Author: A.T.

I don’t know why these figures take so long to come out, but numbers for 1995 average automobile insurance premiums have only recently been released. Countrywide, we paid $666 on average, up from $650 the year before.

In California, they paid $831, up from $781.

In Michigan, they paid $645, down from $665.

But it’s not just that Michiganders paid less, or saw a small decrease instead of an increase. It’s what they got for that money. In Michigan, if they were hurt in a car crash, all their medical expenses and rehabilitation would be paid, no matter what. If the bills came to $2 million, they would still be paid. In California, by contrast, auto insurance compensation depended on two things: being able to prove the other guy was at fault and then praying he had enough insurance.

Close to half the accident-causers in California have no insurance or appreciable assets to sue for. Of those who do have insurance, many carry the legal minimum — $15,000. If the bills and future wage loss come to $2 million, tough noogies. You get $15,000 less your lawyer’s fee.

America’s trial lawyers, and Ralph Nader & Co., vigorously urge you to believe Californians are getting the better deal. They say it’s because Californians have the precious right to sue each other over auto accidents. But it’s hard to see why the right to sue — and get little or nothing most of the time — is better than the right to get significantly more without having to sue.

Consumers deserve better.

* * *

A note on the premium comparisons at the top of this comment. They’re for all insurance, including theft and damage to cars. But if you look at just the portion involving personal injury, which is what most of the controversy is about, the difference is at least as stark. Under California’s lawsuit system, that portion averaged $519, up 4.6% from the year before. In Michigan, only $343, down 4.2% from the year before. How can Michigan provide so vastly much more protection for considerably less money? Simple. In California nearly two-thirds of the money goes to lawyers and fraud. In Michigan, it does not.

Tomorrow: What Exactly is Earnings Growth?

Two sharply contradictory responses to the story of David’s leg (smashed by an uninsured motorist as he walked his bike across a busy Los Angeles intersection). If you missed it, David will probably get nothing for his pain and loss of income and be stuck with his share of a $50,000 hospital bill. Or if he can squeeze $10,000 out of the woman who owned the car that hit him (even though she wasn’t driving it), I said, $4,000 of that would go to his attorney. It’s an awful system that encourages massive waste and fraud at the expense of real victims, like my friend David.

Wrote Brian Budenholzer: “I loved your comment. But having been recently a victim of a plaintiff’s attorney, I would like to correct one error you made. Before David could get his share of any settlement, not only would the attorney’s contingency fee be deducted, but also any expenses incurred by the legal action. If those costs came to two or three thousand dollars, David’s share of the $10,000 you spoke of would be only $3,000.00 or $4,000.”

A distinctly different view came unsigned from someone who wrote: “Stating that the ‘lawyer will be $4,000 richer’ [from his 40% of the $10,000 David might conceivably get] is a sad commentary. Moreover this is a conception that lawyers have taken a vow of poverty. The practice of law is a business. . . lawyers have overhead expenses of: utilities, copiers, laptops, law libraries, secretaries, malpractice insurance, license fees, seven years of educational loans etc. Ask Fred Goldman if his team of counsel endeavored the recent civil trial for the ‘riches.’ David’s chance of securing any monetary relief without the professional assistance of counsel is probably 10% to nil. There was NO statement that the hospital was $50,000. richer from capitalizing on David’s leg injury.”

This unsigned message was absolutely correct: Under today’s awful system, David’s chance of securing any monetary relief without the professional assistance of counsel is probably 10% to nil.

But what if we could have a system where David was taken care of without needing a lawyer? Wouldn’t that be better? I don’t know how metal rods could have been implanted in David’s leg without a surgeon and a hospital — that $50,000 may have been unavoidable — but I do know how it could have been done without a lawyer.

Prop 200, the no-fault plan I helped put on California’s March 1996 ballot, and which the lawyers pulled out all necessary stops to defeat, would have provided pedestrians like David up to $1 million in medical, rehab and wage loss coverage automatically, without any need to sue or prove fault, plus up to $250,000 more for pain and suffering.

