State Budget Ripple Effect: Paying More For Your Car Insurance

G’day mate. I know how you can save money on your car insurance.


Far away, across the state line, away from Wisconsin’s state budget process that allows legislators to insert policy provisions into the State Budget.

As of this month, Wisconsin motorists enter a new era in insuring their vehicles. The minimum required insurance for a vehicle was $25,000 for each person injured in an accident, a cap of $50,000 per accident, and $10,000 to cover property damage. The new minimum coverage is $50,000 for each person injured, $100,000 for each accident, and $15,000 for property damage.

The new minimums were passed as part of the State Budget even though the auto insurance coverage minimums really had nothing to do with the state’s finances.

Now the budget provisions are going into effect and many Wisconsin motorists are about to see their auto insurance rates go up. As coverage goes up, so do rates. The Wisconsin Insurance Alliance says auto insurance costs will increase by at least 33%, which equates to a $96 to $309 per driver annually.

Anyone who has sat in their insurance agent’s office can understand this. If you decide you need more coverage, your agent pulls out the chart and tells you how much more you will pay. The agent never says, “This will bring your insurance into the 21st century. No charge.”

Unfortunately, State Representative Tom Nelson, the Democratic Assembly Majority Leader, believes that increasing the mandated coverage for insurance will have nothing to do with the coming increases in premiums. He blames the insurance companies’ investments and the downturn of the economy.

Nelson should consult his legislative colleagues in Florida. (Over the phone. We can’t afford to have Nelson travel there.)  Florida is going through a health insurance experiment called “Cover Florida.” Under the plan, Florida allows the sale of certain insurance policies to the uninsured free of all state mandates. By eliminating the mandates, individual insurance costs can drop from $400 for an individual to as little as $89 per month.

By reducing the cost of providing the health insurance, the insurers are able to offer lower premiums. But when the insurance company is mandated by the state to provide higher coverage, they will pass along the costs to the consumer.

Of course, the Wisconsin legislature does not have an interest in such basic economics, especially when it comes to auto insurance. Now the legislature seems intent on making matters worse. They will soon consider banning insurance companies from having different rates depending on the consumer’s zip code.

Insurance companies often use zip codes to help anticipate the risk of damage or theft of a vehicle. Higher crime areas with greater population densities are going to be incur more risk for auto insurers than rural areas with low crime.

The legislators are saying it’s not “fair” that people in Milwaukee’s zip codes, for example, pay more than those in Jefferson County. They do not say how “fair” it is when those higher risk costs are spread to the rest of the customers. Again, raising the cost of the insurance product will mean higher insurance premiums.

State Senator Mike Ellis understands this and has proposed the repeal of the new minimum coverage insurance mandates. Ellis said in an op-ed piece published at that Wisconsin working families can’t afford the increases in their auto insurance rates.

“Additional unintended consequences could emerge when insurance becomes unaffordable to more and more drivers.

“If insurance rates become unaffordable, more people will risk driving without insurance, despite the new law requiring it. The result will be fewer drivers with insurance. That will lead to greater exposure and risk for insurers who will ultimately be forced to increase rates even more to cover that increased risk.”

That will mean more insurance costs for the drivers that do purchase the insurance. It will also mean that an accident with an uninsured driver could be more likely, increasing the financial risks to drivers.

The new mandates that are supposed to help Wisconsin’s drivers are only going to help one group: lawyers.

The rest of us are going to just pay.

You don’t need a TV lizard to figure that out.

By James Wigderson
Special Perspective for the MacIver Institute