Maine Voices: What if we reorganized car insurance?
According to the National Highway Traffic Safety Commission, an estimated 42,915 people died in motor vehicle traffic crashes last year, “a 10.5% increase from the 38,824 fatalities in 2020. The projection is the highest number of fatalities since 2005 and the largest annual percentage increase in the Fatality Analysis Reporting System’s history.”
Those 42,915 people equal about 74% of the 58,220 Americans who died in the Vietnam War.
There are many causes of car accidents, including drunken driving, drowsiness, speeding and distracted driving (e.g., texting while driving). However, one factor that is seldom mentioned is the fact that insurance will often cover your costs, even if you are at fault. Your premiums will likely rise, but that lies in the future.
Overall, then, car insurance involves a transfer of money from those who do not have accidents to those who do. Viewed in this way, insurance may be seen to be a case of positive reinforcement, as described in B.F. Skinner’s 1953 book “Science and Human Behavior.”
Without insurance, an at-fault person involved in an accident would suffer immediate and large losses. With insurance, there are few immediate financial losses, although an increase in premiums may well occur. Within economics such perverse incentives are called moral hazards.
The same analysis applies to other forms of insurance. For example, a recent Maine Voices column (“Maine Voices: All Mainers need paid family and medical leave – not just some of us,” Oct. 28) made the argument in favor of paid family and medical leave. As the author, Katrina Ray-Saulis, wrote: “No matter who we are and what we do for a living, we should be able to take time to care for our loved ones when crisis strikes, without risking our jobs or housing, or making other terrible trade-offs.”
In other words, if a person has a sick family member, others should cover the costs associated with taking time off from work. (Ray-Saulis does not say that others will cover the costs. She says that the ballot initiative which she is working on getting before the electorate “would create a fund to pay workers for the time they need – without employers having to bear the cost.”)
Is there a way of getting around the counterproductive effects of insurance? Consider the following. A person who needs car insurance pays premiums on a year-to-year basis, just as occurs today. However, that money goes into a fund that is owned by the person in question. If he or she is at fault in an accident, money is withdrawn from that fund to cover the costs. If more money is needed, money is borrowed from the funds of other such people.
At retirement, the money remaining in one’s fund (which has been earning compound interest because of the loans mentioned above) is returned to the owner, to be used for living expenses – or for any other legal purpose. Those who have driven carefully thus have more comfortable retirements than those who have caused accidents. Because each person covers the cost of his or her own at-fault accidents, we should expect fewer accidents involving drunken driving, drowsiness, speeding or distracted driving.
A reorganization of how insurance is structured has the potential to lead to fewer highway accidents and better health, to name just two areas. The more general message involves people taking greater responsibility for problems they cause, rather than shifting that responsibility onto the shoulders of others.
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