Compulsory Insurance Versus Liberty and Security
MARCH 01, 1957 by RICHARD C. BAKER
Dr. Baker is Professor of Political Science, School of American Studies, Harding College, Searcy, Arkansas.
For generations vehicle drivers in this country have been required to account financially for their negligence upon the highways. They invariably have answered for their lapses out of their own private resources or those of an insurance company. Which of these they should use has been left for them to determine.
In 1927, Massachusetts took this discretion from its citizens and forced them to rely primarily on the latter means. It continued to be the only state to have this requirement until January 1, 1957, when it was joined by New York. New York, however, has long been considered the bellwether of the insurance trade, and it is not unlikely that many of the remaining states soon may follow its example.
All motor vehicle operators living in Massachusetts and others driving within its borders more than thirty days in any one year must furnish evidence of their financial ability to satisfy certain negligence damages. The law permits motorists to provide their security in the form of privately owned bonds or bank deposits, but the vast majority of them are compelled by the relatively high protection demanded to resort to insurance. The minimum amounts of protection allowed are $5,000 for bodily injuries to one person and $10,000 for all of those sustained in a single accident. The required coverage does not extend to property damages, or to injuries of either guests riding with a motorist responsible for an accident or of victims of out-of-state or off-highway mishaps. These types of coverage are encouraged but not commanded.
Poor Risks Allocated
Those motorists whom the insurance companies regard as poor insurable material but whom the law considers entitled to protection are insured under an assigned risk plan. Each company doing business in the state must take its share of undesirable clients on an allotment basis. The premium rates charged by the underwriters are fixed by the state commissioner of motor vehicles. Failure to have the prescribed coverage entails fines and jail terms.
It is quite obvious that under the Massachusetts plan the time-honored right of liberty of contract as applied to automobile liability coverage has pretty well gone by the board. The motorist there no longer can determine whether he shall be covered or what minimum protection he shall carry. Regardless of his motoring habits or personal temperament, he must take the limits set forth by law. Nor does he or his insurer have any part in deciding how much his coverage shall cost; an outside agency takes care of this matter.
When fixing the insurance rates, the commissioner is likely to be influenced primarily by the pressures of public opinion rather than by the loss experiences of the insurance companies. Each year he is besieged by numerous groups demanding low rates for their respective localities, and more often than not they succeed in obtaining them. They were so successful in their efforts in 1952 that the premium charges for the entire state were increased in general only 9.7 per cent, when actuarially they should have increased 22.5 per cent, which was the average for the rest of the country.
Failure of the commissioner to consult the loss records has cost the insurance companies in Massachusetts dearly. Since 1927, they have sustained a $40,000,000 deficit from writing automobile liability coverage. Yet the underwriters have little choice but to submit and try to absorb the shortage. If they refuse to sell automobile insurance, they not only will lose their Bay State customers for other types of insurance, but also will find a state fund emerging to handle motor vehicle coverage. It is feared that once a fund for this particular kind of insurance is provided, demands will arise for similar agencies for other forms.
Insurers Have No Choice
The underwriter, in one respect, is in an even less enviable position than his insured. The insured, with few minor exceptions, may determine who his insurer shall be, but the latter may not always choose his customers. As indicated above, not infrequently the carrier has thrust upon him certain dubious risks regardless of his wishes. Such a procedure, of course, undermines the very cornerstone of the insurance profession, for in this business as in others where the personal element is involved, freedom to judge individual fitness is of prime importance.
Unpromising as the status of the Massachusetts motorist may appear, his nevertheless is preferable to that of his New York cousin. In Massachusetts one may limit his coverage to the "five and ten" variety, whereas the New Yorker must carry the "ten and twenty" sort. The latter must do this even though he may be a hermit living in the heart of the Adirondack Mountains and driving a Ford of the 1922 vintage. The Massachusetts man also may elect whether to have the guest, property, out-of-state, and off-highway coverage. But not so with the New Yorker; he must have all of these.
The underwriters in New York, to be sure, may fix initially the rates they charge. But these cannot become effective until approved by the superintendent of insurance. Moreover, it is doubtful whether the insurers will be allowed this limited privilege very long. For soon after people commence buying compulsory coverage, they in all likelihood will refuse to permit private groups such as insurance companies to determine, even in part, how much they shall pay for it. They probably will insist that the state intervene and establish "reasonable rates," as reputedly has been done in neighboring Massachusetts. This is almost certain to occur if the premium charges continue to soar as they have in the past few years as a result of heavy accident losses and extravagant jury verdicts.
Careful Driver Penalized
A criticism frequently made of compulsory insurance is that it works an injustice on the innocent and prudent driver. It penalizes him by forcing him to buy insurance on account of other people’s mistakes. According to statistics, approximately ten careful motorists in New York are now being disciplined because of the misdeeds of one heedless operator. Prior to January 1, 1957, there were 600,000 uninsured drivers in that state, 544,000 of whom, experience showed, were of a circumspect nature, free of accidents. Only 56,000 became involved in accidents, and even many of these either were without fault or had had only minor mishaps.
Another example of the unfairness wrought by this kind of compulsion is found in the case of the unmarried male driver under 25 years of age in New York. Even before the compulsory law went into effect, all such drivers were compelled to have insurance, though only a small portion of their number was accident-prone. The premiums which these young men, the prudent as well as the heedless, paid were unusually high. They averaged $200 per youth and amounted to as much as $300 in some sections of the state. These excessive rates unquestionably resulted from the relatively heavy negligence losses caused by the offenders in this age group.
