[Congressional Record Volume 150, Number 126 (Thursday, October 7, 2004)]
[Senate]
[Pages S10727-S10728]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CORNYN (for himself, Mr. McConnell, and Mr. McCain):
  S. 2931. A bill to enable drivers to choose a more affordable form of 
auto insurance that also provides for more adequate and timely 
compensation for accident victims, and for other purposes; to the 
Committee on Commerce, Science, and Transportation.
  Mr. CORNYN. Mr. Chairman, on behalf of my co-sponsors, Senators 
McConnell and McCain, I rise today to introduce legislation that I 
believe has the potential to improve profoundly the lives of millions 
of Americans across the country.
  The Auto Choice Reform Act of 2004 offers a real solution to a very 
real problem faced by those of us who drive every day--the high cost 
and inadequate compensation of the current tort and liability 
automotive insurance system.
  The tort system ought to ideally compensate people injured by 
negligence and deter others from acting irresponsibly. With respect to 
auto accidents, the system fails miserably on both counts.
  Numerous studies over the past 75 years document just how poorly the 
tort system compensates injured people. Almost one-third of injured 
people recover nothing at all, and many injured persons who do recover 
compensation must wait years to receive payment from the other person's 
insurer.
  Worst of all, people with minor injuries recover compensation far in 
excess of their actual losses while many people with serious injuries 
are grossly underpaid. The RAND Institute for Civil Justice has found 
that people with economic losses between $500 and $1,000 recover on 
average 2\1/2\ times their economic loss. This is largely due to the 
fact that it is cheaper for an insurer to pay a questionable claim than 
to pay the costs of going to court, where they risk paying a multiplier 
of economic damages for pain and suffering.
  The perverse incentives generated by pain-and-suffering damage awards 
also cause rampant fraud and abuse in auto insurance claims. A study by 
the RAND Institute for Civil Justice confirms that between 35 and 42 
percent of medical costs claimed in auto accidents occur in response to 
the incentives of the tort liability system. In other words, more than 
one-third of all medical losses claimed in auto accidents are 
fraudulent or exaggerated--attempts to nab the pain-and-suffering 
jackpot.
  On the other hand, people with the highest economic losses, in excess 
of $100,000, recover only 9 percent of their economic loss on average. 
To add injury to insult, that amount doesn't even include their 
lawyers' standard one-third fee. Because most drivers don't carry 
enough insurance to even pay this level of economic loss, particularly 
after attorneys' fees are deducted, people with the most serious 
injuries rarely recover anything for pain-and-suffering.
  In short, we would be hard pressed to design a worse compensation 
system if we tried.
  Indeed, the system is so bankrupt that lawyers in the auto insurance 
litigation currently consume more than 25 cents out of every premium 
dollar spent, an amount that is significantly more than the amount 
received by those actually injured for medical bills and lost wages. In 
total, more than $16 billion went to lawyers in 2001 for automobile 
related personal injury cases.

