How mandatory auto insurance is sabotaged
by per-car premiums

When families try to save on insurance, companies jack prices up!

By: Patrick Butler

Despite all efforts to enforce mandatory auto insurance, millions of Texas cars still go uninsured. The chief reason for the law's failure is that insurance companies charge the highest prices in zip codes where people have the greatest need to economize. The companies try to dodge responsibility for these prices by defaming the drivers there as "high-risk." But why should prices escalate where people need to economize?

The answer is clear if you think about it. Insurance companies insist on charging for auto insurance like a big annual car tax. Forget the token discounts—it's still pay-by-the-car. Because the one-size-fits-all price covers all the miles you can drive the car, the surefire way to save is to own fewer cars and drive each more miles. If a family drives two cars a total of 30,000 miles in a year, selling one car and sharing the other to drive the same distance cuts its premiums in half.

Of course, insurance companies count on the inconvenience of sharing cars to discourage drivers from saving this way. But in zip codes where many drivers are compelled by necessity to share cars, this strategy for saving backfires. Piling more miles on fewer cars increases the average cost per car to insurance companies. Companies exploit this excuse to jack up prices, which forces families to save illegally by taking less-used cars off policies. But the risk of arrest while driving an uninsured car also means shifting even more driving to the cars that are kept insured, thus pushing the average miles and price per insured car even higher.

To stop this upward spiral set off by drivers merely trying to economize on insurance, Texas last year passed House Bill 45, the cents-per-mile choice law. Driving a car, not owning it, is what produces risk for the insurance company, mile by mile, and that's the right way to pay for it. The law authorizes companies to offer a choice between paying a per-mile price for driving coverages (like liability and collision) or staying with the old dollars-per-car premiums. 

The choice is easy for companies to set up. (They've done it for commercial fleets.) After assigning a car as usual to a price class (by territory, car and driver type, and car use), the company would offer the customer a choice between staying with, for example, a fixed premium of  $600 a year per car or paying 4.0˘ a mile for the same price class and coverage to buy miles of insurance in advance.  The miles are added to the odometer reading and recorded on the insurance ID card. The owner buys more miles when needed, and the company inspects the odometer annually and when the owner changes cars or companies. It's that simple.

But a loophole in the law leaves it optional for companies to offer the per-mile choice. Now the companies are stonewalling about making it available.

Their excuses—like fear of odometer tampering to steal miles of insurance—are smoke.  Their unspoken fear is that using odometers will expose much of their pricing mystique as bogus. Companies tell us that not only zip codes, but also credit scores and driver sex distinguish classes of cars with "high risk" and "low risk" drivers. In fact, these classes do not evaluate drivers at all on a statistically valid per-mile basis. Instead the classes are merely selective groupings of cars that—on average only—are driven more miles or fewer miles.

Drivers who are angry because cars go uninsured and drivers squeezed between spiraling prices and harsh enforcement have every right to demand that companies offer the pay-by-the-mile alternative. We're entitled to choose to pay only for the miles of insurance protection we actually use in driving as many cars as we need. Tell candidates for the legislature that you want the loophole closed and the companies required to offer this straightforward choice.  Twenty years ago Texas made car insurance mandatory—now Texans must act to make insurance companies stop sabotaging it!

 Patrick Butler is Insurance Project Director for the National Organization for Women (NOW) and Texas NOW, and may be reached at (512) 695-5136 in Austin                                                                                   ă National Organization for Women  (#712b-2A13)

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