Why a government-run system would solve the problem of the increasing costs of insurance, and then some.



The first thing that must be recognized about the existing privately-run system is that with several insurance companies competing within the same market, there is a massive overlap of business functions, with each company having its own claims department, underwriting department, marketing department, and so on. In an industry like the insurance industry where so much of a policyholders premium is derived from operational costs, an integration of all of these functions into one will decrease expenses drastically as economies of scale would be realized. This will have a direct impact on a policyholders premium, reducing costs for all automobile insureds in the pool. It would also serve as a single point of sale for customers as they would not need to spend time researching each companys premiums in search of the lowest one; something most people do not enjoy doing. Economies of scale is not the only reason premiums would be lower, as government-run operations do not require a return on their investment the way shareholders of a profit-driven organization would. A government-run operation would work at their break-even threshold, resulting in no X% markup on the already higher premiums. Furthermore, jobs created by the insurance industry would stay within the country. With the privately-run system that exists today, several international companies are competing for the American market. This means all types of jobs, from management to administrative, exist in other countries across the world. A public system would keep all levels of jobs within the country.

Beyond financial reasons, the social benefits of a government-run system should be considered, specifically the difference between the investment policies of the two systems. To understand this, one must realize the importance the time-value of money is to the insurance industry. Since insurance companies receive money when the policy is started and dont pay out anything until a claim is filed, how the company invests the idle money during this gap will affect their bottom line substantially. Private companies, by nature, will invest this money into whatever gives the highest return. The government, on the hand, would invest this money into things that will benefit citizens the most. This could also include investing it into things that offer a high return, but it more importantly means funneling the money towards social causes such like education, healthcare, and infrastructure. Most policyholders would rather see his or her premiums invested within their state, working for things that benefit their community directly, rather then see them invested into whatever returns the most money for the company, including things outside of the country.

There is also a systematic problem with the way private insurance companies set premiums for drivers, considering it is a market where the government has determined that all drivers must have liability coverage to legally drive. The underwriting department of a private insurance company is there to determine what risks a specific driver presents (according to their age, sex, location, etc) and what that driver should be charged. In reality, when high-risk drivers are quoted with premiums which they cannot afford, the result is the uninsured driver. This is because people generally dont drive because they want to; they drive because they have to. Driving is simply an economic necessity for many people as it is their means of transportation to and from work, regardless of the cost of insurance. A government-run system, on the other hand, would not only be less expensive for the reasons discussed above, but it would not discriminate against high-risk drivers for reasons such as age, sex, and location. For instance, although it is true that a driver in a city like Chicago will have a higher risk of getting into an accident compared to a driver that lives on a farm in a rural part of Illinois, it should be understood that where they live is not necessarily the persons choice. Most people live where they do, especially within the city, because that is where their job is. In theory, the private system is punishing people for living where their job is by charging them high premiums on something they must legally purchase.

It is important the government is there to provide its citizens with systems that will benefit them the most, and between private and public automobile insurance, it is clear that a government-run system is most beneficial.