Free Market Best Bet

For Fair Oil PriceI am finally taking JofC ombudsman Harold Gold up on the last paragraph of his excellent April piece, "Like C. Aubrey, We Never Said It," in which he encouraged readers to write letters, and am offering some comments on a recent Journal news story concerning New York officials William Cotter and Richard Kessel.

It is really unnecessary for Richard Kessel, New York State Consumer Protection Director, to "warn" heating oil marketers that he will ''monitor" heating oil prices to ensure that they do not increase beyond ''reasonable" levels, as reported in the JofC on August 8.

William Cotter's agency, the New York State Energy Office, has monitored both gasoline and heating oil prices for several years with the full support and cooperation of marketers of both products. His agency has done an excellent job in accurately reporting market conditions. Despite these ongoing State Energy Office statistics, Mr. Kessel always seems to seize the opportunity for personal public exposure, no matter what the facts.

Last fall, Mr. Kessel, as well as N.Y. Governor Mario Cuomo, predicted large increases of 20 cents or more a gallon for home heating oil. Instead, within a short period of time, there was a precipitous decline in these prices. If Mr. Kessel wishes to interfere or even participate in the working of the free heating oil market, he can easily visit the New York Mercantile Exchange on a daily basis to invest his own funds in a very volatile market where prices of heating oil change from hour to hour. To attempt to interfere with the free market with his personal definitions of "reasonableness" is the height of government presumption.

I would submit that the free market for petroleum products is the consumer's best insurance of a fair price. It has proven to be in the past and will continue to be so in the future.

James R. Wells Executive Vice President New York Oil Heat

Statistics of Tort Law

Misleading in Article

The contest between insurance companies and plaintiffs' lawyers over tort reform proves once again that there are "lies, damn lies, and statistics. Reference your Aug. 7 issue, article titled "Conclusions Disputed on Tort Law Verdicts."

In order to "prove" that there has been no liability crisis, the plaintiffs' lawyers shine their spotlight on the median jury awards in recent years and cast their shadow on average awards. Medians evidently haven't gone up much, according to Jury Verdict Research Inc.

The median, however, shows only what was awarded to that one unique person whose award was in the middle between the smallest award and the highest award. That statistic says nothing at all about the total cost of all those awards. It is the total cost that determines how high insurance premium must be set. And, after all, it's the escalation of insurance premiums that has really fostered the current crisis atmosphere, isn't it?

For example, if in Year One there were 21 awards ranging from $1,000 to $21,000 in $1,000 increments, then the median and average award was $11,000 and the total cost was $231,000. If there were 1000 policyholders, their premiums would have to be $231 each, plus insurer expenses.

Now let's say in Year Two there are again 21 awards, 20 of which range in $1,000 increments up from $1,000, but the largest award jumps to $500,000 instead of $21,000. The "median' is still $11,000, so according to the lawyers, nothing has changed. Yet the total cost of these awards is now

$710,000 and the average is $33,810. Each policyholder's premium must then be increased over 200 percent to $710 plus insurer expenses, if this cost is to be covered. Yet the focus on the "median" by the lawyers suggests since ''nothing has changed" that either (a) insurers shouldn't raise their premiums despite this cost increase or (b) policyholders shouldn't notice the premium increase.

The lawyers say that the median is what the "typical" claimant received. The median claimant, far from being "typical," is really quite unique, and also quite irrelevant to the cost issue.

Mikk Hinnov Assistant Vice President Continental Insurance Piscataway, N.J.

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