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Cheap auto insurance and the uninsured driver

Those who have spent years studying to become economists would have us believe that this is a science. They crunch numbers and come up with wonderful plans they believe will save the world from its current or next crisis. Unfortunately, science always fails when it comes to trying to understand human behavior. The psychology of large numbers of individuals is difficult to model. Who knows why people spend like there's no tomorrow once minute and stop spending the next. Some will be bankers with several million in bonuses, another group will be in work with a range of pay, and then comes an average of about 9% unemployed. The fact that there are one or two percent changes in the rate of unemployment should not affect consumer confidence. Yet, over the last two years, we have seen banks go bust, waves of foreclosures ripple across America like a tsunami and people suddenly decide they need to be as frugal as their Protestant forebears fresh off the Mayflower.


One of the consequences of this desire to pay down debts during the recession has been the rise in insurance rates. This is easy to explain. When family budgets come under pressure, people decide how they are going to spent the little they have. An increasing number have decided to come down to basic liability cover on their vehicles or drive without insurance. Despite the legal risks, the average percentage of uninsured or underinsured drivers on our roads is now approaching 20% in some states.

We now need to go back to the basics of insurance. The insurer estimates the value of the claims likely to be made in the next twelve months and divides that cost among all those paying premiums. If the value of the claims stays the same but more people decide not to pay premiums, this forces a rise in the amount paid by the honest. Worse, as the risk of being involved in an accident with an uninsured driver rises, more people have to buy coverage to protect themselves. Under normal circumstances, if someone crashes into you in an at-fault state, there's a claim against his or her insurer. Even the basic liability minimum is better than nothing. But if there's no insurer, who pays for your medical expenses and for the repair of your vehicle? Without uninsured cover, all that money has to come out of your own pocket.

Life can be very unfair and, when people are in financial trouble, it would be hard to expect them to give up their personal transport. American cities have not been designed with pedestrians in mind. But unless the mandatory liability insurance laws are enforced, all the honest drivers will end up paying more for their insurance. When the majority are being penalized by a minority, something should change. Otherwise, every time those auto insurance quotes come into your inbox, you will see rises. The Constitution does not say everyone is free to pick and choose which laws they will obey. If we want to see the return of cheap car insurance, we should see all mandatory laws properly enforced.

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