In cases where the injury was caused by a hit-and-run driver or by an uninsured motorist (as in David’s case), the claim would have been handled via what’s known as an “assigned claims plan.” All the auto insurers in the state would have been assigned their proportionate share of such claims. And if the insurer assigned David’s claim had failed to pay promptly, it would have been subject to a 2%-a-month interest charge and, ultimately, damages for dealing in “bad faith,” as determined by a jury of David’s peers. (As a practical matter, Prop 200 would actually have expanded an injured person’s right to sue recalcitrant auto insurers for bad faith.) Right now, auto insurers know that by dragging their feet, they can “borrow” from crash victims at zero interest. Under Prop 200, it would have cost them 24% a year. That would have changed their incentives and, I think, their behavior.

Today in California, consumers pay $7 billion annually for the lawsuit auto insurance injury system (separate from what they pay for theft and dented fenders). Of that, two-thirds goes to lawyers and fraud. Prop 200 would have redirected those wasted dollars to people with genuine injuries, especially those most seriously hurt. Today, on average, according to RAND, the worst-hurt recoup just 9% of their actual economic losses from that $7 billion pool.

We should never eliminate the little guy’s right to sue the big guy. General Motors. Allstate. The City of Los Angeles. But the little guy’s right — and need — to sue other little guys over auto accidents has proved horribly expensive, leaving all but a lucky few of the most seriously injured woefully undercompensated. Is 9% really enough? Does it really make sense to spend two-thirds of our money on lawyers and fraud?

In Michigan, the only state with a strong no-fault system, consumers pay significantly less than in California and yet have vastly better protection if badly hurt. How is this possible? It’s because they’ve traded the right to sue each other for the right to be compensated without having to sue.

In Michigan, very little of the premiums go to lawyers or fraud. With a true no-fault system, there’s little need of lawyers. (Prop 200 made this exception: you could sue convicted drunk drivers.) And there’s little incentive for routine fraud. (Michiganders are less than a third as likely to claim “whiplash” after an accident as Californians. It only makes sense for them to say their necks hurt if they really do. There’s no cash prize for inventing or padding claims.)

My comments over the last couple of days were not meant to insult or knock individual lawyers. After all, they didn’t invent the current awful auto insurance system. But I do criticize those who fight so hard to defeat efforts to fix it. How do they sleep at night?

Tomorrow: Michigan vs. California

Yesterday, I told you about my friend David’s accident. Ten days in the hospital, two rods in his leg, many weeks of rotten sleep and much needed painkillers. Fifty thousand dollars or so in hospital bills, not entirely reimbursed by his health insurance, plus loss of income from his work. From today’s lawsuit auto insurance system, staunchly defended by Ralph Nader and the trial lawyers, he will likely get nothing.

Well, the trial lawyers and Nader say, it’s the price we pay for justice. If the wrongdoers have nothing to sue for (or leave the scene or can’t be proven to have been at fault), that’s just tough luck.

(Under the system Nader and the lawyers fooled voters into rejecting, David would have been fully and promptly compensated for his medical, rehab and wage loss, and been awarded a sizable payment for pain and suffering.)

The irony — and I think it is perhaps beginning to annoy my normally unflappable friend — is that at the same time as he is getting nothing for his injury from the system, he is being sued by someone else, in connection with a separate accident.

In that one, David was not even involved. He was at home. It was his partner who, at the wheel of David’s 1992 Nissan Sentra, was turning a corner — it was nighttime — when he heard a loud thump. He got out of the car and found that a young man on a bike had smashed into the car and was bleeding from the head. Fortunately, it was not too serious. The young man was back at work a couple of days later.

So here is David, who had insurance, getting nothing or next to nothing for a smashed leg, ten days in the hospital, metal implants, pneumonia, and what are likely to be months on painkillers. He is likely to be out of pocket $10,000 or $20,000.

On top of which, here he is being sued for an accident he was nowhere near, by a kid who may well have been at fault (but insurers can’t afford to take all these things to trial, and how do you prove exactly what happened in a split second on a dark night?) and who was, in any event, back at work a couple of days later. There’s a reasonable chance that the injured bike rider will get several thousand dollars, his lawyer will get several thousand, and my friend’s insurance rates will go up.

