Two Setbacks on Mandatory Minimum Insurance

Two minimum/mandatory auto insurance articles caught my eye.

First, from Insurance Journal:

Louisiana Gov. Kathleen Blanco has vetoed legislation that could have increased auto insurance costs for over 1 million Louisiana motorists, her office said.[...]

In a letter explaining her veto, Blanco said that 1.5 million of the state’s 4 million drivers carry the minimum coverage. She said Michot’s bill would impose a sudden 20 percent insurance increase on them, possibly leading some to drop insurance altogether.

Michot’s bill “does nothing positive to address the chronic problem of the very large number of owners who do not consistently carry even the minimum liability coverage already required by law. On the contrary, the effect … would be to raise the cost of insurance and thus it is more likely to make this problem even worse,” Blanco wrote in the letter.

Meanwhile, over in Alabama, the Montgomery Advertiser carries this story:

A national study suggests Alabama’s mandatory auto insurance law has had little effect on the number of uninsured driver on state roads since the Legislature enacted it in 1999.

The Insurance Research Council, a nonprofit study group funded by insurance providers, released the study showing 25 percent of Alabama drivers lacked insurance between 1999 and 2004.

That was unchanged from a 1998 state study of uninsured drivers, and tied California for the second-highest percentage of uninsured drivers in the 50 states. Mississippi ranked first, the Mobile Press-Register reported.

Insurance experts say the problem with the law is that people with relatively few assets to protect have no reason to buy insurance.

“I think mandatory liability insurance is a tax on the poor,” said Carol Jordan, a professor of risk management and insurance at Troy University. “They don’t really need it. They don’t have assets to protect.”

There are a few of us who have mulled over the pros and cons of mandatory auto insurance. An argument can be made that drivers ought to carry protection to ensure that they are able to idemnify others for losses they’re liable for. A counter argument can be made that folks ought to be able to make their own financial choices unencumbered by regulatory coercion. A cynic would point out that there is a certain element in the population that will avoid buying insurance if at all possible, regardless of the law. And an advocate for income redistribution would observe that insurance is expensive, and UM coverage is there as an effective subsidy, via protecting better-off drivers from the folks who can’t afford coverage.

It’s an interesting mess.