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Wednesday, March 9, 2011

How It's Always Been Done

One thing that fascinates me is that there are a great many things that exist the way they do simply because that's "how it has always been done."

One of these things is car insurance.

Car insurance really consists of two different types of insurance: property insurance against damage and liability insurance against one's own ineptitude.

The way we handle car insurance, however, is based solely on the idea that we are insuring property. We list all of our vehicles and all of our drivers and we purchase the insurance on the vehicles.

This is not the best way to do this.

I am wondering why car insurance companies (or one, to start with) doesn't "step up to the plate" and redefine the way we do car insurance in a way that makes sense.

The first part of the car insurance would be simple: insuring cars.
You list the vehicle and the level of property insurance you want for it to protect the asset itself. This portion of the car insurance won't be strange or different from anything we are familiar with now. This portion of the insurance protects my asset from theft and other damage.

The other portion of the insurance is where the radical change is needed. This portion deals with the liability. When I drive a car I am in control of a VERY dangerous piece of equipment. I am taking the lives and property of everyone else on (and near) the roads on which I am driving into MY hands. If I make an error then it is my fault and, therefore, my liability for the damages caused. This liability is the case regardless of whose vehicle I am driving or what roads I am driving on. This liability exists regardless of whether the car I am driving is 10 years old or whether I just drove it off the lot of the dealership. This liability exists for me regardless of whom else I may reside with that is a licensed driver.

The obvious solution to this is to do away with the "proof of insurance" card that exists in every car's "glove" box. Those pieces of paper are worthless. They prove only that the owner of the car has paid the minimum level of insurance for them to drive that car. The obvious replacement should be an insurance endorsement that goes along with (or is part of; or, at least, tied to) your license. EVERY licenses driver should have to have the liability insurance as part of being a licensed driver. This reduces the burden of car ownership on the owners and places the burden of insuring one's own behavior exactly where it needs to be: on the individual.

Just a thought. I welcome explanations on why this is not the way it is as well as reasons why it cannot work.