It’s a system only a lawyer could love. In California, it transfers $2.5 billion a year from the pockets of consumers and crash victims into the pockets of plaintiff and insurance company lawyers.

I called to wish an old friend Happy Birthday and discovered it was more of a Get Well Soon call instead. Unbeknownst to me, he had been walking his bike across the street in Hollywood (he rides it down Lexington but then walks it across Highland, a busy intersection), when he was hit by a Honda.

In California, pedestrians have the right of way. The first car stopped; the second didn’t.

Lying in the street with a badly smashed left leg, David recalls, five different people were thrusting cell phones at him, in case there were people he needed to call. Very LA, he says. Very Nineties.

“I hope you have insurance,” David said amicably to the 34-year-old who’d hit him. (My friend is a highly amicable type, and he was, in any event, in shock.) But — surprise, surprise — the driver didn’t have insurance and neither did his sister, who owned the old car. (In California, premiums are so high that at least 5 million vehicles, perhaps as many as 7 million, are driven uninsured.)

Off the ambulance sped to Cedars Sinai, where after ten days and a bout of pneumonia, David was released with a prescription for painkillers and two metal rods in his leg. He’ll be fine, basically, and his Writers Guild group health policy is expected to pay 60% or 80% of the $50,000 or so in hospital costs. So the accident will only leave David $10,000 or $20,000 out of pocket, plus the cost of whatever income he might have lost from being out of commission. (It’s hard to write on painkillers — or at least hard to write coherently.)

For 40%, a lawyer has agreed to see if there’s any money to be gotten from the driver or the sister, who owned the car, but it’s unlikely. If $10,000 can somehow be squeezed from the sister, it will be a devastating financial blow to her young family. The lawyer will be $4,000 richer. And David will have $6,000 toward his costs. A lousy result for David; a lousy result for the sister (and her kids); a fine result for the lawyer.

Under Prop 200, which would have lowered auto insurance premiums (but which the voters defeated a year ago this month, because the lawyers advertised that it would have raised rates 40%), David would have had all his medical and rehab costs paid for, would have been reimbursed for his lost income, or at least a good portion thereof, and would have gotten a modest payment for his — very real — pain and suffering. Probably on the order of $10,000 or $25,000. (The exact amount would have been determined by a schedule set by the insurance commissioner ranging up to $250,000 for really catastrophic injuries. All pedestrians/skateboarders/bicyclers/etc. would have been covered for pain and suffering no matter what. For motorists, it would have been an inexpensive option.) The driver, meanwhile, would have faced as much “punishment” as today — a possible fine, if he was found to have been operating his vehicle recklessly, just as today; a hike in his auto insurance premiums (which today is meaningless, because he’s one of the millions who doesn’t buy it in the first place, but which under Prop 200 would have had an effect); and, of course, the rotten feeling of knowing he had hurt someone else — which you may pooh-pooh, but which I think an awful lot of people, though not all, would indeed feel.

No lawyers would have been required, no juries impaneled, no long delays. (Had there been long delays, the insurance company assigned his case would have been subject to a 2% a month penalty and, ultimately, a lawsuit for bad faith. Which is why, acting in its own selfish best interest, the insurer would have tried hard to avoid delays.)

The downside: there would have been no chance for a multi-million dollar jackpot, as there is today, in case the driver had been, say, Michael Ovitz (he of the $93 million Disney severance agreement). But here’s a newsflash: the proportion of accident-causers in California who are Ovitz-like, or even just heavily insured, is minuscule.

One solution would be to pass a law that only rich or heavily insured drivers can cause accidents. A more practical solution — certainly for my friend — would have been Prop 200.

Tomorrow: An Ironic Postscript

“The first time I knew something had changed for the worse at Fidelity Investments,” writes James Cramer, in a remarkable forthcoming magazine piece made all the more remarkable by where it’s forthcoming, “I was, strangely enough, at my youngest daughter’s first-birthday party. My mother-in-law pulled me aside and said that something had gone wrong, very wrong, with her retirement money during 1994. She was in her 70s, and my wife and I had done her retirement planning, putting most of her cash in Fidelity’s Asset Manager fund. Her alarm got my attention.”