"Uninsured Motorist Coverage"
A factor generally overlooked in all discussions of compulsory motor vehicle coverage is that, for a comparatively small sum, the prospective accident-victim can provide his own protection against the negligence of the uninsured motorist. Quite recently, insurance companies have pointed the way by offering their patrons a special service known as uninsured motorist coverage. Under this plan — available in about forty states in late 1956 — the insured driver may receive the coverage involved for a payment ranging from three to ten dollars in addition to his regular premium. For this amount, he himself, his spouse, and those relatives living with him will be protected, while riding in his car, for injuries sustained from the uninsured motorist anywhere in the United States and Canada . They will be safeguarded also from the carelessness of the hit-and-run driver, the out-of-state motorist, and the operator of either a stolen car or one used without permission of the owner. They will be shielded likewise as pedestrians from most of these misadventures. The benefits allowed fall into the $5,000$20,000 brackets.
Insurance by Choice
Before the advent of the compulsory law in New York, the 3,700,000 insured car owners and their approximately 9,500,000 relatives were receiving these protections, and they probably still do. This left the 600,000 uninsured motorists, already referred to, and their 2,000,000 kinfolk exposed. However, these 2,600,000 persons might have become covered either through the purchase of car insurance by the owners, as just explained, or by the procuring of individual accident policies. In other words, nearly every inhabitant of the Empire State might have become secured against the mischances in question by individual action, and probably for much less cost than a single installment on a cheap television set. Such an arrangement, of course, did not release the motorist causing the accident from his liabilities; the insurance company compensating the victim became subrogated to his rights against the wrongdoer from whom it could collect its payments.
Insuring oneself against the negligence of other people is not uncommon in the United States. Many life insurance policyholders carry double indemnity provisions, one purpose of which is to insure themselves or their beneficiaries against the lapses of the irresponsible motorist. Also, thousands of air and rail travelers each day buy accident protection against the inadvertences of their common carriers.
Compelling everyone to be insured against the hazards of the road is but another example of the creeping governmental paternalism which seems gradually to be engulfing the nation. In this matter as in others, officialdom has taken to ordering and directing the people to do things which they can handle very well by themselves. Certain self-appointed guardians of the public weal, who have a contempt for the ability of the people to solve their problems by either individual or free cooperative action, are forever insisting, and often successfully so, that the state command the public by legislative fiat how to conduct itself.
A Form of Socialism
Compulsory liability insurance may also be regarded as a form of socialism. It really constitutes the socialization of a segment of the underwriting industry. As previously pointed out, the large majority of motorists are so limited financially that they must resort to insurance rather than to private resources for their coverage. This inability to choose methods of protection, coupled with the compulsory requirement, forces each driver, whether he wants to or not, to assist with guaranteeing payment for the misadventures of the other operators insured by his particular carrier. In short, a situation is created thus by legislative decree wherein the road misfortunes of one are made the burden of all.
This form of compulsory coverage is not only a factor in promoting paternalism and socialism, but no doubt will play a major role in foisting "compensation without fault" upon the country, if and when that practice comes to it. Under this scheme of things, the motorist must help compensate even the wrongdoer for the injuries incurred as a result of his own negligence. Already many people here are being sold the idea that automobile mishaps are the creations of society, for which society is wholly to blame. Dovetail this notion with a plan wherein the wrongdoer is compelled to contribute to the general insurance funds, and it will then seem reasonable to most persons that this fellow, too, should be requited for the damages he has suffered.
A common boast of the compulsory advocates is that their plan tends to bring greater security to victims of highway catastrophes. This claim, however, is only partially true, and somewhat illusory. In the first place, not all accident victims are entitled to compensatory damages. With few exceptions, only those may recover who are involved in mishaps where the motorist responsible for the damage has been negligent and the injured party entirely free from blame. In the second place, the amounts recoverable in many cases in both Massachusetts and New York are by present-day inflationary standards only slightly "better than nothing." In the third place, if the Massachusetts experience is any guide, the minimum limits of protection required will be made in most instances the maximum, and the over-all insurance coverage will be much less than it would under a free insurance system.
More Harm than Good
A fourth answer to this claim is that compulsory insurance at best is only a palliative and never a cure — not even a preventive. This type of insurance will not save a single life or limb; on the contrary, it will probably aggravate the losses of both. For many a reckless motorist, if without coverage, will pause in his mad rush on the highway when confronted with the specter of a heavy court judgment against him. The same person, if shielded by an insurance policy, may throw discretion to the wind.
An evaluation of compulsory automobile insurance leads inevitably to the conclusion that this form of liability coverage produces more harm than good. For one thing, it violates some of our most highly-prized liberties, one of them being the freedom of the individual to choose alternatives in an area long reserved to him by tradition, practice, and good sense. Moreover, it fosters paternalism in government, and also promotes a species of socialism with all of its attendant regimenting effects. At the same time, it penalizes the innocent and holds out hope for compensating the guilty. Lastly, it lulls all into a false sense of security by offering a palliative instead of a cure.
Surrendering our freedom in this particular respect is but one of many similar occurrences which recently have been taking place without the American people realizing their full significance. Yielding our liberties one by one tends to conceal their cumulative effect, which may be total regimentation of our society. As one observes this process in development, he is reminded of the admonition of a wise and astute jurist. In warning his countrymen against sacrificing their liberties piecemeal upon the altars of expediency and the easy way, the late Justice George Sutherland had this to say: "A little water trickling here and there through a dam is a small matter in itself; but it may become a sinister menace to the security of the dam, which those living in the valley below will do well to heed."