Why Mandatory Car Insurance Hurts Good Drivers
By Eric Peters, Automotive Columnist
A reader wrote in response to an article I did on the tyranny of mandatory insurance laws. He had been hit while on his motorcycle — and crippled for life — by an oblivious driver who ran a light. He told me he believes that not only should insurance be mandatory but that all drivers should be required by law to have at least $250k in liability insurance — or about twice the current maximums required in many states.
There is a saying, “hard cases make bad law.”
It means an emotional desire, in the wake of a horrible incident, to “do something” about it. This often takes the form of pushing for a new law to more severely punish those responsible for causing harm/damage — and also (so it’s argued) to deter future such events from occurring at all by making it clear there will be serious consequences, etc.
The problem as regards mandatory insurance — and specifically, mandatory “high coverage” insurance such as my reader wants, is that it assumes we’re all dangerous/reckless/inept — and makes us pay through the nose accordingly.
But why should responsible drivers who do pay attention to their driving, who are skilled and attentive and who never get into at-fault accidents (millions of such people exist) be compelled to pay big bucks for insurance coverage that is massively expensive precisely because it is compulsory and forces them into the same risk pool with the irresponsible few such as the person who hit the guy in my example?
Granted, there is always some risk an accident or injury may occur — no matter how good the driver — anytime a person gets behind the wheel. But is it reasonable to base law on the exception rather than the rule? To require that people — everyone — insure against any conceivable risk, and to an extent that assumes the absolute “worst case” scenario?
Most of us have to strike a balance between our means and what we spend on various things. Many people would probably prefer to throw say an extra $50 each month at their mortgage balance (or the family food budget) rather than literally throw it away on an over-priced, compulsory insurance policy they will probably never need.
If, that is, they were allowed to do so.
The amount of money we are forced to spend on insurance — car insurance, health insurance, life insurance, home insurance, etc. — is enormous — and historically unprecedented.
It’s no wonder people are broke and in debt up to their eyeballs.
My argument, however is not with insurance per se but rather with it being compulsory as this is what has been driving the cost of premiums to ridiculous levels — even for good drivers with no history of at-fault accidents.
Personal anecdote: Even though I haven’t had an accident in more than 20 years and have a “clean” driving record I still pay out more than $500 annually to insure my two trucks, plus another $300 or so for my three motorcycles. Compared to what some people are paying, it’s not much — but over time, the cost is still high. If I could do so legally, I’d opt not to carry insurance for at least two of my motorcycles, which I rarely ride — and for one of my trucks, which mostly just sits in the garage. I judge the risk that I will have an accident with any of these vehicles to be very low, given that none of them sees more than 2,000 miles of road time each year and given that I am demonstrably a “good driver,” based on my accident-free driving record.
But I’m forced to pay anyhow — just like everyone else.
With mandatory insurance, there is no incentive for the insurance industry (which has largely become a cartel) to price policies fairly or competitively because we’re all forced to buy. Insurers can jack up our premiums over things like “speeding” tickets (often the result of deliberately under-posted speed limits) or even our credit rating that arguably bears no correlation to our driving skills or the likelihood we will cause an accident.
How many of us have been hit with a “surcharge” on top of our already high annual premium (which can easily be $1,000 or more per year for the average person with a late model car) merely because we had the misfortune to run afoul of a radar gun in a speed trap?
We know it’s a scam.
And there is only one way to cut the legs out from under it:
By allowing good drivers to say, “no thanks” to overpriced insurance coverage, insurance companies would be forced to offer more competitively priced policies to good drivers. Policies based on actual risk as determined by the driver’s record of at-fault accidents. Not trumped-up “speeding” tickets.
And the bad drivers? They should pay according to their risk profile.
And uninsured bad drivers?
If they cause damage or injury, they should be held responsible to the fullest extent of the law. If they have assets, seize them. If they work, garnish their wages. If they don’t work — make them. Nothing wrong with making deadbeats clean up trash by the side of the road or dig ditches… whatever.
Until the debt is paid off, no matter how long that takes.
That’s right and proper.
But forcing others to pay for the irresponsible actions of others isn’t.
Comments?
www.ericpetersautos.com
In my home state in the southern US for a 35-40 years old with a clean driving record for liability & uninsured/under insured ($100k property / 250k liability) is ~$220-260 a year per vehicle . Full coverage is under ~$600 a year for most . If my state can do it for this any state CAN give coverage for this if they write the laws to regulate coverage ……….But it must be mandatory and tracked with strict limits on price put in by the government .