  What about deterrence? Perhaps it is worth paying for a poor 
compensation system if people are deterred from driving badly, thereby 
avoiding injuries in the first place. Some studies have made this 
argument but the most comprehensive analysis of accident data, again by 
the RAND Institute for Civil Justice, has found that the tort system 
has little or no deterrent impact. This conclusion is a logical one. If 
a driver is not deterred by the threat of personal danger from reckless 
driving, then surely that driver is not deterred by the penalty for 
reckless driving--simply a modest increase in one's insurance premium.
  The current system is also unnecessarily expensive, as is clearly 
demonstrated by the fact that the Joint Economic Committee estimates 
that switching to the new Personal Injury Protection system, discussed 
below, which relies primarily on the payment of economic losses for all 
injured persons without regard to fault and largely without the need 
for lawsuits, could save drivers a total of $48 billion a year in 
unnecessary premiums.
  Excessive premiums disproportionately impact low income Americans and 
welfare recipients. Families in the bottom 20 percent of incomes who 
buy auto insurance spend 16 percent of their household income on that 
insurance. That percentage is seven times the proportion that families 
in the top 20 percent spend. Lower premiums would enable many low 
income workers to afford the cars they need to travel to better-paying 
jobs. The Auto Choice reform legislation we are proposing today would 
reduce premiums for low income people by more than it would reduce them 
for the average driver--both in terms of percentages and often in terms 
of absolute dollars. And all drivers would see significantly lower 
premiums.
  Auto Choice is designed to allow consumers to choose the type of 
insurance that meets their needs and to opt out of the pain-and-
suffering litigation lottery associated with the current system.
  Essentially, drivers are permitted under Auto Choice to choose a new 
Personal Injury Protection, ``PIP'', Insurance under which they would 
be compensated without regard to fault for all economic losses up to 
their policy limits by their own insurance company, with nothing 
available for pain and suffering. Alternatively, for those who remain 
in the current tort system, they will select a small amount of 
additional coverage similar to an uninsured motorist for situations 
involving another motorist that opted for the PIP system--a premium 
offset by the savings realized by everyone as a result of the overall 
shift away from the lawsuit system.
  The system does not abolish lawsuits. By design, there will be 
reduced incentives to head straight to court, but the right to sue 
remains firmly intact--as injured parties not fully compensated can sue 
to recover excess economic losses over and above that covered by the 
PIP coverage and other sources of first party insurance. They can also 
sue for all damages, including pain and suffering, when the accident is 
caused by a driver who is drunk or on drugs.
  In summary, if a driver wants to maintain the possibility of 
recovering for pain and suffering, he will stay in essentially the 
current system. On the other hand, if he wants to opt-out of the 
current system in exchange for lower premiums with prompt compensation 
for economic losses--then he instead will choose the personal injury 
protection system.
  The idea is not a new one. Indeed, this idea has been discussed--and 
even introduced in one form or another--for over thirty years now. 
Several versions of Auto Choice reform have enjoyed broad support on 
both sides of the aisle. Senator Daniel Patrick Moynihan, Steve Forbes, 
Michael Dukakis, Mayor Rudy Guliani, Congressman Dick Armey--just to 
name a few--have all opined in support of giving drivers a way out of 
the current ineffective system.
  The time has come for Congress to act. The results of our action are 
clear and tangible: were Congress to enact Auto Choice Reform 
legislation now, motorists would stand to save as much as $48 billion 
next year.
  Think about that for just one moment. Over 5 years, Americans would 
be able to save almost $250 billion--savings tantamount to a massive 
tax cut with absolutely no negative impact to the Federal deficit.
  And what does this mean for the average American? The average 
American family with two cars will be able to save nearly $380 a year, 
according to Joint Economic Committee estimates.
  Particularly encouraging is the effect these savings will have for 
low income families. Lower auto insurance premiums will make owning a 
car more affordable for poor Americans, allowing them to find and keep 
better-paying jobs and have longer commutes. Auto Choice would allow 
low-income drivers to save almost 37 percent on their overall 
automobile premium. For a low-income household, these savings

[[Page S10728]]

are the equivalent of 5 weeks of groceries or nearly 4 months of 
electric bills.
  Auto Choice Reform can provide immediate and real relief for average, 
mainstream American families across the country. Those are real 
savings, resulting from a sound system that offers legitimate choice--a 
choice between guaranteed upfront savings on insurance premiums on one 
hand; and on the other, the right to sue for non-economic damages such 
as pain and suffering in the event an accident one day occurs.
  For most Americans, I believe the choice is an easy one. 
Unfortunately, for most Americans today, that choice is unavailable.
  The Auto Choice Reform Act of 2004 gives the American people that 
choice. Let's get government back to doing what it ought to--protecting 
the rights of all Americans to have the freedom to make choices about 
how they live their lives.
                                 ______