Car Insurance Is Too Cheap

I've recently started listening to the podcast The War on Cars, which is generally excellent.

Its most recent episode is called "Car Insurance Is Too Cheap." It's largely based on an article in The Economist of a similar title. This should be an embed of the podcast (but if that doesn't work, here's a direct link):

Daniel Knowles, who wrote The Economist article, is in the podcast, and says he started wondering about insurance when he would rent cars and face the question about buying insurance with the car rental. The companies would always ask him, "What if you damage the car?" but never, "What if you hit a person?" 

The podcast delves into the various levels of liability insurance required in states around the U.S., which range from a minimum of nonexistent to a maximum of not enough for the reality of damage to human beings. And, as anyone would expect, many drivers buy the absolute minimum insurance possible to keep the cost of driving down. In 29% of states, the minimum insurance doesn't even cover the cost of damage to the car being driven, let alone the other kinds of damage drivers can do.

On top of that larger problem, a more specific problem with insurance is identified in the podcast and in Knowles's article. 

Let's say you're injured by a driver when you're a pedestrian or bike rider, and your health insurance company gets reimbursed by the driver's insurance for your medical expenses. Even though you've paid your health insurance premiums, your insurance company got reimbursed for your costs by the driver's insurance, and from that point on, your insurer has the right to also claim the liability money from the driver's insurance company (if the driver has liability insurance). It's called "subrogation." Subrogation means you no longer have a claim against the driver's insurance for anything.

The case in this episode of The War on Cars is about a Portland couple whose toddler was killed when he and his dad were hit in a crosswalk. The driver was 100% at fault. Yet the parents got nothing from the driver's insurance afterward: not a dollar to make up for lost time at work, or money to help bury their child. As the mom put it,

Why do we have insurance? They're just insuring other insurance companies. They're not insuring people, or victims, or families. 

Knowles is quoted saying, "Crash victims subsidize lower insurance rates with their own life and limb." It's a classic collective action problem. 

Stats are given in the podcast on the scale of the problem of crashes. The dollar amounts are less meaningful than their magnitude as a part of the U.S. GDP. In 2019, the straight cost of crashes (including medical costs, lost productivity, legal and court costs, emergency service costs, insurance administration costs, congestion costs, property damage, and workplace losses) was 1.5% of GDP. When loss of quality of life is added in (which seems like a reasonable thing to do), the number increases to 5% of GDP. 

That's per year.

And as the podcast reminds us, 2019 was before the increase in crashes that has happened since the pandemic, as well as the increase in costs for cars and other goods. So those percentages are low, if anything. 

At the end of the podcast, Knowles points out that cars are the only thing in society that regular people are required to insure in order to operate, and that it's because they are so dangerous. (I couldn't help thinking of the arguments that are made comparing guns and cars, and how insurance should be required of gun owners. Well, yes. See?) 

We (the collective "we") can't see that because we are all immersed in the way things are, which has been called motornormativity, or even being car-brained. 

But this situation is not inevitable — it's barely 100 years old. It can be changed (somehow!). 

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Minnesota is a no-fault states of the type mentioned in the podcast. That means that if a pedestrian or bike rider is hit, their auto insurance is on the hook for health insurance costs even if the driver is at fault, since there is "no fault." However, if one driver is at fault when hitting another driver, and there's damage to the car, then it matters! An op-ed from 1996 (on page 5 of this pdf) shows how absurd the situation is.

(What happens if a pedestrian or bike rider doesn't have auto insurance? I don't know specifically, but probably the state has a pool to cover that eventuality. But it certainly makes you feel like a second class citizen along the way.)