All of you out there with your anti government ideas , read and weap……………………Colorado is one of those anti government anything states and crappy coverage cost $1,500 a year per car to come close to what is offered in my state , not nearly as good as what I can get for less than $300 a year .
And on how premiums are figured , If we had real speed limits posted then increasing premiums when you got a ticket would make sense . But what we all know we have today is a system based on politically underposted limits that have nothing to do with safety or the real world . Getting a highway speeding ticket anywhere in the US means you were unlucky not unsafe . And on basing premiums on a credit check , WTF ……………. What does my credit have to do with my driving record ……..
In my home state our liability coverage is tracked by a state DMV computer , no coverage means no plate or DR license . And rates are based on our driving records and the prices for coverage are strictly regulated . So if you have a good clean record , which means you have a really expensive radar/laser detector and you are careful about how you use it when you drive on the highway or interstate premiums are cheap . Essentially if you have a plate you have coverage , the state will come out to your home revoke your DR license and remove your plate from your vehicle which makes it cheap for all of us . I really don't mind mandatory liability rules under the system we have in my state .
In every state the ins laws are different , I speak from spending a lot of time in other states than my home state .
The system we have today is a hodge podge of laws and rules across the US . Where I have cheap good coverage in my home state in the south in the western US where coverage is literly the wild west it is ridiculously expensive for crappy coverage .
In many parts of the west as many as 7 out of 10 drivers have no coverage because these states don't track coverage . In Colorado many buy coverage to get their tag then drop it because the state has no tracking system to tell if someone has coverage or not . In Colorado they don't even offer uninsured coverage property so when one of these drivers hits you you're just SOl ….
You are correct. Insurance premiums are based on cost of coverage to the insuance complany. If you live and drive in a city with a lot of accidents your rates are going to be higher. If you live in a state where most people do not have coverage and you have to provide extra coverage to yourself to make up for it then your rate is going to be higher. Many people do not understand insurance and what affects the rates. They say that getting speeding tickets should not increase your rate. Statistics show that a person with more tickets on average causes higher costs to insurance companies. This is because the majority of people that get speeding tickets are above the 85 perctile speed and every study done shows that those people cause more accidents and more costly accidents.
Clover1: You are absolutely correct; too often, other factors other than one's own driving record and the age of the car are not taken into account when evaluating the price one pays for insurance.
However, I'm sorry, but your final sentence would be true if that were the way that speed limits were determined – which they are not. Hardly anyone drives the speed limit in free-flowing interstate traffic, and unless you're far and away the fastest car on the road, your odds of being stopped are pretty well random.
And as an aside, suppose the fast driver doesn't see the cop coming after him, and doesn't slow down right away. Just imagine how fast the cop has to race along in order to catch him. The idea that speed limits are in any way concerned with safety is pure fantasy. They are enacted by those who are chauffeur-driven and enforced by those who sweep traffic aside and out of their way by their very appearance.
One thing I noticed today driving to work is that drivers feel they have the responsibility to go over the speed limit. It is not that they need to get anywhere faster. i was passed today when I was almost to work on a blind curve. I was already going a few miles over the limit so no one would have to pass. He did anyway. He did it to drive about 3 mph faster and then when i got closer to town and in a slightly slower speed limit I ended up passing him. and I was going the speed limit at the time. Speeding for the most part is felt to be a responsibility to most all that do it. If he does not speed he gets tailgated by someone that does feel it is his responsibility to speed. Speeding for the most part is not needed and for many that do it only saves them a few seconds per trip. That is not worth passing ion a blind curve but many feel it is. That is why we have police enforce speed limits to some extent. People do dumb things unless they are stopped in some way.
How many would like to see a "non-profit" insurance company? It could be accomplished if enough members of some group such as Red Cross wanted to do it. Many companies are self insured but I'd like to see it grow beyond a single company.
bajo, there are insurance companies that are non profit. There are a few out there. They are called mutual companies. They are owned by the policy holders. If the company has a significant profit then the policy holders get a check. There seems to be a lot of misinformation out there and I noticed that in the article and many of the comments here.
I also feel that you should have the option to have your "insurance" be a bank account. So you agree to keep more than $200,000 in a certain account, and that serves as your insurance policy. This could probably be scaled too, so $300,000 for two people and $350,000 for three, or something like that. This would for insurance companies to lower their rates and improve their service drastically as the rich people – the ones who would likely buy the cushiest policies, would now have the chance to make money with their insurance (interest) rather than spend it.
