although we believe the correction to be very inadequate. However, the AIA made no such adjustment for single car accident injuries. This evidence of nonreporting of potential medical payments claims coupled with no corrective adjustment casts serious doubt upon the validity of the AIA sample of single car accident injuries.

As we stated earlier, the AIA cost study suggested that the reason for the nonreporting of medical payments claims in multiple vehicular accidents was because of the right of subrogation under some Medical Payments Coverages when AIA insureds have bodily injury claims payable by the driver of the "other car.” We do not believe that the reason given by the AIA can explain the magnitude of the medical payments non-reporting. The right of subrogation under medical payments coverage is generally limited to the "special package policy" and this policy represents only a small percentage of the exposure written by AIA companies. In fact, no AIA company offers this special package policy in either New York or Massachusetts, two of the largest states in the seven-state AIA sample. What other reasons then might there be for non-reporting of medical payments covered injuries? One possible reason could be the influence of what has been referred to as the Protestant Ethic. Out of a sense of fair play some injured persons do not attempt to collect more than once for personal injury damages arising out of an automobile accident, whether payment was received from a tort liability claim, or more importantly, for single car accident injuries, from an accident and health policy or some other collateral source.

Not only is there a possible moral prohibition but also there is a very real economic prohibition. Some injured persons entitled to medical payments bene fits may not make medical payments claims because they do not want to risk a possible disruption of their relationship with their own insurance company. Particularly this would be true if they are able to collect from some other collateral source anyway. Further, under the safe driver merit rating plan used by AIA companies, a medical payments claim could result in a very substantial increase in the cost of automobile insurance for the insured at renewal. This is partienlarly true for single-car accidents since there is no question but that the insured driver is at fault.

So for some combination of the reasons cited above, it is highly likely that there is also serious non-reporting of single car injuries in the AIA sample. Again, as with the serious non-reporting of injuries to occupants of the "insured car" in multiple vehicular accidents, this non-reporting of single car accident injuries serves to further understate the true cost of the proposed AIA no-fault system.

PART II: OTHER A.I.A. SAMPLING PROCEDURE BIAS

The sampling technique used by the A.I.A. will automatically understate the proportion of single-car accident injuries as compared with multi-car accident injuries.

Under the A.I.A. sampling procedure, sample-injuries were identified when a single claim file closing triggered reference to the accident file. In this way all of the injuries for an accident so identified were included in the sample. Since more people are injured in a multiple-car accident than a single-car accident, it follows that the sample technique of triggering accident reference by an injury claim closing will result in sampling bias against single car accidents. More multiple-car accidents will be included in the sample than is representative of the true accident population.

Although this committee did not attempt to adjust the A.I.A. sample data for this sampling bias it is possible to illustrate with published injury data that the described sampling bias does exist and that the true number of one-car injuries ought to be perhaps 50 per cent greater than that shown in the A.I.A. study.

Table B shows the National Safety Council's distribution of injuries by type of accident and compares this distribution with the distribution taken from the A.I.A. Cost Study, Exhibit IV, sheet 1. The A.I.A. data shows that only 23.1 per cent of all injuries sampled arose out of pedestrian or single car accidents compared with the National Safety Council's figure of 33.3 per cent. Therefore, it is clear to this committee that single car accidents did not have proper representation in the A.I.A. sample and further, it is the opinion of this committee that the reason can be attributed to the sampling techniques used.

Because a tort liability settlement is much more likely in a multiple-car accident than in a single-car accident, this sampling bias would also serve to underestimate the true increase in the compensable injury frequency under the A.I.A. no-fault proposal.

1 Accident Facts, 1968 edition, p. 45.

* AIA study distribution is taken from exhibit IV, sheet 1 of that study. The 23.1 percentage is calculated as follows: (1,168+38)÷(1,168+38+2,268+1,746)

3 The "pedestrian and single car" category includes accidents involving bicyclists.

PART III: ESTIMATED TRUE COMPENSABLE INJURY FREQUENCY INCREASE Because the increase in the compensable injury frequency of the proposed AIA Plan is so important for comparative cost purposes, this committee attempted to estimate how many more claims would be produced if the AIA Plan were adopted.

