Impact on Insurance Premiums

Impact on Insurance Premiums
Supporters of PAYD proposals in California contend that restrictions on non-economic damages,
coupled with the elimination of uninsured motorists and therefore UM and UIM coverage, will
lower average insurance premiums. In this section we present some data on relative insurance
costs, type of liability system, and number of uninsured drivers by state. Several other factors,
such as minimum compulsory coverage levels, assigned risk plans for risky drivers, and other
32. Department of Taxation, the Hawaii Independent Insurance Agents Association, Hawaii Transportation Association.
17
state policies, such as drunk driving laws, the legal drinking age, and speed limits, can affect the
frequency and/or severity of vehicle accidents, and therefore state average insurance premiums.
After we examine the current situation in the states, we summarize the results of several studies on
the effect of introducing a no-fault liability system and compulsory insurance requirements on
average insurance premiums.
2.3.1. State liability systems and minimum compulsory liability coverage levels
Every state has financial responsibility laws that require drivers to be able to pay for a specified
amount of medical expenses and property damage they may inflict on others by their driving. ’
Drivers can fulfill their legal responsibility with a minimum liability insurance policy, by posting
bond for the same amount, or by depositing cash or securities in the same amount. Financial
responsibility laws by themselves do not require motorists to buy insurance before their cars can be
registered, and they do not make it a criminal offense to drive without insurance. Thirty-nine states
and DC do require the purchase of insurance coverage, whether it be first party (PIP) or third party
@I, PD and Mp) coverage, to cover the amount specified in their financial responsibility laws (see
Table 2). Compulsory insurance laws often require drivers to present proof of insurance before
they are allowed to register their car, and make it illegal to drive without such proof. Most states,
however, require only that people sign affidavits attesting that they have, and will maintain,
liability coverage.
Minimum coverage for bodily injury ranges from $20,000 for all people injured, limited to
$lO,OOO per person, (in several states) to $100,000, limited to $50,000 per person (in Alaska).
Minimum coverage for property damage ranges from $5,000 to $25,000. Table 2 also shows the
minimum coverage levels of each state, as well as which states require insurance coverage for these
levels.33 UM coverage is not compulsory in any state.34