An Asian Actuary (AAA) is feeling irritated at the lack of logic eschewed in the Straits Times letter "Lower car insurance? 'Tax' new drivers"

http://motoring.asiaone.com/Motoring/Drivers/Story/A1Story20090331-132131.html

The whole point of motor insurance is not to "reward good drivers", or to "promote good driving" or to save money for car owners. Motor insurance exists to protect victims of car accidents. If 90% of the liability is passed back back to the carowner (as is suggested by the letter), innocent victims are put at an unacceptable risk of not receiving any compensation.

When a driver in his recklessness kills, maims, paralises a passenger, or another roaduser he has to compensate his victim for loss of future earnings. Basically, if you kill someone on the road, you have to pay for his house mortgage, kid's education, parent's retirement, etc etc. Such cases, in AAA experience can claim from $500,000 up to $1.5mil. Can the guilty party afford to pay without insurance?

Imagine the following: An engineer is crossing the road; the green man is lighted up. BANG! A reckless driver suddenly runs him down and breaks his spinal cord. In an instant, Mr Engineer has gone from a man with a bright future, to a total vegetable. His wife sues for loss of earnings, for medical care, for pain and suffering. It is an open and shut case - the driver is obviously guilty - and the courts award $1mil to the accident victim.

Assuming the suggestion of the letter: The insurance company covers only 10% of that amount. AAA may be wrong, but he doubts the ability of most "reckless drivers" to pay the remaining $900,000. So the guilty party goes bankrupt. That in itself is no loss - AAA has no objections to punishing reckless drivers - but think of the wife and kids. Who is going to make up for their financial loss?

For that reason, logic breaks down in the letter above. While AAA does think that there are ways to reward "good drivers" (more in a later post), providing a cover other than 100% of the liability is not one of them and is grossly unfair to motor insurance victims. Motor insurance is here to protect the innocent, not punish the guilty.