Wednesday, August 09, 2006

Could government do it better: Car insurance

Flipping through the Register online this morning, I found this story on road rage in the DMV parking lot.

It seems like a good lead in to use for another suggestion that's been running through my mind the last few days: Why doesn't the state sell car insurance?

I see you running for the exits, small government types. Grab a seat for just a moment longer and hear me out on this.

While car insurance probably doesn't cost as much as health insurance (for most of us), it's still expensive, and its price is based largely on three factors:

a) Assumed risk. Car insurance companies are basically betting you won't have an accident. If you do, they pay up.

b) Administrative costs. Claims adjusters, accident investigators, that guy who finds out you got that speeding ticket in Kansas that you were hoping the insurance company wouldn't find out about, etc.

c) Profit. Insurance companies aren't selling you insurance because it's fun. They're out to make a buck. I'm not saying that's a bad thing, it's just the way business works.

Now, what would happen if, instead of your current car insurance company, you bought insurance through the state?

a) The assumed risk would be the same, although the risk pool would presumably be larger.

b) Accident investigators could be replaced by the police that are already on the scene. The police are already there determining fault. Instead of letting two insurance companies bicker over who's to blame, the police report would be the final word. And as for researching your traffic record, the state already has a database in place to track your traffic violations. Therefore, while some administrative costs would obviously remain, the state could eliminate others and reduce costs.

c) The need for profit would be eliminated. The state would need to make enough to pay the bills, no more, no less.

Added benefits of having the state sell car insurance:

Increased compliance with insurance requirement laws. When you renew your registration on your vehicle, you would either show the state your proof of insurance, or purchase insurance on site. Any car on the road with expired registration could be assumed uninsured and pulled over.

Streamlining the process. While no one that I know likes dealing with the DMV (especially when their office is way up in Ankeny), allowing the state to sell car insurance could make the DMV a one-stop shop for licensing and insurance, and eliminate the need to visit two offices to maintain the ability to drive legally.

I'm curious to hear your thoughts.



Chris Woods said...

For the simple reason that the state requires auto insurance to be able to drive legally without receiving a major fine, I fully support the idea of states offering car insurance. Not everyone can afford decent coverage or costs, so a state provided system provides a larger pool and potentially much lower premuims, just like state-funded healthcare.

Nicolai Brown said...

The profit incentive would be partially, if not totally, replaced by the government's desire to bring in as much money as possible to the general treasury.

(Bombs that tear children to shreds are expensive.)

The profit motive, and the corner-cutting it entails, would still be there. Except in the case of the government, the "market" would be less flexible because government is largely unaccountable.

Also, think about restrictions government car insurance might entail.

As a background example, just look at No Child Left Behind. The federal government funds state schools. Through NCLB, it adds restrictions, many of which have nothing to do with education. (And even the ones that do are harmful.) But for example, NCLB mandates that schools open up to military recruiters or face defunding. And we're talking about kids!

I shudder to think how micro-managed our driving would be under a state insurance program. Perhaps RFID in every car and every stoplight, monitoring every person's speed and location?

They're already working on it now _without_ a "justification." Just imagine what they'd do with one.

KL Snow said...

Two thoughts:

In my ideal world, a state car insurance program would be self-funded and self-sustaining, much like the USPS. As such, it wouldn't be generating profit to build bombs that tear children to shreds, or any other kind of bombs.

Secondly, I'm not advocating for the state to replace ALL auto insurance. I think allowing private companies to continue to exist would force government to limit waste, and also eliminate your third concern about government spying.

BTW - Right now the government is the only entity that licenses your car. If they wanted to install "RFID in every car and every stoplight, monitoring every person's speed and location," there would be nothing stopping them now.

You're scared of government, Nicolai, and I understand that. That doesn't make every government entity evil.

noneed4thneed said...

If the Government can mandate people have car insurance then why can't they do the same with health insurance?

KL Snow said...

I think the best way to answer that question might be this:

Driving is a luxury, health care is not.

Driving a car and/or insuring it is a luxury you can opt out of or have revoked if you lack the money, are an unsafe driver, or simply prefer not to partake.

As such, if you decide not to have car insurance, you can simply not drive.

Health care doesn't have that option. You can't "opt out" of getting sick.

Nicolai Brown said...

As far as licensing cars goes, it's not the case that "every" car is government-known. But that's a side point.

There's a critical difference between long-existing government programs (public K12) and new ones (NCLB). New ones are much more likely to be revolve around 1984/militarist "security" culture.

So, the government modifies its structure through new programs. In the case of monitoring cars, people would freak out if the feds simply installed RFID in your car as a required component of vehicle registration. They wouldn't let it happen.

But, tack it on to "car insurance" or some other program, and suddenly it's "different" and palatable.

Ever seen a cat get a shot from the vet? They like to put kitty down on a metallic bench and slide it a few feet, distracting it, while giving the shot. The cat doesn't even notice.

I'm glad you don't advocate a state monopoly on car insurance.

Also, I'm not trying to say the "free market" is the most rational system -- just that it's less insane than government. There are plenty of examples of private industry micromanaging driving through car sensors, although it's not prevalent and there are alternatives.

RF said...

Car insurance is a bit too much government involvement for my taste. R's would love stuff like that as their campaign fodder. I certainly don't see it as any kind of high priority. Let's focus on the important stuff = health care. Even there, I don't really care how we achieve some sort of universal coverage. Maybe government is not the only answer. For example, it will be interesting to see how the Massachusetts model works.

Chris said...

Personally, I really like the idea! As the esteemed Mr. Woods pointed out, it's mandated I have insurance, why shouldn't it be made accessible to me through the state?

Of course, I feel that way about all insurance. If they make me buy insurance by law, they should make it a law that someone cover me for a reasonable price. Personally, I think that if they say I have to by insurance BY LAW, well then everyone should have business cards printed at the print shop I work for BY LAW. Hey, I need my money too, you know...