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Maine Voices: What if we reorganized car insurance?

According to the National Highway Traffic Safety Commission, an estimated 42,915 people died in motor vehicle crashes last year, “a 10.5% increase from the 38,824 deaths in 2020. The projection is the highest number of deaths since 2005 and the largest annual percentage increase in the history of the mortality analysis reporting system.”

Those 42,915 people equal about 74% of the 58,220 Americans who died in the Vietnam War.

There are many causes of car accidents, including drunk driving, drowsiness, speeding, and distracted driving (eg texting while driving). However, one factor that is rarely mentioned is the fact that insurance will often cover your costs even if you are at fault. Your premiums will probably go up, but that’s in the future.

In general, therefore, car insurance involves a transfer of money from those who do not have accidents to those who do. Viewed this way, reassurance can be seen as a case of positive reinforcement, as described in BF Skinner’s 1953 book “Science and Human Behavior.”

Without insurance, an at-fault person involved in an accident will suffer immediate and huge losses. With insurance, there are few immediate financial losses, although an increase in premiums may well occur. In economics, such perverse incentives are called moral hazards.

The same analysis applies to other forms of insurance. For example, a recent Maine Voices column (“Maine Voices: All Mainers Need Paid Family and Medical Leave — Not Just Some of Us,” October 28) made the argument in favor of paid family and medical leave. As the author, Katrina Ray-Saulis, wrote: “No matter who we are and what we do for a living, we should be able to take time to care for our loved ones when a crisis strikes, without jeopardizing jobs or housing, or making other terrible trade-offs.”

In other words, if a person has a sick family member, others must cover the costs associated with taking the job. (Ray-Saulis doesn’t say that others will cover the cost. She says that the ballot initiative she’s working on before voters “would create a fund to pay workers for the time they need — without employers paying the cost have to carry.”)

Is there a way around the counterproductive effects of insurance? Consider the following. A person who needs car insurance pays premiums on a year-to-year basis, just as happens today. However, that money goes into a fund owned by the person concerned. If he or she is at fault in an accident, money is withdrawn from that fund to cover the costs. If more money is needed, money is borrowed from the funds of other such people.

At retirement, the money left in one’s fund (which has earned compound interest due to the above loans) is returned to the owner to be used for living expenses – or for any other legal purpose. So those who drove carefully have a more comfortable retirement than those who caused accidents. Because each person bears the cost of his or her own innocent accidents, we should expect fewer accidents involving drunk driving, drowsiness, speeding or distracted driving.

A reorganization of how insurance is structured has the potential to lead to fewer highway accidents and better health, to name just two areas. The more general message involves people taking greater responsibility for problems they cause, rather than shifting that responsibility onto the shoulders of others.

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