Question

Explain how compulsory insurance laws might lead to fewer accidents for people who disobey the law and drive without coverage.

Answer 1

Compulsory insurance makes some of the people give up driving to reduce the cost of risk because compulsory insurance laws follow the rationale of “pay or take the bus”. The person has to either pay for the insurance coverage and drive or give up driving and take any alternative course like walk, bus etc. There is fine for violating the compulsory insurance law initially and subsequent violations lead to larger fines and temporary suspension of driving license or vehicle registration. The uninsured drivers involved in accidents may loose their driving privileges. The people who disobey the law and drive without coverage are likely to have more violations and more likely to have their driving privileges suspended. Compulsory insurance law helps to keep the drivers off the road who do not value driving than the total costs including insurance. Hence many of the people who drive without coverage would either lose their driving privileges or will be careful while driving. It also encourages people to drive safely and reduce the cost of risk. When people are forced to buy auto medical coverage with premiums determined based on the person’s driving record, people will be more conscious while driving. So the number of people who drive with greater safety may increase and the compulsory insurance law might lead to fewer accidents for people who disobey the law and drive without coverage.