Two approaches were used. First, we examined independent studies to see what other investigators have concluded about the percentage of auto accident injuries not compensated for under the present system. Second, we recalculated the compensable injury frequency indicated in the AIA Study, after making reasonable adjustments in the AIA data.

Exhibit A summarizes the findings of the independent studies. It shows that different investigators have come up with wide variations in the estimated percentage of accident victims not now being compensated. However, with the exception of the Harwayne study in New York, all of these studies indicate that adoption of a no-fault plan would increase the number of claimants far beyond the 27 per cent figure indicated in the AIA Cost Study.

Exhibit B sheds light on the reasons for the wide variations found in the various independent studies. It indicates that there is a strong correlation between the percentage of auto accident victims receiving liability settlements and the existence or absence of laws restricting the right of civil action against negligent drivers. Jurisdictions with restrictive laws (Ontario, Michigan, New Jersey) tend to compensate lower percentages of those injured than states with less restrictive laws. (Exhibits A and B should be examined together in order to evaluate these relationships.)

Of the states included in the AIA survey, it would appear that four (Rhode Island, California, Massachusetts and Illinois) significantly restrict the right of civil action, either by statute or by application of the common law. Moreover, these four states represent 65 per cent of all vehicles included in the sevenstate AIA survey. Thus it is reasonable to conclude that the adoption of a nofault system in these seven states would produce increases in compensable injuries more in line with the findings of the independent studies.

For these reasons--and more importantly, the fact that four of the six independent U.S. studies produced estimates in the 55-70 per cent range-this committee concludes that it would be reasonable to project a 65 per cent increase in the number of injuries that would be compensated for in the seven AIA survey states if the AIA plan were adopted there.

A 65 per cent figure is further supported by the alternative approach of recalculating the AIA Study indications on the basis of reasonable data adjustments. Exhibit C shows that if the percentage of occupants in the "other car" who receive tort liability settlements is adjusted downward to 60 per cent (a conservative estimate), and if the relationship between single and multiple-car injuries is maintained (although we have already shown that this ratio is probably too low), then the indicated increase in compensable injury frequency is slightly more than 65 per cent.

So for purposes of cost comparisons, this committee made an additional 30 per cent upward adjustment in the AIA's indicated compensable injury frequency, which the AIA already had increased by 27 per cent (1.65÷127—1).

Exhibit A: Estimated Increase in the Compensable Injury Frequency Produced by Adoption of a No-Fault Plan.

Estimate by AMIA of increase in seven states in which the AIA conducted its survey, 65%.

Note: *Source material concerning above studies and surveys follow on the next page.

SOURCE MATERIAL TO EXHIBIT A

Location of study or survey

Performed by

Year data
collected

Survey method to determine increase in claim universe

1. New York.

2. Wisconsin.

3. New Jersey....

4. Michigan..

5. Michigan..

6. Michigan....

7. Ontario, Canada.

8. 7 States as listed in exhibit B which follows.

Frank Harwayne 1... 1960.
William T. Hold 2 1964.

Temple University,
by John F.
Adams.3
Frank Harwayne

1955.

1962. Robert A. Bailey ... 1962.. Conard, et al. 6_.

1958.

Adjusted police reports versus insurance company bodily injury claim reports.

Survey sample of injured parties in motor vehicle accidents reported to State motor vehicle department.

Survey sample of injured parties in New Jersey motor vehicle accidents.

Adjusted police reports versus insurance company bodily injury claim reports.

Adjusted police reports versus insurance company bodily injury claim reports.

Survey of drivers and persons reported injured in personal injury accidents reported to Michigan State Police.

