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An advisory council to the commissioner of the Financial Supervisory Agency on Wednesday proposed eliminating the compulsory premiums drivers must pay under the state-run automobile insurance system.

In a report submitted to FSA Commissioner Masaharu Hino, the Compulsory Automobile Liability Insurance Council also recommended the government institute a system to compensate people seriously handicapped in traffic accidents.

Under Japan’s two-tiered automobile insurance system, the government pays the first 30 million yen in liability costs to people injured in a traffic accident or to the families of those killed, and nonlife insurance firms cover the remainder.

As 30 million yen is not considered enough to cover a major accident, a large proportion of drivers pay premiums for policies from private insurers in addition to the 13,800 yen in annual premiums for the state-run automobile insurance system.

Private insurers are entrusted by the government to collect the compulsory premiums. They then hand over 60 percent to the government under a reinsurance arrangement.

The proposed cut is expected to be implemented next spring at the earliest, FSA officials said.

The panel stopped short of proposing a specific margin for the cut, so the Financial Services Agency, which will replace the FSA on July 1, will determine the amount, they said.

The panel said the cumulative gains posted by the government through investment of the collected premiums was 1.83 trillion yen as of March 31, 1999.

“A cutback should be implemented on the basis of those gains, which should be mirrored in the premium levels,” the panel said.

In view of the large surplus in the official insurance account, the panel also urged the government to scrap the current reinsurance deal with nonlife insurers.

But it recommended the scope of the cut be limited as the government has been incurring losses, with payouts eclipsing premiums under the compulsory regime.

In fiscal 1999, which ended March 31, government payouts eclipsed income by 196.6 billion yen.

The scope of an upcoming reduction in premiums is likely to be limited to less than 11.5 percent — the margin of the last cut implemented in 1997.

The council said, “Victims of automobile accidents who remain seriously handicapped are increasing rapidly,” due partly to advances in medical technology that today enables doctors to save their lives.

The report called on the Financial Services Agency to create eligibility requirements for handicapped people to receive compensation and to quickly determine the amount of benefits to be paid out.

To finance the payouts, the panel recommended the government impose a surcharge on the premiums collected by nonlife insurers.