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The concept & pitfalls of mandatory insurance

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How to deal a death blow to intrusive policies and the high cost of auto insurance

(1st edition - December 2014) by A.O. Kime
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Since the 1960s-70s all 50 states have mandated that drivers must carry auto insurance - and while it caused a lot of contentious clamor initially - oddly this ominous dictate soon became largely uncontested. However, now that the federal government is mandating we must all carry health insurance it seems certain to be the catalyst for change. It’s as if ’ominous’ has finally come home to roost and only now do we feel compelled to deal with it.

It may result in the easing of penalties for noncompliance, force 'real' competition between insurance companies, mark the beginning of price controls or cause a re-thinking about whether insurance should be mandated at all.

Even though for decades the unchecked auto insurance rates have been grudgingly accepted as a ‘fact of life’ for the most part, the advent of Obamacare shines an entirely new light on the situation. More clearly now we can see what is really happening… that the insurance industry is continually gaining a stronger chokehold. If this pattern goes unchecked it will most certainly lead to controls over everything we do.

Under the guise of ‘promoting safety’ they’re already largely responsible for the seatbelt laws, the no-smoking laws, the outrageous cigarette taxes and the ‘prosecutor-advantaged’ drunk driving laws… but it’s only done to improve their bottom line.(creates fewer and less costly claims). For the same reason they’re assuredly behind the anti-gun movements.

Insurance policies closely resembling socialism (or worse)

Since being forced to buy a product or service certainly isn’t ‘free enterprise’ - instead closely resembling socialism - it should therefore require the price controls of socialism. It is reprehensible to have these mandates without price controls. With price-fixing being so evident no longer exists the natural remedy of ‘competition’ - one of the cornerstones of free enterprise.

One would even be justified in calling it “tyranny” although it’s not the classic type. It’s a hybrid - one in which corporate America has a heavy hand and has for decades (FDR commented on its astonishing and growing power back in the 1930s).

For the past 50-60 years the insurance companies have been running roughshod over the American people simply because there were no stop signs. Plus they have the political clout to do so. They can charge whatever they want, deny coverage for any reason whatsoever and it’s always a struggle getting them to honor their commitments. Moreover, they’ve lobbied for practically every restrictive law on the books. For many reasons RICO should shut them down for racketeering.

Profiling by the insurance companies

Further outrageous is that they profile people by asking nearly a dozen irrelevant questions. Why, for example, should one’s marital status and whether they rent or own their home determine the price they pay? They wouldn’t ask these questions if it didn’t. For auto insurance their questions should only be pertinent questions (i.e., traffic tickets, accidents). And, whether Obamacare stands or not, there shouldn’t be any 'irrelevant profiling' in order to obtain health insurance either... none, zip, zero.

Since most state agencies wouldn’t have the needed authority, drastic changes will soon require action by the state legislatures due to the growing public outrage. How many bankruptcies must the so-called ’insured’ endure which even co-pay amounts can cause? For that matter, how many can our society endure?

Nor does the estimated 15% annual rate increases for auto insurance sit well either. While it’s uncertain what all states do, in Arizona the insurance companies must submit this information within 30 days AFTER their rates become effective.

So much for oversight, so much for control.

The furtherance of apathy due to mandates

While some might say we’ve already passed the point of no return but it’s just a sign of resignation as further evidenced by the low voter turnout. Apathy, of course, is generated by a country’s atmosphere of overbearing dictates and meddling… which precisely describes insurance mandates.

To stop the current transgressions, those almost upon us and those of the future - hopefully one of the states will take the lead and initiate the needed legislation. Obviously, preferable would be to do away with mandates altogether… but as long as these mandates are insisted upon then there must also exist a compensating mechanism - in this case counterbalanced with price controls.

However, legislation must be done while this window of opportunity is still open (due to the fuss over Obamacare). It’s when legislators would get less resistance from the insurance companies who will step back when under the spotlight… evidence the power of the people is still greater.

Clear by now a better state policy towards auto insurance is a must

In order to find the right policy for auto insurance perhaps we should know its history. For example, towards the end of the period when ’mandatory’ took hold (1960s-70s) was when some states began to adopt 'no fault' insurance. Anyway, of all things that happened we should ask ourselves… why?

