So where does all the money go? In California, more than half goes to lawyers (both yours, fighting for your claim, and the insurance company’s lawyer, fighting against it) and to fraud. Why so much fraud? Because the current system actually encourages people — even normally honest people — to strike back at the insurance companies and recoup some of those years and years of exorbitant premiums by saying their necks hurt when they don’t, or exaggerating their injuries.

In Michigan — the one state that does this almost right — there are 7 fakeable claims (e.g., whiplash) for every 10 unfakeable ones (e.g., a broken arm). But they’re probably not fake, because there’s no incentive to fake them. Neither are they likely underreported, either, because if your neck really hurts, why wouldn’t you tell your doctor and try to get the pain to stop?

In California, by contrast, there are not 7 fakeable claims (e.g., whiplash) for every 10 unfakeable ones, as in Michigan — there are 25! The extra 18 are presumably fraudulent, but the insurance companies can’t tell which they are ... so they pay them, and the cost of that fraud is added to the cost for everyone else. But, perhaps understandably, they pay them grudgingly and with suspicion (because they realize there’s a good chance they’re being conned), which means that they treat everybody badly, including the "7" of those 25 who deserve real sympathy and support.

Could people and lawyers and chiropractors really misuse the system so starkly?

You bet. In Massachusetts, when its first-in-the-nation "no-fault" bill was passed in 1971, you could only sue for pain and suffering if you had medical bills and lost wages of $500 or more. But people quickly learned to treat that $500 not as a threshold but as a target. (How hard is it to rack up $500 in medical bills?) Then in 1988, to try to rein in the lawsuits, the target — sorry, I mean the "threshold" — was raised from $500 to $2,000. The next year, the average number of doctors’ and chiropractors’ visits after an auto accident jumped from 13 to 30. So, yes, people do game the system. The "no-fault" the lawyers like to discredit as not having worked largely hasn’t — because the lawyers, way back when, saw to it that there would be these low "thresholds" above which the old lawsuit system took over. In short, they sabotaged it. Only in Michigan did a "real" no-fault system squeak past the personal injury bar ... and it has been working well for 25 years.

In most states, more money goes to lawyers after an auto accident, on average, than to doctors and hospitals and nurses and chiropractors and rehabilitation expenses combined.

Auto insurance in every state except Michigan is, to a greater or lesser extent, terrible And even Michigan has a flaw. (Yes, it’s significantly cheaper than in California; and yes, the compensation you can expect to receive is closer to 90% than 9%. Yes, relatively little of your premium goes to legal expenses and fraud, because you can sue only in the most severe cases. But the flaw is: If you can’t afford to buy it, you are not entitled to the benefits. Michigan needs to allow low-income drivers to buy a less generous, more affordable benefit package.)

Why don’t all states just follow Michigan’s example (with that one tweak to accommodate low-income drivers)? After all, it’s worked for 25 years. People pay less, yet get vastly better protection against severe injury. Consumers Union long called for just such reform.

Because the lawyers won’t allow it. In California, the lawyers take about $2.5 billion a year from that $7 billion pool. They have shown they will do virtually anything to keep from letting go of it. They will certainly lie and defraud the public — and the public, in such situations, has no real recourse.

(Most insurance companies aren’t keen on a system of lower premiums, either. Only the mutual companies, owned by their policyholders, support no-fault.)

In an ideal system, a good chunk of the premium would be blended into the price of gas and collected automatically. That would eliminate sales costs, end the uninsured motorist problem (nearly half the accident causers in California drive uninsured), and — well I wrote a whole little book about how this could actually be a fairer system than today. (Bad drivers would still pay more.) But the nation’s insurance agents and insurance companies and oil companies are simply not going to allow pay-at-the-pump ... so let us, reluctantly, put it aside in our discussion. Though it would help, the really big gains to be had in auto insurance reform come from eliminating the incentive to fake and exaggerate claims and the need for lawsuits — namely, from adopting Michigan-style no-fault insurance.

But, as I say, the lawyers won’t allow it. They’re probably still kicking themselves that a coalition of labor unions, consumer groups, and others managed to get this passed in Michigan in 1973. (Michigan, by the way, is a place that ought to know something about automobiles.)

Herewith, the personal-injury lawyers’ suggestion for fixing the problem: Blame it on the insurance companies. No system is acceptable to them that merely helps the victims, a la Michigan. The lawyers must be paid. It is their right. Michigan may compensate the badly injured far better, and it may cost consumers less but is only secondarily of concern to personal injury lawyers. Of primary concern are their legal fees. And under the Michigan system, these are cut way, way back. So that’s unacceptable.

Tomorrow, I will describe the defense attorneys’ prescriptions for reform. They don’t make as much from the current system as the personal injury attorneys, but nationwide it still amounts to billions of dollars a year.

more books by Andrew Tobias