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In all but three US states, there are financial responsibility laws to mandate the carrying of insurance. In the at-fault states, these laws set the minimum amount of coverage drivers should have should they cause damage to others by the way they drive. In the no-fault states, this is a requirement to carry a minimum amount to pay for their own vehicle repairs and, in some states, their own medical treatment as well. The justification for these laws is very clear. Whenever you set your wheels on a public road, there’s a chance you will be involved in an accident. No matter which legal system applies, you should always be responsible and be able to pay your way should there be expenses. Most of these laws were introduced forty or fifty years ago. They were not controversial. People have always been prepared to accept the mandate on the basis that no one forces them to drive. But if you do buy a vehicle, it stands to reason you should also buy insurance.

Perhaps it may surprise you to learn that very few of these states have reviewed the required amount of coverage. What used to be substantial sums of money half a century ago are not adequate today. Indeed, if we take inflation into account, most of these original amounts would have to be multiplied by seven to recover their original value. Yet, when states today begin the process of debating whether to increase the minimums, most start on the basis that the rates charged by insurance companies are already unaffordable to the average driver. Listening to the lawmakers, you consistently hear the argument that any increase will hurt the poor and force even more drivers to risk driving without insurance. What makes these debates interesting is that the increases are often opposed by the insurance industry. For example, in evidence recently given to the Nevada legislature, the lobbyists said that about 40% of the local drivers had less insurance than the proposed new minimums. They estimated that the proposed increases would force rate rises of between 20 and 50% depending on the age and driving record of each driver. It’s always revealing when insurance companies pass on the opportunity to make big increases mandated by the state. (more…)