Investigative survey conducted in 1964 of all persons injured in county of New York during 1961 calendar year.

March 1968 Insurance company bodily injury and medical payments closed claim files.

1 Frank Harwayne, "The Relative Cost of Basic Protection Insurance in New York State-An Objective Determination," prepared for the "Study of Automobile Claims Systems," Harvard Law School, February 1968, p. 7.

2 William T. Hold, "The Economic Impact of Automobile Accidents'' (unpublished thesis for Ph. D. degree at University of Wisconsin, 1967), table IV, pp. 238-239.

3 John F. Adams, "A Comparative Analysis of Costs of Insuring Against Losses Due to Automobile Accidents-Various Hypotheses-N.J., 1955" Economics and Business Bulletin (Philadelphia: Temple University, March 1960), table 19, p. 26. 4 Frank Harwayne, "Insurance Cost of Automobile Basic Protection Plan in Relation to Automobile Bodily Injury Liability Costs in Michigan" (prepared for the "Study of Automobile Claims Systems," Harvard Law School, Cambridge, Mass., as amended October 1967), amended table D-1, p. 72.

Robert A. Bailey, "Fallacies Overshadow Validity of Plan's Cost Estimates," Trial (Boston: American Trial Lawyers Association, October-November 1967), p. 46.

A. F. Conard, et al., "Automobile Accident Costs and Payments" (Ann Arbor: University of Michigan Press, 1964), tables 4-1, 4-2, and 4-11, pp. 137-149.

7 A. M. Linden, "The Report of the Osgoode Hall Study on Compensation for Victims of Automobile Accidents" (Toronto: Ryerson Press 1965), ch. IV, p. 13.

American Insurance Association, "Report of Special Committee to Study and Evaluate the Keeton-O'Connell Basic Protection Plan and Automobile Accident Reparations" (Oct. 21, 1968), exhibit II, sheet 1.

EXHIBIT B

AVAILABILITY OF TORT REMEDY BY STATE-RIGHT OF CIVIL ACTION IN TORT FOR ORDINARY

Note: The above answers indicate in essence how the State law operated in practice at the time the accidents, which were the basis of each study, took place.

Exhibit C: Recalculation of AIA Cost Study Data to Estimate the Increase in the Compensable Injury Frequency under the AIA No-Fault Proposal

I. Multiple car accidents

In any large sample of multiple-car accidents the greater degree of fault will lie with each driver about one-half of the time. Any tort settlements would be expected to distribute themselves in about the same way. In terms of the A.I.A. sample then, it would be expected that about one-half of the injuries to occupants in the "other car" would receive tort liability settlements. However, examination of the A.I.A. cost study Exhibit IV shows that 78 per cent of the occupants in the "other car" received bodily injury liability settlements from A.I.A. companies. Therefore, this committee adjusted the A.I.A. data for the "other car" so that the occupants of the "other car" received bodily injury settlements from the A.I.A. insured car driver 60 per cent of the time. The selected 60 per cent figure results in a conservative estimate of the total number of injuries not only because fault which actually would be divided between the two cars about evenly but also because it relates to an even higher percentage of "other car" injured occupants who receive tort settlements. This is true because A.I.A. Exhibit IV shows that some persons collect bodily injury settlements from their own driver's (or car owner's) insurer. These adjustments were made as follows:

(a) Factor to eliminate injuries in the "other car" category involving occupants of the 2nd, 3rd, etc. "other car" in chain accidents:

4,014 -4,230=9491

(b) Total injuries in the "first other car"

3,30560X949=5,227 2

Thus it is estimated that using the bodily injury liability settlement injuries in the "first other car" as a base, the total number of compensable injuries in the "first other car" is 5,227. Since the "insured car" is a mirror image of the "first other car," it would be expected that the number of compensable injuries in the insured car would also be 5,227.

