Insurance and Bad Drivers

There is an interesting story developing in California regarding one of California's State Senators, and her apparent poor driving. Here is a good story which looks at the impact on California's tax-payers.

I have to give credit to David Rossmiller for his earlier post here which brought this to my attention, and includes a couple of earlier articles on this story.

The situation is that we apparently have a driver who has had more than her fair share of accidents. To wit: 1. The current accident in which she apparently side-swiped a guard-rail, and then rear-ended another vehicle, injuring the driver and shaking up the child in the car; 2. Side-swiping a bus on June 8, 2006 causing over $5,000 in damage; 3. Two "minor fender benders while parking" in 2005; and 4. Running a stop sign in 1996 and injuring another driver.

This particular driver is a California State Senator, and as such is provided a 2007 Toyota Highlander Hybrid to use for state business, which I infer from the articles includes her daily commuting. During "official business" the insurance for this vehicle is provided by the State of California. This is a benefit provided to the Legislator's, and as such these "risks" are not underwritten. In other words, if you are elected to the California Legislature, and you are legally entitled to drive, you are automatically insured in the State's vehicles no matter how bad your driving record.

In a "normal" underwriting structure an insurance company would certainly review this type of claims history, and I am guessing that many, if not most companies would now be trying to divorce themselves from the risk that Sen. Migden represents, if they hadn't done so already. At the very least, she would presumably be paying some hefty surcharges for this accident/claims record.

However, the citizens of California don't get much of a voice in the matter. The State of California is "self-insured" and as such, is on the hook for these claims. Short of a change in State Policy this practice will continue, and I doubt that these legislators would vote to end this benefit.

What is the effect of this lack of underwriting? The article listed above mentions that the State's annual "frequency" of claims is 22.5 per 100 vehicles, which compares with 14.8 per 100 vehicles for California drivers in general. That is approximately a 52% higher frequency than the general population.

Most insurers attempt to write "better-than-average to average" drivers, or at the very least price in additional charges for drivers who are "worse-than-average". Taking on anyone who walks in the door, or in this case, any legislator makes for some bad risks.

This is the reason that insurers cancel folks after they've had accidents, or don't write new business that has previously had bad experience. If an insurer is not allowed to weed out the bad risks, they end up with much higher claims expenses than their competitors. In this case the California tax-payers are the insurer, and they are the ones footing the bill for this program.

Within an insurance company, this would have some pretty dire consequences. If you are not allowed to get rid of these bad risks, your rates must increase to pay their claims. In essence, the good drivers are forced to subsidize the bad drivers.

Good drivers, who don't like their insurance rates increasing start to shop around. If they find a better deal, they will leave. The bad drivers, tend to stay put, because nobody else will take them on, or nobody else offers them a more attractive price for their coverage. If not kept in check, this can cause a nasty spiral of higher premiums, higher claims expenses, and a shrinking book of business.

This type of "death spiral" doesn't apply to the California situation necessarily, but it does point out that the tax-payers are paying for careless drivers, who are driving some pretty fancy cars. If I was a California citizen, I would be loudly protesting this program, starting with providing brand-new high dollar vehicles to bad drivers in the first place.