What if universal car insurance existed?

Thursday, July 12, 2012

In Mississipi it’s estimated that 28% of drivers are uninsured. If you head southwest you’ll find that New Mexico ranks second with 26% of its drivers uninsured. You can expect to see one in four cars, in each of these states, driving without insurance. It’s dangerous, it’s stupid, and it’s the reality with which we live in today. State legislatures all around the country are working to solve this epidemic. With recent debates furiously arguing Universal Healthcare it leads us to wonder what would happen if universal car insurance existed?

A Hard Perspective

Melissa, a 19-year-old, had just moved to Los Angeles from Paso Robles back in 1996. The move from San Luis Obispo County to Los Angeles lead Melissa to find out her insurance premium had doubled in the new city. Unable to afford insurance, she let her policy go. Sadly, uninsured Melissa was in a car accident that cost her life. Her family essayed to recover damages from the tragedy but because of her lapse in insurance, were unable to obtain any funds.

So what if universal car insurance had existed? Well, Melissa would have been insured at the time of her accident, her parents would have been able to recover damages for the loss of their daughter, and some form of peace would have reconciled. Seems easy logical enough, but is that what universal car insurance would really do?

From Washington

Lets first look at the larger picture. Who’s going to fund universal car insurance? Well, like health care, the federal government would have to step in and make it a priority to fund the UCI (universal car insurance) program. Currently the US government budget deficit is $901 billion. In order for the US government to fund a program like UCI, they would have to bring in more revenue. Usually that revenue takes the form of taxes. Therefore it is plausible, that in order to fund UCI, the government would raise taxes for all Americans. However, tax funds are never sufficient by themselves. Therefore the government like the health care bill could impose some sort of penalty for any American age 25 or over who refuses to purchases UCI. Even with penalties and taxes the federal government would not be able to support such a large program without accruing some sort of deficit.

Back at the ground level those Americans who live in Mississippi could now breathe easier knowing everyone on the roads in their state is insured. Could Missippians really breathe easier? According to the Insurance Research Council (IRC) unemployment is directly correlated to uninsured drivers. Mississippi happens to have one of the highest unemployment rates in America at 10.4%. With the increase in federal taxes to support the UCI program it’s safe to say inflation would increase. Those who are being taxed more are now spending less in order to cover costs. Those businesses, who are now receiving less customers are increasing prices to cover loss. This ripple will be felt mostly by the unemployed and low-income families across Mississippi. Although poor individuals are now insured, they are still paying a price.

Car Insurance Agencies and the Marketplace

The everyday people of America wouldn’t be the only ones affected by a UCI program. Competition between competing agencies would be drastically reduced. Auto insurance agencies would no longer be forced to compete with consumer wants. Thus car insurance agencies would be enabled to raise the rates of their premiums and lower the quality of their provisions. The car insurance marketplace would no longer be a free market. We could expect innovation to cease, ingenuity to retard, and competition to fail. But it’s good to enough everyone in Mississippi and New Mexico would be driving on roads filled with insured drivers.

There are clearly hundreds of variables and scenarios that would surface due to UCI. Some would be good and some would be bad; however, it’s important to remember that nothing in life is free. Someone, somewhere would have to pay the price. The question is, is that person you?

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