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Group Auto Insurance

January 02, 1986

Douglas Hallett's article (Editorial Pages, Dec. 17), advocating group automobile insurance as one means of solving the "automobile insurance problem," fails to recognize one crucial point: extremely few customers will buy such a product under our present tax laws.

Group auto insurance programs were developed and heavily marketed by a number of major insurance companies in the 1960s. Some groups were sold and some are currently active, but not in significant numbers. Hallett's article identifies the principal reason for this: labor unions have not promoted group auto insurance as an employee benefit.

It isn't that labor unions are insensitive to their members' interest in saving money on automobile insurance premiums.

There are some very important differences in the tax treatment of employer-sponsored group life and health-insurance programs and group auto. Group life and health programs are tax-deductible business expenses for the employer and are not taxed as income to the employee. Employee auto insurance premiums paid by the employer are not tax deductible to the employer and are taxable income to the employee. Quite a difference!

Without at least a substantial premium contribution by the employer, drivers who qualify for preferred rates will always be able to buy individual policies for less than their group rate, because the marketing and administrative expense savings of group programs are not substantial enough to offset the difference. Without the type of tax treatment given group life and health programs, few employers are disposed to sponsor such programs.

Given favorable tax treatment in this area I'm sure the insurance industry would aggressively market group auto. Without it, it is just not a productive pursuit.

Hallett's article seems to me to miss a much more vital approach to solving the "automobile insurance problem." Expenses are important, but any meaningful reduction in insurance costs must come from losses. Losses and the expenses related to handling them are roughly four times as great as the costs of acquisition and administration.

Thus, our primary efforts should be directed to the control of losses. Meaningful tort reform, a well-constructed no-fault automobile insurance law, and enhanced fraud control offer much greater potential for improvement than general expenses. One opportunity we'll soon have in the area of tort reform is to ensure the passage of the joint and several liability initiative, which appears to be qualified for the June 1986 ballot.

In my humble opinion, in these extremely difficult times the insurance industry is experiencing, state Insurance Commissioner Bruce Bunner has his priorities in much better focus than Hallett's article suggests.



Van Leeuwen is president of the National Automobile and Casualty Insurance Co.

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