Automobile Insurance: Current Issues

• There is more automobile insurance written in the U.S. than any other type of insurance.
• Automobile insurance is divided into personal and commercial lines, with personal auto insurance purchased by individuals and families.
• Auto insurance became popular after the turn of the 20th century along with the increase in vehicle use.

Current Issues in Automobile Insurance

• Car accidents can have a profound financial impact on families due to medical costs, repair costs, and loss of income.
• Motor vehicle crashes are the leading cause of death for those aged 15 to 20.
• Young drivers accounted for 6.4% of licensed drivers in 2007 but were responsible for 14% of police-reported crashes in 2008.

Irresponsible Drivers

• A significant problem in auto insurance is the number of irresponsible drivers, including those driving under the influence, driving uninsured, or with high numbers of tickets and accidents.

Driving Under the Influence

• One in three people will be involved in an alcohol-related crash in their lifetime.
• In 2008, 31% of young drivers (15-20 years old) killed in crashes had a BAC of .01 g/dL or higher.
• Every state and D.C. has a "zero tolerance" law, leading to teenage drivers losing driving privileges for any blood alcohol concentration.

Distracted Driving

• Distracted driving includes texting, talking on a cell phone, interacting with passengers, eating, or anything that takes a driver's attention from the road.
• Texting drivers look away from the road long enough to travel five football fields at normal highway speeds.
• The National Safety Council estimates that at least 28% of all traffic crashes each year involve drivers using cell phones and texting.
• Texting has been cited as more dangerous than drunk driving because distracted drivers need more time to return to task and respond accordingly.

Driving Without Insurance

• Many people do not comply with compulsory auto insurance laws.
• If one is hit by an uninsured driver, they or their insurance company will likely have to pay for any injuries or damages.

High-Risk Drivers

• This category includes drivers who have a number of moving violations, an above-average number of accidents, convictions for serious offenses such as drunk or reckless driving, or a combination of these factors.
• High-risk drivers face difficulty getting insurance coverage or pay more for it.

Increasing Number of Auto Accidents

• There are approximately 13,000,000 auto accidents a year involving over 21,000,000 people.
• Despite low fatality rates in recent years, the frequency of auto accidents is rising.
• Crash rates for teenage drivers are double those of cars used only by adults.

High Cost of Auto Accidents

• The economic cost of motor vehicle accidents is nearly $200 billion annually.
• High costs are related to rising medical costs, increasing costs to repair higher-valued vehicles, legal battles, loss of wages, and administrative costs.

Young Drivers

• Youthful drivers are disproportionately affected by auto accidents, with higher accident and fatality rates.
• Inexperience is a primary factor in these problems.
• The older you get, the better driver you become, on average.
• Ways teen drivers can reduce the risk of accidents:
  • Slow down: 45% of accidents in which young people are killed involve speeding.
  • Wear seat belts: Teenagers are less likely than adults to use seat belts.
  • Reduce nighttime driving: Around half of all fatal accidents involving teenagers occur at night, especially on the weekend.
  • Drive alone: The risk of an accident increases with each passenger.
  • Don’t drink and drive: Alcohol combined with inexperience is a deadly combination.

Graduated Licensing

• Nearly all states have enacted laws for graduated licensing of youthful drivers.
• Graduated licensing is designed to provide newer drivers with an opportunity to gain experience behind the wheel under conditions that minimize risk.
• Graduated licensing laws have shown a sharp reduction in accidents involving youthful operators.

Compensation of Auto Accident Victims

• Those who suffer injuries or property damage as a result of automobile accidents are entitled to compensation.

Financial Responsibility Laws

• Every state has financial responsibility laws.

• These laws require a person to provide proof that they are financially responsible in certain circumstances, for example:

  • Following an accident in which someone is injured.
  • Following an accident in which there has been property damage in excess of a certain amount, usually $500.
  • After conviction for a serious driving offense, such as a DUI, reckless driving, or vehicular manslaughter.
  • When a driver’s license has been suspended or revoked, prior to its reinstatement.
  • If the driver has failed to pay money owed from previous accidents.

• The most common method used to demonstrate financial responsibility is with an automobile insurance policy.

Compulsory Insurance Laws

• All but a few states have compulsory insurance laws, making it illegal to operate a vehicle without insurance.
• Compliance with the law can be checked when a vehicle is registered, a driver’s license is issued or renewed, during a traffic stop, or after an accident.
• In states with compulsory insurance laws, no automobile insurance policy can be issued with a limit less than the state’s financial responsibility law.

Negligence and Automobile Accidents

• In most jurisdictions, a person who has caused an accident is legally responsible to compensate the victim or victims.
• This system involves the concept of negligence, which was discussed in the previous chapter.
• The tort system holds the negligent party responsible for wrongful acts committed against another.

Uninsured Motorists Coverage

• If an uninsured driver hits you, you may be able to obtain compensation under your own automobile insurance policy using the Uninsured Motorists coverage.
• In some states, Uninsured Motorists coverage is mandatory whenever liability coverage is purchased.

Regulation of Automobile Insurance

• Insurance is primarily regulated by each of the states.
• Personal insurance is much more highly regulated than other types of insurance.
• Consumers of personal insurance products are considered to be less familiar with the complex business of insurance than are business firms.

Regulation of Personal Insurance Prices

• The market for personal automobile insurance is very competitive.
• Insurance regulators (commissioners, superintendents, or directors) are responsible for:
  • Ensuring that insurance coverage is available to people who must purchase it.
  • Making sure insurance companies do not charge excessive prices.
  • Determining if insurance companies are charging too low a rate and therefore could possible go out of business.
• Insurance companies cannot charge any price they wish.
• Regulators review the rates charged by all insurance companies to determine if they are appropriate.

Regulation of Policy Denial, Cancellation or Non-renewal

• Insurance regulators also control the manner in which insurance may be denied, canceled, or not renewed.
• In some states, any person who qualifies as a “good driver” must be insured in the company of his or her choice.
• The ability to deny, cancel, or refuse to renew personal automobile insurance is severely restricted by state laws.

Insurance for High-Risk Drivers

• Most states have an assigned risk plan or automobile insurance plan to provide insurance for high-risk drivers who have been denied coverage elsewhere.
• The plan must accept the applicant (provided he or she has a valid driver’s license), however the premium charged is substantial.
• Coverage is usually limited to the amount required by the state’s financial responsibility law.
• The assignment usually lasts for three years, after which the insured may reapply to a standard insurer for coverage, assuming the driving record of the individual has shown improvement.