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Fixing what's broken
Practical Consumer-Friendly Insurance Reforms to Save Money
Introduction
“Nothing is certain but death and taxes”, said Benjamin Franklin. Today, you can probably add insurance premiums to that list.
The U.S. insurance market, worth an estimated $1.5 trillion, is the world’s largest, offering protection against financial loss from unexpected events. Consumers pay monthly premiums to insurers, who balance financial risk by paying out less than they collect.
Over time, rising premiums and increased middlemen have driven up costs, especially in health insurance, where routine expenses are now expected to be covered. Auto insurance costs have climbed due to legal and judicial influences, while outdated risk calculations in life and health insurance demand updates to better serve consumers.
About the research
To better serve consumers, we at the Consumer Choice Center believe insurance should be simplified, reimagined, and subject to intense competition. As such, we want to offer simple and consumer-friendly insurance reforms that would save costs for consumers.
Some of these are liberalized reforms that can be implemented by state and local governments, including State Insurance Commissioners, while others are science-based recalculations that should be taken up by actuaries and risk analysis professionals at insurance companies.
In this policy primer, we outline these reforms and where they can be implemented to provide for more competitive, reasonable, and accurate insurance rates to increase choice and lower costs for consumers.
Our specific reforms apply to life insurance, health insurance, and auto insurance, which represent a sizable portion of an American’s monthly premium costs.
Overview
Auto Insurance
- Allow for “auto choice” between no-fault and adversarial tort insurance for drivers.
- Transition to a no-fault insurance model to eliminate the incentive for fraud, litigiousness, and risk inflation.
Health & Life Insurance
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- Decouple nicotine from tobacco in health evaluations to reflect scientific reality
- Reward ex-smokers who’ve made the decision to use less harmful nicotine products.
Auto Insurance Reform
As a car-centric nation, Americans face high auto insurance costs due to frequent driving and accidents. Adopting “Auto Choice” reforms would allow drivers to select their preferred insurance model, either no-fault or tort, providing more flexibility and potential savings.
In a no-fault system, each driver’s insurance covers their own costs, avoiding lengthy legal battles. The adversarial tort system, however, requires determining fault, often involving courts and lawyers, leading to higher costs. Auto Choice reforms, allowing consumers to pick their system, could reduce costs and eliminate legal fees tied to accident claims.
Research indicates significant savings from Auto Choice, with past studies estimating up to a 30% reduction in premiums. Allowing consumers to choose between no-fault and tort models would let insurers offer tailored plans, promoting competition and lowering rates overall.
HEALTH & LIFE INSURANCE REFORM
While many Americans still use combustible tobacco, there’s a growing demand for less harmful nicotine products like vaping, pouches, and heaters. Switching to these alternatives can significantly reduce health risks and lower medical costs associated with smoking-related diseases.
However, current insurance forms do not distinguish between tobacco and non-combustible nicotine use, causing users of safer alternatives to pay higher premiums similar to smokers. Updating insurance policies to differentiate these products could encourage more smokers to switch to lower-risk options, saving consumers money and reducing strain on the healthcare system.
Recognizing the reduced risks of non-combustible nicotine products in insurance would promote public health, reduce smoking rates, and benefit both consumers and insurers. This policy shift would better align insurance costs with actual health risks, benefiting all stakeholders and supporting harm reduction efforts.
Conclusion
As with any market reforms, there are many parties that could be impacted by these recommended policy reforms for insurance consumers, and for good reason. Our goal is to offer simple solutions that will embrace choice, enhance competition, and reduce costs so savings can be passed on to consumers.
With a growing technological and health shift for nicotine users, as well as a transition to a less adversarial insurance system after car accidents and injuries, we believe our current models for risk analysis in insurance plans must be updated to reflect both scientific and policy reality.
Led by state insurance commissioners, state legislators, and creative entrepreneurs, we believe these reforms would have an immediate impact on both consumers’ insurance premiums and risk profiles for insurance firms. Removing the barriers or miscalculations that bloat costs and overgeneralize risk will help consumers in the long run, and help reestablish a more competitive and thriving insurance market.
Read the Full Report
Authors
Elizabeth Hicks
US Affairs Analyst
Yael Ossowski
Deputy director
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