Auto Insurance Mandates Do Not Work

by Matthew Glans on July 26, 2010

Efforts by state governments to raise auto insurance minimums continue to be a recurring problem for insurers and consumers in many states. Ohio legislators are now beginning to discuss a hike but are facing opposition from the insurance industry. These laws are usually passed in an effort to solve the free rider problem, where some people who drive without insurance and get into accidents cannot afford to pay for the damages they’ve caused. In theory, mandating at least a minimum level of coverage could solve this problem. As a result, few people object to such mandates in principle. All 50 states currently have some sort of automobile insurance or “financial responsibility” mandate.

I’ve discussed this issue in the past; auto mandates have not been effective in eliminating uninsured drivers and forced drivers to pay more for insurance. Ironically in many cases the rate increases have led to drivers forgoing insurance, worsening the uninsured driver problem that the state was trying to avoid. When a similar effort was passed by Gov. Jim Doyle in Wisconsin in 2009 insurers argued that the changes would force families to pay at least 33 percent more for auto insurance.

While common and politically popular in many states, compulsory auto insurance mandates have failed to achieve their stated goal, reducing the number of uninsured drivers. Creating stricter mandates will not solve the free rider problem, but make worse, Ohioans should say no to the hikes.

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  • Don Birkholz

    Poor people spend 75% of their income on food and rent. When they buy 200$ of food this month (July of 2010) there is a 100% chance they will need it. When they pay 600$ rent there is a 100% chance they will need it. Why pay 500$ (which they do not have) for mand auto insurance, when there is a one in one thousand chance they will need it. If they do get into an accident, why can’t they pay it off 100$ per month?

    A food stamp survey done in Billings, MT, by the Montana DPHHS (at my request), showed that 12% of those applying for food stamps say auto in surance was a reason for needing food stamps. Go to for the survey.

  • Keith Kichefski

    My collector car insurance in Wisconsin went up 74% from 2009 to 2010. I always had $300,000 liability in 2009 and prior. I had the same company for 26 years, J.C. Taylor, underwritten in the last few years by Foremost. While I did carry some collision and comprehensive, the stacking clause made the second car on the policy, with only 1/3rd. the stated value, support 67% of the entire policy cost. I had filed a formal complaint with the state insurance commissioner, only to have them conclude that nothing illegal took place. Seems like they neither approve or disapprove the rates submitted by the insurance companies, yet must have the new rates within 30 days of implementation, so they can file it in a drawer and do nothing past that.
    I then contacted the State of WI attorney general. They told me that they do not represent private individuals, but only look after the Governor and legislative body. They said if everything is according to law, there is nothing they can do.
    In the interim, I dropped the insurance altogether. The cars are in storage for the time being. If 2010-2011 cannot bring positive change in this regard, my tailights will be all they see of me in the future. Since there are only 5-6 major players in the collector car insurance business, they call jumped on the bandwagon and raised rates substancially for Wisconsin. Fellow collectors outside of Wisconsin were largely unaffected by rate hikes, from the ones I spoke to. Many collectors will be either reducing how many cars they insure in the future, or parking theirs as well. For the few miles a year these vehicles typically get used, it seems like lots of profit is generated by selling insurance to collectors. On a cost per mile basis, the more I look into it, the more absurd it gets. Keith Kichefski Phone: 414-327-7407.

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