Why is mandatory auto insurance opposed by insurers?

Major insurance companies oppose mandatory auto insurance, as evidenced by the Texas State Farm Insurance official quoted in the 1991 newspaper report to the right. Insurance companies and their trade associations continue to voice this opposition and work quietly for repeal in the large majority of states where it is law.

Why? Besides their opinion that mandatory insurance is bad public policy (see quote), auto insurers know from experience that charging for auto insurance on a per-car basis as they do makes it unaffordable in certain zip codes. These are areas where there is less market for other kinds of insurance and where drivers must economize on auto insurance by sharing insured cars. As the miles per insured car increase, auto insurers raise the price per car, which forces drivers to illegally take less-used cars off policies and to drive the cars kept insured even more.

Why don't insurance companies offer cents-per-mile alternative pricing, authorized by law to make mandatory auto insurance work in Texas? Auto insurers say that they fear unlawful odometer tampering, but their real concern must be loss of credibility because cents-per-mile prices would reveal their controversial price categories by zip codes, credit scores, and driver sex to have no statistical validity on a per-mile basis.

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Following is an excerpt from a report by Bruce Hight in the Austin American-Statesman titled "Legislator accuses insurance executive of demagoguery," November 2, 1991. (The bolding is added.)

 State Rep. Eddie Cavazos, chairman of the House Insurance Committee, on Friday angrily denounced an insurance executive's suggestion that the mandatory auto coverage law has forced many poor people to choose between buying groceries or buying insurance.

Cavazos, a Corpus Christi Democrat, said the problem was high insurance rates - not new state measures aimed at forcing motorists to buy coverage.

His comments at a committee hearing were triggered by testimony from Charles Wirth, public affairs director for State Farm Insurance in Texas.

Wirth said his company "opposes mandatory insurance. We think that it generates more social ill than the benefits it's intended to provide, and we have had that position actually for years.

"State Farm has always thought that it was bad public policy to force people to choose between buying food for their families and buying insurance," Wirth said.

Cavazos interrupted, demanding, "Where in the world did you get the facts or information to prove that we are forcing anyone to go without eating to buy insurance? How can you prove that point? That's a very serious charge to this body, that we're forcing people to go without eating to buy insurance."

Cavazos told Wirth his statement was "in poor taste" and that "a statement from the industry like that is demagoguery to the highest extreme. For you to go and tell the public that we're forcing people to go without eating to buy insurance, to me sinks your industry to a grand new low, a real low."

Wirth did not back off his statement, but he declined to be drawn into an argument with Cavazos.

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