Maybe we should even consider what the ‘law of the land’ was in ancient times. At least they were more attuned to what was ‘natural’ (destined to be workable) and ‘unnatural’ (destined to fail) when it came to lawmaking. This is evident in most of the laws set forth in the Roman Twelve Tables (circa 450 BC)… also admirable is its bluntness (no beating around the bush).

While the concept of ’no-fault’ auto insurance seemed to hold promise at first - that it would be better than the standard issues - generally because of its name and specifically because “coverage no matter who or what was at fault” seemed so very ’natural’ - but after what appeared to be subsequent tinkering, ‘no-fault’ ended up being not much better.

Shooting for better insurance, better policies

However, of the dozen states which still have ‘no fault’ - along with those which tried it for awhile - at least they were on the hunt… were shooting for something better. Of course, during this time some (or most) states were already clinging to the idea of ‘mandatory’ so for them there was little wiggle room left. Those legislators opposed to making insurance mandatory would have known this.

Yet, it's not too late... eliminating problems and causing things to happen to make insurance more affordable would do wonders. It would certainly encourage participation. Also on standby are other options a state could exercise.

As it is, most people are extremely unhappy primarily due to the high cost while only about 80-85% are insured. We can assume it’s no better than that considering all the successful car thieves. Since the police are only managing to catch a few - imagine how much more difficult it would be to spot the uninsured. There must first be ‘just cause’ to stop them and often there isn‘t any. It’s because uninsured drivers can be very creative in 'masking' plus they tend not to be as reckless. A study once determined this - citing the hidden desire of the insured to ‘collect’ on their insurance policy.

But there is a good reason so many go uninsured.

Food on the table, after all, is more important than carrying auto insurance. Surprisingly uncharacteristic for an insurance company, purportedly State Farm was against the idea of mandatory for that very reason. So was the National Association of Independent Insurers (NAII).

Because of the basic needs of a family (food, shelter, etc.) which every wage earner is relied upon to supply, certainly stronger penalties for noncompliance isn’t the answer. In order to survive most people need transportation to hold a job and to make it more difficult (or impossible) violates the most basic of human understandings… being “don't mess with someone’s job“.

Plainly, the penalties for noncompliance currently in place are as insensitive as it gets. Given the harsh realities of the poor - and their numbers certainly aren’t shrinking - monetary penalties are wholly inappropriate. Why make their situation worse? Besides, over bad situations must society also suffer. If you didn’t know what might constitute ‘unnatural’ before, this circumstance is a prime example.

For auto insurance there seems four options available to the state (listed in order of preference):

(1) drop the mandatory aspect and start protecting the consumer from the insurance companies;
(2) issue free license plates to those who insure (the state should carry some of the burden for doing nothing);
(3) eliminate the noncompliance penalties and encourage coverage through public service announcements;
(4) reduce the noncompliance penalties to community service only.

Revelation as to the real culprit

Yet, noncompliance really isn’t the fault of the people or their dire circumstances… it’s clearly due to the outrageously high cost of insurance. After all, it’s the prime mover (first cause) whereas noncompliance is only the reaction (effect).

If full participation is sincerely sought then lawmakers should act to get the laws against collusion and price-fixing enforced. It is not as difficult as one might think… in order to prosecute circumstantial evidence is all that’s needed.

And - being associated - the policies for issuing licenses for startup insurance companies should also be reviewed. Since we haven’t heard of any new company for decades - it is only reasonable to suspect that applications are being summarily rejected when, in fact, we need new blood to spur competition. If the financial thresholds, bonding abilities or other requirements are deemed nearly impossible to meet, then it smacks of collusion involving the state (department of insurance).

Depending on successes or what is uncovered, filing racketeering charges against the insurance companies under the Racketeer Influenced and Corrupt Organizations (RICO) Act (passed in 1970) is always an option and should remain on the table. However, doing nothing to rectify the situation would be unconscionable.

Anyway, laid bare now is the REAL cause… problem identified, problem half solved.

A.O. Kime

Last modified: 12/10/14