James, I knew I had heard that many states you can self insure and not buy insurance. I did a search and the first article I found had an example from Washington.
You must carry the same auto liability insurance limits if you choose to buy a bond instead of an auto insurance policy. If you use a certificate of deposit, you must deposit $60,000 in cash or securities with the Office of the State Treasurer.
Good to know, thanks!
Supply and Demand determine price. When Demand increases, price does too. Demand is increased by laws requiring the purchase of insurance and/or the purchase of a certain minimum amount of insurance. The intention is to have more drivers covered by insurance. However, as a result, the cost of insurance increases. This makes it less affordable to the drivers that probably need it the most, so they go without insurance – even if it means being in violation of the law.
In the end, our government's attempt to increase insurance among motorists effectively decreases it.
Supply and demand are for things like wheat and corn and oil. Supply and demand does not have anything to do with things like insurance. For insurance when the demand increases the cost goes down. It is cheaper per policy for a company to handle insuring a million policies rather than insuring 100,000.
Mr Peters does have a good point. I have two cars myself; I drive the little 35mpg Saturn daily, and my truck twice a week to rehearsals and church on Sundays to carry my bass guitar. I have to carry comparable insurance on both vehicles, despite the fact that the truck actually rolls about 30 miles a week.
I am also storing my brother's car for the next year while he's in Afghanistan. There's no reason he should still be insuring that car, but if I wished to roll it around every couple of weeks to keep things in working order – which I should certainly do – I'd technically need to carry insurance on it, despite the fact that I would drive no more than four or five miles at a stretch, and that I live in a rural area with effectively no traffic to speak of.
Liability is one thing, but unless you have a 1955 Thunderbird that you drive to car shows three times a summer, carrying insurance only on the driver based on his *accident* record – not meaningless, nonsensical "violations" like speeding and seat belt use, which are predictive of absolutely nothing – should be plenty sufficient.
Most insurance companies have a lower rate for low use vehicles and also a discount for multi car. I know I have both discounts on my second vehicle. I also have a truck that many times I suspend insurance when I do not plan on driving it for many months. There are also polices for vehicles that are only driven to car shows. You need to do some checking because many of your complaints are already addressed by insurance companies.
As for needing to drive a car every few couple of weeks. That is not true. As I said, I routinely leave a vehicle idle for over 6 months at a time. I just make sure I have a stabilizer in the fuel and keep the battery charged. I have had boats that I do not drive for a couple of years and they take right off. If I plan on not starting a vehicle or engine for many months I sometimes fog the engine or put a little oil into the cylinders.
Erik must not live in the real world. $250,000 dollars is very little anymore when it comes to injury accidents or replacing very large vehicles and trucks. I have a million in insurance and my cost is under $50 a month total with full coverage. He should know that if you are a good driver as he says, you get low insurance rates. I also wonder if a million dollars is enough insurance for me. It goes back to the idea if you do not have any assets then you need less insurance because they have nothing that they can take from you. A lot of states already have mandatory insurance. It is not $250,000 worth but probably should be. The day of $20,000 insurance should be a thing of the past if it is not already. Erik needs to get in the world of today or is it he could not think of anything else to write?
There is not much difference >< $250k insurance and $20k insurance in terms of premium cost from the insurance company. IIRC, it was only about $100 difference. (instead of about 90% less given the amount of coverage recvd.)
I do not necessarily think mandatory insurance is good. Since gov't deems mandatory insurance necessary, I think insurance minimums should be provided at cost by gov't. If someone is involved in at fault accident then their ins. rate would increase.
Other insurance would still be available to cover amounts above the mandated minimum insurance levels. Since it is not mandatory the companies would need to price their products appropriately or their products will not sell.
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@cover1
is the 1 million ins. part of an umbrella coverage?
Yes I believe the required minimum for an umbrella coverage is 250,000 vehicle insurance. Still with that coverage and the umbrella coverage I am around $50 a month. I guess you think the government is better at providing services and insurance than private companies. I would not agree but that is your view. If you think manditory insurance is not required, who is going to pay for my medical bills and vehicle if someone with little or no money hits my vehicle hard while I am stoped at an intersection? Are you saying you believe in no fault insurance and you cover your own expenses all the time no matter who is at fault?
Do you think the governement should supply everything? Do you know where the money comes from if they are paying out expenses like you want? What about people that do not drive? Do they have to pay for your coverage because they are part of the government?
In one of your statements you said increase rates when someone gets in accidents? That is what we have today.
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