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Group Auto Insurance

January 02, 1986

I hope that Hallett's article is not accepted as a rational analysis of an extremely dismal situation.

I have the following points to make:

1--I do not think that the employer groups alone are a satisfactory solution to the auto insurance problem. I have a completely unblemished 35-year driving record and the insurance carrier for the University of California, Santa Barbara, is refusing me insurance on completely trivial excuses that have nothing to do with insurance risk, trying to force me into an assigned risk pool: Unless they are regulated by an Insurance Commission that has the public interest (as opposed to the insurance companies' interest) in mind, they can be just as arbitrary with anybody else. Hallett himself (quite correctly) questions the policies of the Insurance Commission.

2--I question the 2.4% profit margin on auto insurance that Hallett brings forward. One can make a much bigger profit by having one's money idle in a bank account! At this margin the insurers would abandon California and leave insurance to the state (not a bad idea, actually. When I lived in Canada, the Province of Saskatchewan was operating a self-sufficient auto insurance with a 5% overhead, which Consumers Reports at that time rated as the best insurance available.) My experiences so far are that there is effectively no shopping around to do, contrary to Hallett's advice to the public. However, I must admit that I have never encountered similar problems in other states with compulsory auto insurance. It suggests that California lets the insurance industry get away with murder.

3--The risk assignment on a geographical location basis is totally unfair. The sole risks are the individual drivers. A safe driver is a safe driver is a safe driver, wherever his residence or workplace. A densely populated area will have more unsafe drivers (i.e. drivers with violation histories) but these will be assessed at a higher premium, thus allowing for automatic corrections.

4--The claim that damages by uninsured motorists must be covered is poppycock. Unless somebody purchases an uninsured-motorist clause, the insurance industry has no disbursement on this count.

5--I contest the auto "insurance" as a true insurance, as it does not meet any of the axioms on which insurance is defined. Insurance is acceptance of a calculated risk for a fee at a reasonable profit. A driver involved in a collision with a claim faces increased premiums that are so calculated as to reimburse the insurers with a profit margin. The "insurance" can thus be viewed as a guaranteed loan in case of need, purchased at usurer's rates.

6--I do agree with Hallett who blames the California Insurance Commission. Part of the blame.

It is true that to maximize one's profits is a deep-rooted American concept. But to defend oneself against unfair practices is likewise a deep-rooted American concept. There is much to be said for affordable insurance!


Santa Barbara

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