(1) The number 4.014 is taken from A.I.A. Exhibit III line labeled "Adjusted". The number 4,243 is the sum of lines 23 and 25 shown in Exhibit IV, sheet I of the A.I.A. Study.

2 The number 3,305 is taken from A.I.A. Exhibit IV, sheet 1, line 23 under column headed "other car". It is possible to demonstrate that using the technique outlined infitems a and b that the assumption that 60 per cent of the injuries in the "other car" receive bodily injury settlements is indeed conservative. Eliminating injuries to occupants in the second, third, etc. "other car" in chain accidents, reduces the number of bodily injury claims against A.I.A. insurers in the "other car" from 3,305 to 3,136. However, the same lines of Exhibit IV show that 213 A.I.A. car occupants received bodily injury settlements from A.I.A. insurers. Since the insured car and the first "other car" are theoretically a mirror image of each other, then it could be assumed that in reality 3,349 (3,136+213) persons in the "first other car" received bodily injury settlements for an overall ratio of bodily injury settlements to total estimated injuries of 64 per cent (3,349 +5,227).

II. Single-car accidents

As was explained earlier, there is very good evidence to suggest that there was serious under-reporting of single car injuries in the A.I.A. study. Further, other evidence showed that the A.I.A. sampling procedure itself served to understate the true proportion of single car accident injuries. However, in the interest of a conservative esimate, this committee used the relationship between the single car and multi-car injuries shown in the A.I.A. Study for estimating the number of single car injuries to be compensated in the A.I.A. proposal.

Exhibit IV sheet 1 line 3 of the A.I.A. Study shows that "one-car in-state" injuries are 28.9 per cent of "insured-car, multiple car, in-state" injuries:

(1.125÷3,889=.289)

So it is estimated that the true number of one-car injuries is 1,511 injuries: (5,227.289=1.511)

III. Total injuries to be compensated

In total then the number of injuries to be compensated under the A.I.A. nofault proposal is:

(1,511+5,227+301=7,056)3

Therefore, as compared to the present system, the compensable injury frequency is estimated to be 66 per cent greater than the present liability system compensable injury frequency (7,056÷4,243=1.66).

This estimate, rounded to 65 per cent is 30 per cent higher (1.65÷1.27—1) than the A.I.A. Cost Study indicated increase.

EXHIBIT XII

AIA INTERPRETATION OF ITS PLAN

On February 6, 1969, AMIA representatives visited with the AIA representatives to seek clarification of the intent of the AIA Plan and extent of its coverage. The purpose of this memorandum is to set forth the interpretation of the Plan in those areas which the Alliance Actuarial Committee had found unclear. 1. Permanent partial disability

The AIA Plan contemplates paying economic loss resulting from injuries partial in character and permanent in nature. Subject to the limits provided, the economic loss will be based on the wage expectancy of the individual had the accident not occurred.

The payment will be in addition to those benefits payable for permanent disability of non-economic nature (based on 50% of medical benefits).

Any sum earned by the injured will be deducted from the maximum monthly benefit of $750.

2. Permanent total disability

The definition of permanent total disability will probably be quite similar to that in the Social Security law. However, it is recognized that the courts will ultimately define this term.

Benefits will be payable during the lifetime of the beneficiary. However, it is important to recognize that benefits during the work life expectancy of the beneficiary will be different from those paid during his retirement expectancy. Benefits paid during the work life expectancy will be based on actual economic loss with a maximum of $750 per month. Benefits paid during the retirement life expectancy will be the difference which the beneficiary is receiving in retirement income from Social Security and pension and what he would have received from such sources had he worked up to the normal retirement age. The benefits will not exceed $750 a month and out of the $750 there will be deducted Social Security benefits received.

The AIA contemplates adjusting the benefits to increases or decreases in the cost of living adjustments and also expects to base its benefits on wage expectancy.

3 The number 301 is taken from A.I.A. Exhibit IV, sheet 1, line 3, column 12 adjusted for "no medical but other economic loss" (297 x 1.015).