The story goes on from there with some pretty tough criticism of, and strong prescriptive remedies for, Fidelity. The mutual fund giant — Fido, as it’s affectionately known — manages close to half a trillion dollars.

The story will appear in the April issue of WORTH magazine, on newsstands in a couple of weeks. That’s remarkable, I think, because WORTH is owned by — that’s right — Fidelity. What’s more, no one at Fidelity has seen it yet. They’ll see it when you do.

“Does this mean you’re about to lose your job?” I asked my friend John Koten, the editor.

“I don’t think so,” he said. “In my experience, the folks at Fidelity have a lot of integrity and class (or I wouldn’t be working here to begin with). Truth is, while I do feel on the brave side in pursuing this piece, Fido also deserves a certain amount of credit for being the sorts of owners that have given me the freedom and license to publish this sort of piece. Not many owners would do that. And not many magazines have run tough pieces about the company that owns them. Has Fortune ever taken on Time-Warner? No, but they recently have gone after Forbes and Dow Jones. Has the Journal ever written a tough piece on Dow Jones? No. But they have taken on Time-Warner. (The Journal did write critically about itself during the Foster Winans episode, but it never has said much negative about Dow Jones.) Before I was even hired, I told Ned [Johnson, who owns most of Fidelity] I’d probably have to do something like this sooner or later. He said: OK.”

So: I thought you might want to read Cramer’s piece in WORTH. Or if you can’t wait, click here to read it on-line starting today or tomorrow. And hats off to Ned Johnson for being that kind of owner.

I have here the results of the ’90 Census. You may think I’m a little tardy with this, but it took a little while to get it. Indeed, I had to settle for a copy from the second printing, in 1802. This is the 1790 census I’m talking about, our nation’s first.

Not to draw any direct connection to my recent comment on population growth, but one can’t help thinking how the country has changed since 1790 and how much of that change — though most of it is technological — has to do with population growth.

In 1790, according to the census, there were 3,893,635 inhabitants of the United States, 694,280 of whom were slaves. (Vermont counted 16 slaves among its population, all of them in Bennington County. New York had 21,324. Maine and Massachusetts had none. Virginians owned the most — 292,627, or just over 39% of that state’s total population. South Carolina, though less populous, had the highest proportion of slaves — 44%.) Add in native Americans, Hawaiians, Eskimos and the like, and the population of what are now the 50 states may have been more like 6 or 8 million (can one of you give me a better feel for this?). Today we are well over a quarter billion.

One of the things that’s striking in looking at the numbers by town is, on the one hand, how even then — 1790 — they were still the same towns as today. Islip, Brookhaven, East Hampton and South Hampton, among the towns in Suffolk County, New York, for example. Yonkers, Bedford, Scarsdale, Mamaroneck, Rye and Harrison among those in Westchester County. The other thing that strikes you is the population of those towns. Yonkers was home to 265 white adult males 16 years of age or older, 220 younger white males, 458 white females (what difference did their age make? they were women — it was not broken out), 12 “other free persons,” and 170 slaves.

For some reason, though women were not broken out by age, one of the nine columns in the town-by-town census for New York is titled “More females than males.” Blank for most towns, Pelham was noted in this column to have 8 more women than men and South Hampton, 110 more.

My first thought would have been that women would regularly outnumber men. Surely more men were lost to war and revolution than women. Could the imbalance — more men in most towns than women — be ascribed to more single men striking out, solo, to make their fortunes in the New World? In any event, the census reporters in New York apparently thought it would be worth noting where females abounded. A sort of combination census and dating guide.

And then there are the towns that have faded in significance. In Albany County (which had 3 more females than males in tiny Kattskill, but 3,191 more males than females in its remaining 20 towns — don’t you all rush to Kattskill at once), Albany itself boasted 3,498 inhabitants. But Ransselaerwicktown was more than twice as large. Ransselaerwicktown? Countywide, Albany was more populous than New York, Queens, Kings and Suffolk combined.

