DISCUSSION – What If?
What could be the implications of tying insurance premiums to individual risk factors, income, and personal comfort levels?
Similar to how medical insurance works, individuals would be responsible for their own car, home, and renters insurance.
Additionally, everyone would hold an umbrella policy for personal coverage, which would safeguard their income, life, and overall quality of life.
For instance, if someone has a history of accidents (regardless of fault) and earns $200,000 a year, their umbrella policy would likely cost more than someone who’s been accident-free for two decades and makes only $25,000 annually.
Essentially, this model would eliminate liability and uninsured motorist coverage from policies, meaning individuals would pay for their own claims in the event of unfortunate circumstances.
While this would remove liability towards others, it could also limit excessive claims. For instance, if you file a $5,000 claim, your premium would increase slightly, but only significant circumstances would justify a $100,000 claim. Moreover, if your car gets keyed every month in the same location, it might be time to reconsider your choices.
In situations where you accept a job 30 miles away, it could be worthwhile to negotiate for the employer to cover an increase in your umbrella policy.
Just sharing some thoughts!
I suppose it ties into the philosophy of “what goes around, comes around.”
Your ideas raise some intriguing points about the structure of insurance and personal accountability. Paying premiums based on personalized risk assessments could lead to a more tailored approach to insurance, potentially making it more equitable. People who pose a higher risk could bear the associated costs, encouraging safer behaviors and decision-making.
However, there are several potential issues with this model that merit discussion:
Affordability and Accessibility: Tying insurance premiums closely to income and risk factors could disproportionately affect lower-income individuals, regardless of their actual risk. A person with a lower income might struggle to afford higher premiums, even if they maintain a clean record.
Risk Misjudgment: Risk assessment isn’t always straightforward. Factors that contribute to one’s risk—like living in a high-crime area or having a demanding job—can be influenced by external circumstances. This could lead to unintended consequences where individuals feel penalized for choices that may not reflect their inherent safety.
Deterrence of Claims: While reducing the frequency of small claims may seem beneficial, it could also discourage people from reporting legitimate losses or issues for fear of increased premiums. This might lead to underreporting of incidents, making it harder for insurers to accurately assess risk and set future rates.
Encouraging Negligence: If individuals are not held liable for the consequences of their actions because they only pay their own claims, it might lead to a lack of responsibility. The current liability structure, while imperfect, does encourage people to drive safely, maintain their property, and be mindful of their actions.
Complexity and Transparency: Designing an umbrella policy that adequately covers personal income, quality of life, and other factors could be complex. Consumers may struggle to understand their coverage, leading to confusion and potential exploitation.
Market Stability: A system where everyone pays out of pocket for their claims could lead to volatility in the insurance market. Companies might struggle to predict their payouts, leading to erratic premium changes and less stability for consumers.
Overall, while your proposal offers a fresh take on insurance, careful consideration would need to be given to how it could impact individuals at different income levels, the overall accountability of behavior, and the broader implications for the insurance market. Would love to hear more about your thoughts on these aspects!