Chris has assembled a lot of information here and it is worth reading for anyone who wants a quick primer on pay-at-the-pump insurance schemes.
There is one misconception however: "... the more you drive in traffic, the more likely you are to have an accident." That is not exactly true. Miles driven and frequency of accidents do have a correlation though it is a weak one. Better predictors are how you drive, when you drive, where you drive, and your past driving record. There are also some demographic factors that are much more reliable predictors. One huge problem with pay-at-the-pump schemes is that they unfairly punish people who drive great distances (presumably they fill up their gas tanks more often) and unfairly rewards people who drive short distances (presumably they fill up less often). To make any casualty insurance plan work, there must be a way of assessing risk and raising or lowering premium to compensate for that risk. And, equally importantly, that risk assessment must be based on data that accurately weight the risk. Pay-at-the-pump only considers one element (frequency of gasoline purchase) which is not a very good predictor of risk. Chris rightly points out that this form of liability insurance would be essentially a baseline with the option (or requirement)to purchase additional coverage. But the essential problem remains that frequency (or volume) of gasoline purchase does not correlate very well to the risk. And that makes it impossible to assign rates fairly and to calculate premium that reflect the risk. Jim Bernstein Fulton Former Commissioner, MN. Dept. of Commerce (they regulate insurance) -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Chris Johnson Sent: Thursday, February 24, 2005 3:15 PM To: Tom Madden Cc: [email protected]; Dan Prozinski Subject: Re: [Mpls] Re: pay at the pump insurance There are generally three kinds of insurance you would purchase on your car. I'll call them liability, collision and comprehensive, although your insurer may call them different things. Liability is insurance against harm you to do other people and other people's property, including injuries, deaths, wrecked cars of other drivers and wrecked other objects (fences, houses, whatever). The state requires a certain minimum level of liability insurance to drive legally. Collision is insurance against damage done to your vehicle while driving. If you have a car loan or you lease your car, the money lender or leasor (owner) require you to have some amount of this kind of insurance to protect their financial interest. If you own your car outright, this type is optional for you. Comprehensive is insurance against damage done to your vehicle from non-traffic related things, e.g. a tornado blows your garage down your car, or a flood fills it with water. This is again optional if you own your car outright. There are some other narrower types of insurance you might have, and some riders. Generally, Pay at the Pump would pay for only the Liability component. On your current insurance policy, the amount of liability premium you pay is mostly determined by factors other than the type or cost of the vehicle you own. It's more determined by your age, gender and driving record, where you drive and how many miles you drive. Thus it is pretty easy to fund a minimum level of this kind of insurance at the pump. The number one determinant of how likely you are to have an accident is often what is called exposure. That is, the more you drive in traffic, the more likely you are to have an accident. It's easy to see that relatively speaking, the more you drive and the bigger risk you are for accidents, the more gasoline you will buy, and thus the more pump insurance tax you will pay into the risk pool. Private insurance companies don't go away at all in a Pay at the Pump situation. They are available for higher liability coverage amounts, something that is recommended anyway, as well as for Collision and Comprehensive insurance, and as well for special riders like "Rental coverage" if an accident makes your car unavailable or "Auto glass coverage" for broken windshields, etc. There is still plenty of opportunity for private insurance firms to make money by selling insurance beyond the Pay at the Pump amount. Plus, the existing insurance companies would probably form a pool which actually did get the money and cover the risk, just as they do for the "high risk pool" now, for Pay at the Pump. Their market share might have to be decided by state regulators, but such a Pay at the Pump scheme could well direct proportional amounts of the pump taxes to all of the licenses insurance carriers in the state as determined by market share. So in reality, the inurance companies lose some higher profits (they would still make a profit) on the base required insurance, but would retain all of their high profits on the coverages that most people want and have beyond the bare minimum required by the state. The upside for drivers is that no longer would they have the risk of having completely uninsured motorists damage their car, damage other property, or at worst, injure their passengers. Instead of having to pay for that "uninsured" or "underinsured" motorist insurance themselves, the other drivers would already be covered via their own gasoline purchases. Because the rate would be based on the amount of gasoline bought, obviously the gas mileage a vehicle got would have some effect on how much each person paid per mile they drove. But this is actually a desirable effect in that high-mileage, good fuel economy vehicles would pay less, which is a positive societal outcome. It burns less petroleum and produces less pollution. It also might encourage fewer large, heavy vehicles, which cause an inordinate amount of carnage on our highways. It is somewhat regressive on drivers who have to drive larger, heavier vehicles which get poor gas mileage, although those who do so for business should be able to deduct the insurance tax paid as a business expense. -- No virus found in this outgoing message. Checked by AVG Anti-Virus. Version: 7.0.300 / Virus Database: 266.4.0 - Release Date: 2/22/2005 REMINDERS: 1. Be civil! Please read the NEW RULES at http://www.e-democracy.org/rules. If you think a member is in violation, contact the list manager at [EMAIL PROTECTED] before continuing it on the list. 2. Don't feed the troll! Ignore obvious flame-bait. 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