There were 2,376 houses in Boston, 61 in Brookline. Lexington and Concord? One hundred thirty-five houses and 293, respectively.

The second half of my little book has all the same stuff a decade later: the 1800 census. The population of Truro, on Cape Cod, had fallen from 1,193 to 1,152. But neighboring Province-Town had jumped from 454 to 812.

I would like to be able tell you what happened to those 3 surplus ladies from Kattskill, but by 1800, for some reason, Kattskill seems to have vanished from the census. One has visions of its being overrun by 3,191 males from the neighboring counties, out for whiskey and women, and basically just tearing the place apart.

Tomorrow: Fidelity Investments: Bitten by the Hand It Feeds?

I didn’t sleep in it. The only three people I know who did, Lincoln aside, are San Francisco Mayor Willy Brown, who said on CNN the other night that the mattress was lumpy, and two friends of mine, a Republican married to a Democrat, who’ve known the Clintons since 1984. They found the experience thrilling and, years later, contributed, between them, $2,500 to his reelection. (To see what anyone contributed, and to whom, click HERE.)

This isn’t to say the President may not have come close to the line of what can and cannot be done legally to raise money — or perhaps even crossed that line. I don’t know.

But as important as that distinction is, and not meaning to dismiss it, it may nonetheless be worth looking, just as a matter of interest and perspective, if nothing else, at the big picture. In managing to raise this vast sum of money — $50 million or $100 million less than the Republicans raised — was the intention to sell out the poor and middle class, which is to say the great mass of Americans, by swapping favors in exchange for campaign contributions?

I don’t think so.

One of the most fundamental things this administration did early on, like it or not, was raise taxes on the rich by a whopping 25% or so (from a 31% top bracket to 39.6%), while redistributing a fair chunk of that dough to the working poor via the Earned Income Credit.

This was no small tinker, and of course some of you believe it was terribly wrongheaded (and may have supported my friend Steve Forbes or Senator Dole as a result). But my point is that most of the fat-cat contributors to the Democratic party favor Clinton goals that — far from holding out the prospect of lining their pockets — actually cost them money, or else have no direct effect either way.

To me, there is something fundamentally different between, say, the Doles’ long-time financial support from the tobacco industry, and Elizabeth Dole, when she was Secretary of Transportation, delaying the ban on smoking in airplanes, on the one hand . . . and the kind of support the Clintons have received from anti-tobacco activists, who don’t stand to profit personally from the restrictions on selling tobacco to kids that the Clinton administration is putting into effect.

No question: campaign finance reform is needed. And maybe, in trying to get the money to win the election to stand up for the little guys who don’t have big bucks, the President or his team were too aggressive in raising funds from those that do. (Or maybe not. I’m not an expert in the law.)

But I know that the coffee I attended wasn’t remotely about asking for money (from us) or favors (from him). It was exciting to be there, of course, because it was there. But otherwise, as the President went around the table giving each of the 15 of us a chance to make a comment or ask a question, it was a pretty sleepy affair. The mayor of Burlington, Vermont, a Wall Streeter with a yarmulke, a poor but passionate believer in equal rights for gays and lesbians, a state senator from Scranton. I can’t remember the others, although I’m sure there’s a list someplace.

Anyway, let the Congressional hearings begin. As easy as it is to agree the system stinks, it sure is hard to figure out solutions that don’t trample on the First Amendment (your right to take an ad, or post a sign on your lawn, supporting the candidate you believe in, or to join with 10,000 others to post a lot of signs and take a lot of ads). Should Ross Perot or Steve Forbes not be able to shake things up just because they’re rich? Tough questions.

Alert readers will know I have thrown some cold water on the enthusiasm some feel for what’s commonly known as “The Dogs of the Dow” strategy and that I have, in return, had a bucket or two tossed my way.

