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Unintended Consequences (Part 1)

December 21, 2009

Chris Garlasco, Owner & Managing Partner - Founders Insurance Group

More than three decades ago, Connecticut, like many states, made the decision to mandate auto insurance coverage. Looking back, that decision has proved to be a good one in terms of protecting our state residents from liability. However, in the spirit of “no good deed goes unpunished”, even the best of intentions have had some unintended consequences.

Prior to the auto insurance mandate, most people purchased coverage based upon their perceived need for protection. The cost was important, but since one wasn’t required to have coverage, the decision to purchase coverage was primarily based on the need for protection. Once it became required by law, it became like paying taxes, we see the need for it, but paying as little as possible became the main focus for many. The government mandate, it could be argued, was the beginning of price shopping rather than coverage shopping. That is a broad blanket statement, but I think that you get the idea.

The second unintended consequence was a byproduct a of minimum limit requirement. Here in Connecticut, those limits are a split limit of $20,000 per person and $40,000 per accident with a minimum of $10,000 of property coverage. In Connecticut that has been the minimum limit for over thirty years! Rather than the coverage requirement being adjusted for inflation, it has become a political football that arguably undermines the initial reason for the insurance mandate. In the end, those that are coverage conscience are in effect subsidizing the cost of the underinsured. Some reports are that 40% of Connecticut’s drivers are carrying minimum limits. Enter the big “price” seller’s of insurance, generally those that have the big marketing budgets, and coverage permanently takes a back seat to price. We now have an entire generation of buyers that know nothing else. Am I being a bit cynical? Maybe, but clearly the need to educate the public on coverage has never been higher.

The question is this; will a group of agents rise up to the challenge? Will the state legislators do the same? Only time will tell.

Have a great day!

Chris Garlasco

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