"Across the United States, if someone is injured in an auto accident, the chances are about one in seven that the at-fault driver is uninsured" - so says a 2006 article in the Insurance Journal. Why should you care? Because you could be involved in one of those accidents. I learned that the hard way today. I got hit by someone yesterday in a parking lot. At the scene they claimed to have auto-insurance and I jotted down their insurance and license info, but when I called their insurance company today to file a claim I discovered there policy had lapsed. Lucky for me the damage was minor. As it turns out, though, I shouldn't have been surprised that the driver was uninsured. In California, the rate of uninsured motorists is even more outrageous - one in four! That's the second worst uninsured rate in the United States. That's sad. (And the lesson here - always always always call the police to file a report!)
So how could the problem be this bad? I suppose this is a general insurance problem. The system is really designed to have everyone participating to spread the risk across everyone involved. And technically in almost all states you are required by law to maintain at least liability coverage. But after you register your car, it's up to the police to enforce the requirement. Auto insurance isn't cheap, so it's not surprising that many people cancel their policies or let them lapse after their car is registered. That leaves all the people that purchsae their insurance (obeying the law) footing the bill for all the damages the uninsured create.
Unfair, right? Better enforcement is the only solution there - e.g. demonstrating proof of insurance when renewing your registration or insurance companies reporting policy coverages (by VIN) to the DMV. Simple solutions that aren't done.
So, I thought I'd read up on this further - i.e. making sure people are all involved in the system. I came across another class of motorists that comprise what's called the "residual market". There have been residual or shared markets in place since as early as 1938 in the United States. The "residual markets" are basically all those motorists that are not voluntarily insured by registered insurance companies in each state. When states started passing laws that all drivers needed to have insurance, they had to ensure that all drivers could actually get insurance. The states needed a solution for all those motorists that were rejected by the insurance companies. The solution was to put all those motorists into a pool and then to randomly and equally distribute those motorists to each of the registered insurance companies. Those companies that are assigned those motorists are required to insure them. The insurers can charge higher rates for those drivers, but those rates always fall short of matching the losses those motorists generate (due to premium caps). Which again means that the losses from those high-risk drivers are passed on to other consumers in the form of higher premiums.
At least they're paying into the system though. But again, in my case, it's more likely that the uninsured motorist was just being cheap and couldn't afford insurance - which would have required better law enforcement schemes.
But, reading up on this made me think of a parallel industry - health insurance. Surprisingly, or maybe not surprisingly, I checked out the U.S. Census Bureau's website to see what percentage of Americans don't have health insurance. The result - one in seven! (Well, one in 6.5 would be closer .. but I rounded up).
Time for a new solution?
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