimants, Vice President C. A. DesChamps found to his delight, "don't decide to bring a lawsuit later." Other companies, notably State Farm Mutual and Allstate, have cut their overhead costs by using their own salesmen rather than outside agencies. Ultimately, however, insurance men agree that the best way to reduce costs is to cut down on accidents.
Roots & Branches. Until that unlikely day, demands for sweeping changes in the nation's auto insurance system are likely to grow. One proposal, understandably opposed by trial lawyers, is to do away with the "fault principle" in most auto accidents—which means that the insurer would pay off its own policyholder, regardless of who was to blame. Advocates of this plan contend that it would cut costs by ending interminable haggling over claims. At the same time, it would reduce the backlog of cases which is clogging the nation's court calendars.
What is more likely is some sort of federal action. Legislation now pending in Congress would safeguard policyholders against insurance company failures by providing federal backup auto insurance, much like the kind that protects bank depositors. Washington Democrat Warren Magnuson promises that his Senate Commerce Committee will turn upcoming hearings on that legislation into a "root-and-branch investigation" of auto insurance in general.
* Insurance shorthand denoting limits of $10,000 in liability coverage for one accident victim, $20,000 for all victims, and $5,000 for property damage.