A Modest Proposal for Insurance Reform

January 13, 1991|By Ray Jenkins | Ray Jenkins,Ray Jenkins is editor of the editorial pages of The Evening Sun.

DURING THE past year a range of proposals has emerged in response to the vexing problem of the disparity in the cost of automobile liability insurance in Maryland. It can cost a driver in Baltimore three or four times as much as it costs a driver in, say, Garrett County to get the required coverage.

The insurance industry maintains that this is simply a function of the market setting prices, that it costs a lot more to cover drivers in the city than those in any other jurisdiction; premiums simply reflect that cost.

That explanation would be plausible were it not for the fact that liability insurance is required by state law. When insurance becomes mandatory, its costs take on attributes not of a service or commodity which you can take or leave, but rather more in the nature of a tax. Most people would concede that it would be unfair, even illegal, for the state to charge city drivers three times as much for their tags or drivers' licenses than those in the rest of the state. Doesn't it follow, then, that it is equally unfair for the state to require city residents to pay three times as much in insurance costs for the privilege of driving?

As long as this unfairness persists, we can be certain that the clamor for relief in the city will grow. That clamor has produced five distinct proposals to address the problem:

1. Administrative relief. The state insurance commissioner could sharply curtail geographic considerations in setting rates. But Commissioner John A. Donoho, after a year of study, ruled out that approach. The commissioner says territorial rates are perfectly legal. Attorney General J. Joseph Curran agrees.

2. Legislative relief. If the commissioner cannot abolish territorial discrimination, certainly the legislature could. The law does not allow, for example, using race as a basis for setting rates. The problem is, the legislative remedy pits the economic interests of Maryland drivers who live outside of Baltimore -- and that's more than 85 percent of the state's drivers -- against the much smaller number of city drivers who seek relief. Can there be any doubt how legislators will come down in that conflict?

3. Judicial relief. City Council President Mary Pat Clarke wants the courts to prohibit geographic rate-setting as a form of illegal discrimination. There is some promise here. One major insurance carrier has not only separated the city from the rest of the state, but has fragmented the city itself into six territories. If the city can be divided by zip codes, then it follows it could be divided into units as small as a block -- with insurance rates in some blocks becoming absolutely prohibitive based on risk. Still, it's unrealistic to expect the courts to upset territorial rate-structuring as long as the insurance companies don't carry a good joke too far.

4. Industry relief. The insurance industry and sympathetic organizations have proposed no-fault insurance to curtail costly litigation and judgments arising from automobile accidents. True fault, like that in New York, might work, but that's not what's being proposed in Maryland. Rather, the proposal is for a sort of voluntary no-fault, and the trial lawyers resist even this limited proposal.

5. Citizen action. A. Robert Kaufman, the town's indefatigable radical, proposes to create a non-profit company, like cooperatives which purchase fuel oil in bulk at reduced prices, to write low-cost liability insurance in the city. The idea is good, but as a practical matter such an agency inevitably would wind up insuring many high-risk drivers -- and either its rates would soar -- or it would go bankrupt.

6. My solution. Pass legislation requiring all auto insurance companies which do business in Maryland to offer a no-frills liability policy which meets only the minimum demands of state law. Those who took the service would get no coverage for fire, theft and collision, nor coverage for their own injuries. Their insurance would cover only damage or injury which they caused. A means test might be considered, and high-risk drivers could still be kicked into the high-cost Maryland Auto Insurance Fund. There would have to be a cap on premiums for no-frills insurance, so the cost would have to be subsidized. This could be done either through spreading the cost to other insurance customers throughout the state -- as the telephone company subsidizes a limited telephone service to low-income people -- or through direct state subsidy -- as the Maryland Energy Assistance Program does with energy.

It might even be possible to retain limited geographic rate-setting. We could, for instance, allow territorial rates, but with the stipulation that in no case could the rates be 10 percent higher than in any adjoining jurisdiction. For example, if the coverage cost $500 a year in Baltimore County, it couldn't cost more than $550 in the city. So by the time you got to Garrett County, the premium could be down to $400. Drivers who live in the suburbs but do much of their driving in the city could hardly complain about such an arrangement.

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