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New Ways To Cut Car Insurance Costs

By Jane Bryant Quinn
Sunday, September 24, 1995; Page H02
(c) The Washington Post

Growing evidence suggests that auto insurance could be widely sold for less. There are several ways -- all being tested in laboratory states -- for insurers to cut their own expenses and pass the savings on to you. Here are the major experiments:

Group insurance
Massachusetts is the showcase for group sales. Although group plans exist elsewhere, in Massachusetts "participation is exploding," said Jason Adkins, executive director of the Center for Insurance Research in Cambridge. As of early August, 19 insurers were serving more than 860 group plans. They are generally offered through employers, although they are spreading to teachers associations, credit unions and other organizations.

Most discounts range from 5 percent to 10 percent, Adkins said, for average annual savings in the $45 to $90 range. Some group plans, however, give no discounts at all. A study for the National Association of Insurance Commissioners found that few groups think to negotiate for bigger discounts -- implying that they could, if they put their mind to it.

The sponsors' expenses amount to minor administrative costs. Employers, for example, collect the insurance premiums through payroll deduction. The basic price drivers pay (before the discount is applied) depends on their individual situation -- for example, the kind of car they own and their driving experience.

Starting this month, Commerce Insurance in Massachusetts is offering 10 percent discounts through three of the state's five American Automobile Association clubs. Since anyone can join the AAA, that makes discounts universally available in these areas.

Body shop managed-care plans
These will get a run in New Jersey, starting next year. Drivers who sign up for these plans will have to take their car to a participating body shop, if they have an accident. In return, they should save $48 to $72 a year on their collision insurance, state officials estimate.

There's a similar plan in California known as Carnet (Cooperative Auto Repair Network), which operates mainly in inner cities. It doesn't give drivers specific discounts on their insurance, as the New Jersey plan intends. But it helps Carnet offer more competitive rates. If, after an accident, the consumer uses one of 200 participating body shops, the insurer (TIG Holdings) pays 100 percent of the costs above the policy's deductible. Otherwise, TIG pays only 80 percent of the costs, said a Carnet executive, Michael York. The repairs, he said, are guaranteed. A few managed-care plans also can be found in Massachusetts and Colorado.

Medical managed-care plans
Colorado is the pioneer. At about 35 insurance companies, drivers can choose managed care when they sign up for the state's mandatory personal injury protection (PIP).

Drivers in the plans receive discounts of 10 percent to 30 percent on the PIP portion of the coverage. In return, they must see a doctor in the insurer's network if they are in an accident and need non-emergency care (they can see any doctor for emergency care).

Progressive Auto Insurance offers 20 percent discounts, and says that its customers typically save $70 to $100 a year. State Farm estimates the savings at $40 a year. Progressive will soon be offering a plan in New York which, like Colorado, requires high amounts of PIP insurance. Other states with high PIP, which makes them good candidates for managed-care, include Hawaii, Kansas, Michigan, New Jersey and North Dakota.

No-fault insurance
Under true no-fault, you are not allowed to sue after an accident. Your lost wages and medical expenses are covered by your own insurer, with no allowance for "pain and suffering." No-fault hasn't lived up to its promise as a cost-cutter because, in the 13 states that provide it, most let you sue if your medical expenses exceed some specified amount. That encourages drivers and their doctors to run up enough medical bills to exceed that amount.

If true no-fault were permitted, the savings would be large, according to a recent study by the Rand Institute for Civil Justice in Santa Monica, Calif. On average, drivers would save 31 percent. Drivers with minimum coverage (probably lower-income people) would save an average of 49 percent. Two states -- New Jersey and Pennsylvania -- let drivers choose between regular insurance and limited no-fault. But Rand senior economist Stephen Carroll said the jury is still out on whether state officials have actually lowered costs.

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