Cedric
Stephens Question: I have been visiting Jamaica for 25 years. It never ceases to amaze me
how your government continues to perplex the people! In a recent article, you said that car insurance rates are climbing again. Has Jamaica ever heard of 'no-fault' insurance?
- T.S., Memphis, Tennessee, USA.
Answer: My first thought on reading your mail was: what does government have to do with it? After all, the insurance industry is owned and operated by the private sector. Government simply regulates it. Then 'the penny dropped.' I realised that the more we pay in premiums, the more taxes the state earns through GCT. In 1999 alone, it is estimated that motorists paid over $660 million in GCT on motor insurance. I guess that what you were saying is that the government benefits the more premiums we pay. There is therefore no incentive to examine measures like 'no-fault' that could result in lower premiums.
Members of the legal profession, I am quite sure, are familiar with the concept of no-fault insurance. The average motorist is not. Motor premium increases in Jamaica are like death and taxes. They will not go away. I will try to explain some of the main ideas behind no-fault insurance. My hope is to begin a debate. Is no-fault insurance a viable alternative to what we now have in place in Jamaica? Would it result in lower motor premiums to consumers?
What is No-Fault [Motor] Insurance?
My Dictionary of Insurance Terms defines no-fault as "a type of coverage in which the insured's own policy provides indemnity for bodily injury and/or property damage without regard to fault." No-fault insurance began in Canada in 1947. It eliminates the need for the victims of motor accidents to establish the liability of another person through a civil lawsuit to obtain compensation. No-fault insurance started in the USA in 1971. Thirteen states have no-fault insurance laws. They restrict the rights of parties to sue. Generally, motorists can sue in cases of severe injuries.
Supporters of no-fault insurance say that it leads to the quicker settlement of claims. Motor premiums are said to be lower because no-fault insurance reduces legal fees and court costs.
No-fault insurance is not all that it is claimed to be, according to other persons. Lawyers [naturally] oppose no-fault. Their main argument is that it limits a citizen's right to sue. Consumer groups take a different tack. The main beneficiaries of no-fault systems are insurance companies - not consumers.
One study in 1996 showed that insurers in states that implemented no-fault earned more profit on motor insurance than those that had not. Additionally, buyers paid more for motor insurance in no-fault states than other states. The jury is still out. Some states are said to be re-examining their no-fault laws in the light of premium rises.
One of the very disturbing features of our legal system in Jamaica is the speed at which it moves. Cases take many years before they are heard. Anything that speeds up the process would be welcome. Delays add to the cost of claims and cause premiums to rise. Another major bugbear concerns persons who drive around uninsured. What impact would they have on no-fault? It is estimated that one in every four vehicles on our roads is not insured. Would the social and economic costs be greater under the present arrangement as compared with no-fault insurance or vice versa?
The system that applies to motor insurance has been around for more than 60 years. It has been tinkered with many times. Lawyers consider the legal system as the best that caters to the victim "on the basis of the pre-accident situation and prognosis of his future." However, it remains "expensive, capricious and dilatory." Some authors consider it a "forensic lottery." The time is ripe for changes. No-fault insurance may provide some ideas for reform and help to reduce premiums. Could this be an area of research for persons in the Department of Economics and Norman Manley Law School at UWI?
Cedric E. Stephens is the founder of INSURANCE HELP-LINE, a telephone-based advisory service, and the co-host of Risky Business, a radio programme that deals with risks and insurance. If you need free advice, write to The Financial Editor or Mr. Stephens at aegis@cwjamaica.com.
