Saturday, January 26, 2013

If the Government Can't Legislate Common Sense, Should it Get out of the Insurance Game?

The government had the best of intentions when it decided to set mandatory coverage levels for certain types of insurance. The idea was to ensure that claimants had a reasonable expectation of being compensated for injuries, damage to property and other types of loss incurred as the result of someone else'e negligence. Common sense would dictate the person or company responsible for causing the damages should pay for them. 
Far too many people are ignoring this basic principle and are failing to comply with existing insurance legislation. The mandatory insurance law is a double-edged sword that may be encouraging some claimants to exaggerate the extent of their loss in hope of receiving a higher settlement. They don't realize that this "free" money from the insurance company ends up affecting all policyholders. The problem can be traced back to the mandatory insurance laws. 

Uninsured Motorist are a Major Problem in United States
According to the Insurance Research Council, one in seven drivers in the U.S. do not have coverage. If these drivers get into an accident, they would be personally responsible for the damages they cause. That is a logical consequence to their actions. 
If these uninsured drivers were operating with all cylinders of their common sense intact and they knew they could not afford to pay for the damages they might cause in an accident, they would never get behind the wheel. Every time they get in the car and buckle up, they are taking a risk that they won't be involved in an accident. There is no way to legislate against someone who knows they should have insurance but chooses not to buy coverage. 

All Drivers Pay for Drivers on the Road without Coverage
Insured drivers who pay higher rates to compensate for those people who do not have proper coverage. The National Association of insurance Commissioners has released data stating that uninsured drivers cost insured ones $10.8 billion in 2007. Mississippi had the highest percentage of uninsured motorists, with 28 percent of people behind the wheel driving without coverage. Massachusetts had the lowest one, with only four percent of drivers failing to obey insurance laws.

Cost of Auto Insurance Claims on the Rise
Despite the introduction of no-fault auto insurance systems in a number of states, the cost of auto insurance claims in the U.S. is on the rise. The Insurance Research Council's Report entitled, "Trends in Auto Injury Claims, 2011 Edition" found that the number of personal injury claims increased by more than 18 percent in the period from 2008-2010. 

Mandatory Public Liability Coverage May Lead to Higher Claims
Business owners are required to buy public liability and other types of coverage. While it makes sense to insure the building and its contents, the liability coverage has the potential for abuse. A person visiting a property should only be allowed to sue for damages if he or she can prove that the business owner or its employees were clearly negligent. Trying to recover hundreds of thousands of dollars following a simple slip and fall injury that resulted in little, if any loss of income and some simple medical treatment doesn't seem appropriate. 
The fact that coverage is available seems to make some claimants feel they should be making their claim fit the available coverage instead of the injuries they really sustained. The cost of defending these claims, whether they end up in court or not, factors into the rates that all policyholders pay for their coverage.

Does Ending Mandatory Insurance Coverage Make Sense?
A person who is old enough to own and drive a vehicle should be able to appreciate the potential harm he or she could cause in an accident. Buying an appropriate level of coverage is something that should be dictated by common sense, not government legislation. Many drivers do not abide by the law anyway. If they are involved in an accident, perhaps an appropriate consequence for their oversight should be that they lose the right to sue for any damages they suffer as a result.
In the case of public liability insurance, the assumption that all business owners have deep pockets of coverage from an insurance policy needs to stop. Reasonable compensation for cases where negligence can be proven is one thing, but frivolous lawsuits should be avoided.
Since the government cannot legislate common sense to its citizens, it may be time for it to stop trying. This is a strategy that is simply not working.

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