How State And Federal Laws Regulate The Car Insurance Industry
Every industry needs to have regulations in place to ensure the protection of both businesses and consumers. In reality, the federal government leaves much of these car insurance regulations up to each state to implement. As a result, each state has its own set of laws that govern auto insurance. In most states, federal car insurance law does state that all drivers must secure some type of insurance policy in order to be able to drive a vehicle. The purpose of car insurance is to protect drivers against property damage and injury expenses that can occur as a result of a car accident or claim. Each state has its own department of insurance that creates and enforces rules to regulate how insurance is sold. These regulations include minimum insurance coverages, competition, the rights of consumers, and solvency of insurance companies.
Consumers are protected by car insurance regulations that serve to encourage competition among insurance companies. The more insurance companies there are offering insurance, the lower the premiums will be. Competing insurance companies will lower their premiums in order to entice consumers to purchase their products. This also eliminates monopolies that try to gather enough of the market so that competition is not available.
Car insurance claims can often be in the thousands or even millions of dollars. Federal car insurance law as well as state care insurance regulations dictate that insurance companies must have a certain amount of money on hand in order to pay off these claims. This amount is usually fairly large just in case of a major catastrophe, which could be fabricated or caused by a natural disaster.
Another item that is regulated by the state is the minimum amount of insurance as well as the type of insurance that is required for a driver to purchase. For example, most states require a driver to purchase at least liability insurance, which covers damages to another person's property or injuries to another person. If the insured driver is in an accident that is deemed their fault, they are responsible for all expenses incurred by the other drier. These expenses may include damage to another vehicle or personal property, as well as injury to another driver, passenger, or pedestrian.
Car insurance regulations are in place not only to protect the consumer, but to protect the insurance companies as well. Auto insurance fraud is a huge issue facing many insurers and without regulations in place, insurance fraud can drive up the premiums for all motorists. Investigators pour over every claim that is files to ensure that they are legitimate and no fraud is involved. This actually benefits both the insured and the insurer.