Not all auto insurance is created equally, and different states treat it differently. To help make sense of the industry, WalletHub talked to Robert Hoyt, the Dudley L. Moore Jr. Chair of Insurance at Terry.
When a state sets higher minimum levels of coverage, does it make the roads safer?
Requiring individuals to purchase insurance does provide them with a signal of the effects of their choices on the level of risk. That is, the premium they pay captures the risk profile of the car they drive, the effect of the number of miles they drive, the benefits of driver training for younger drivers, etc.
However, this is more about requiring that they buy insurance in the first place than the amount of coverage. Most states either require or at least mandate that uninsured/underinsured motorist coverage be offered. That coverage is intended to protect insured drivers in cases where the at-fault driver either had no coverage or had inadequate coverage.
When there are higher minimums, how does it affect premiums for safe drivers?
Again, reducing the percentage of uninsured drivers is more important than the level of liability coverage. The premium for any driver is based on the exposure that those drivers represent, combined with their past loss experience. The uninsured/underinsured motorist premium will be affected by the state minimums and the percentage of uninsured drivers. So state minimums would have some impact on these premiums, but the uninsured rate will be more important than the state minimums. Also, given the relatively low level of minimum requirements, most insured would still be well-advised to purchase uninsured/underinsured motorist coverage (remember my reference to appropriate levels of coverage for most individuals).
When coverage minimums are higher, how does it affect the proportion of drivers who are uninsured?
There appears to be very little correlation between state minimum insurance requirements and the proportion of uninsured drivers. The main factors affecting the level of uninsured drivers appear to be the cost of insurance and the level of enforcement of mandatory insurance laws. The cost of insurance is heavily impacted by the legal environment in the jurisdiction, the degree of urbanization, fraud rates, medical costs, and other factors that are unrelated to the minimum insurance law.
The full interview is available online.