Not to say it’s a terrible strategy. Just that, typically, finding these great strategies after the fact (I don’t know anyone who was recommending it 25 years ago, in advance of its great results) is not quite the same as knowing how markets will perform over the next 25 — if only because great market strategies, once widely known, become “self-disfulfilling.” (Now ain’t that a great academic term. I picked it up interviewing a Nobel laureate.) This is to financial physics what Heisenberg is to electrons. (When you shine the light of day on something, be it an electron or a secret formula for success, the mere act of shining changes the trajectory of what you’re looking at.)

Anyway, click HERE to see what the statistically savvy folks at Morningstar have to say about the Dogs. They don’t say it’s a terrible strategy, either, just that it may not be quite all it’s cracked up to be. (Heisenberg, unaccountably, is missing from their analysis.)

I know it’s a pain to click and wait, and you’re wondering why I don’t save you time and just stick their copyrighted column right here. But if you don’t think I’m saving you time, check out the URL we had to type to make HERE work — http://text.morningstar.net/news/Ms/strategist/dogs/whyitmightnot.html.

Move over, antidisestablishmentarianism.

So I had that little Valentine’s Day comment about two consultants dating. It brought forth unto my e-mail this wonderful Letterlist from a consultant at Andersen Consulting, who got it from a guy at Goldman Sachs — I wish I knew where it actually began, because I’d like to give proper credit. But whoever penned it clearly knew whereof he/she spoke.

(What’s a Letterlist? You mean you’re never awake at midnight, eleven Central, watching CBS? Dave doesn’t call them that, but surely he’s earned a dictionary entry.)

Top Ten Ways To Know You’re Dating A Consultant:

10. Referred to the first month of your relationship as a “diagnostic period.”

9. Talks to the waiter about process flow when dinner arrives late.

8. Takes a half-day at the office because, “Sunday is YOUR day.”

7. Congratulates your parents for successful value creation.

6. Tries to call room service from the bedroom.

5. Ends any argument by saying, “Let’s talk about this off-line.”

4. Celebrates anniversary by conducting a performance review.

3. Can’t be trusted with the car — too accustomed to beating up rentals.

2. Valentine’s Day card has bullet points.

1. Refers to lovemaking as a “win-win.”

* * *

Ah, but what if you fall in love with the Dogs of the Dow rather than a management consultant? Come back Monday.

When New York magazine was swallowed up by Rupert Murdoch in early 1977, I joined a bunch of other writers, retrieved my few thousand dollars in pension money, and left. Knowing that the money would have to find a home under the shelter of an IRA or else be subject to taxation, I stuck it into Mutual Shares, a fund run by Max Heine and his young protégé Michael Price.

I was reminded of this recently when I got my latest statement. According to Morningstar, Price has compounded the value of that fund at the rate of 19.6% for the last 21 years. A dollar invested 21 years ago under the shelter of an IRA is now, therefore, nearly $43. My little stake (which had had the benefit of only 20 years’ compounding, not 21) is now a six-figure stake.

They say that “past performance is no guarantee of future results,” and I know this to be true for two reasons. (Fuzzy reasons, but valid I’m quite sure.) In the first place, the last 21 years in the stock market have been extraordinary. It can’t keep up like this. Second, if Mutual Shares did continue to compound at that rate, then 21 years from now, when I’d be forced to begin withdrawing from it, each dollar originally invested in my IRA would have grown to $1,839.

Lovely, no? But barring major inflation — which would at first knock stock prices on their bottoms but ultimately drive them higher to reflect inflated values — it just doesn’t make sense that this would happen.

One could parse all this in much finer detail (noting, for example, that Price recently sold out to the Franklin Group of funds, so that, for newcomers, Mutual Shares is now a “load” fund, and its not likely to enjoy Price’s management for anything like another 21 years). But instead I’d just like to point out two very general and somewhat contradictory “themes.”

First, one really should not expect nearly as much from the market in the next decade as in the last. Second, starting early with an IRA — or any form of saving — really does make sense. Twenty years will pass, and then forty, and if you’ve been socking away your $2,000 a year in an IRA ($4,000 now for you and a nonworking spouse), you will be SO happy you did.

Kids: are you listening?