Auto Insurance Reform: Comment

Abstract

Professor Mumey's article presents a cost-benefit analysis of the automobile liability law and insurance system.' His analysis leads to the conclusion that the system will be improved by an innovation which raises benefits, defined in utility terms, more than it raises costs, defined in dollar terms. He then proposes that, within the general framework of the current system, the conditions just mentioned would be met by permitting buyers of liability insurance to obtain a discount in the premiums in return for conveying to the insurance carrier any benefits they might become entitled to as accident victims. This reform is termed negative insurance, and it presupposes that the insurance buyers taking advantage of the discount will have covered their own needs by independent health and collision insurance. Though Professor Mumey's proposed reform is attractive in its reliance on voluntary rather than compulsory measures, I do not find the underlying reasoning to be convincing. The analysis hinges on the oversimplifying assumption that the current liability law and insurance system are compensation systems. Perhaps the rehabilitation of accident victims might be the best use for the funds we are spending on insurance today, but considerations of fact and law oppose characterizing what we have as a compensation system.