What if there was no insurance?

By Adrian Wyllie

The average American pays $1647 in auto insurance premiums every year, or about $138 per month. Assuming that the average person will carry auto insurance from the age of 16 to the age of 78, that’s sixty years of premiums, or a total of $102,114.

If you’re like the average American, you will be involved in three auto accidents in your lifetime, and you will likely be at fault for half of them. 73% of auto accidents result in no injuries. The average property damage cost in these cases is $4,525. 27% of accidents result in some injuries, with the average insurance settlement being $18,417. Statistically speaking, that means you can probably expect to be responsible for about $8,000 in damages from accidents you cause in your lifetime.

Just from that basic calculation, you can see that – on average – you would save over $94,000 over the course of your life if you simply didn’t have auto insurance. That’s pretty convincing to me, but most people would say it’s not worth the risk. What if you killed someone? Well, there is about a 0.84% chance that you will kill someone with your car in your lifetime. To me, the odds are pretty safe, but I’m not the risk-averse type. It’s not necessarily a rational risk, but it is a risk nonetheless. But you wish it wasn’t so damn expensive, right?

In reality, having auto insurance will probably cost you millions of dollars over your lifetime. Yes, I said “millions,” not “thousands.” We’ll come back to that in a moment, but for now, let’s just agree that auto insurance is expensive.

This is why you see so many auto insurance ads trying to convince you they "save you money." They know you have to buy it, so there’s no point in trying to appeal to your desire or need. You don’t have a choice. The government makes you buy it. Liberty, Progressive, Geico, etc. fall into that category. A few, like Allstate and State Farm, try to sell you on fear, warning you could be holding the bag if you don’t have the right coverage. That’s the upsell.

This is also why you see so many ads for accident attorneys. Without question, the largest number of law firm ads are for accident litigation. There are two reasons for this. First, it’s easy. There are well-established formulas for payouts based on specific common accident injuries. Occasionally, you get a windfall jury award, but that’s more exception than the rule. Second, it’s highly profitable for them. On average, attorneys get 33% of all insurance settlements. The attorneys always get their full fee once the case is settled. Not true for you.

The vast majority of these are "structured settlements," meaning the insurance company pays the victim in monthly or annual installments, usually via an annuity. So, a third industry has sprung up around the auto insurance game: The “future payment” business. That's also why you see so many ads for companies that will pay you a cash buyout for your structured settlement. You know, “Call J.G. Wentworth 877-CASH-NOW.” They make a profit by giving you a low-ball lump sum in exchange for your annuity. They purchase the asset for a bargain and make all the interest on the back end.

There are several billion-dollar vultures circling every fender-bender.

Accident attorneys spend about $1.5B per year on advertising. Auto insurance companies spend $6.7B per year on advertising. The media won’t expose the scam because it would make a huge dent in their profits.

And you may think that the insurance companies and the accident attorneys are arch enemies. I mean, they’re always fighting each other, so they must be, right? Well, not really. Whenever you see some cheesy ad where some ham-and-egg working slub tells you “I got rear-ended and my lawyer got me $385,000!” what are you thinking?

Well, if you’re like most people, you probably think, “Gee, I wish someone would rear-end me,” because it’s a bit like hitting the lottery. C’mon, you know you’ve thought that. Of course, that’s what the attorneys want you to think, so that the first call you make as you’re rubbing your slightly whiplashed neck is to #LAW or 1-800-ASK-GARY. You might tell yourself you hate these scumbag lawyers, but you’ll love them right after the airbag deploys. Admit it.

But your next thought is often, “What if I accidentally rear-end someone? I could be on the hook for a half million. Or what if that guy who rear-ends me doesn’t have insurance? I should increase my coverage.” And that, my friends, is what the insurance companies want you to think. The insurance companies need the scumbag lawyers to keep you fearful enough to buy that extra coverage.

So, the adversarial relationship is only superficial. It’s a good cop bad cop gimmick. It depends on your perspective on which one you think is which. Some people see the attorneys as protecting the little guy from the big bad capitalist corporations. Others see the attorneys as vultures, exploiting victims’ greed and driving up costs for everyone.

The truth is that it doesn’t matter what you think because they both profit. They are two symbiotic parasites feeding on the same host: You.

And these parasites have allies in the media and government, who also have a strong financial incentive to keep the current system going and to keep screwing you out of millions.

Auto accidents are nearly a $2 trillion per year industry, and the politicians also get their cut. Auto insurance companies and attorneys spend roughly $80 million per year on lobbying state and federal legislators and executive branch holders, at an average of $10,000 per year per politician. That’s why 49 states require you to have auto insurance if you want to legally drive. New Hampshire is the lone hold out.

How do we fix it?

Well, abolish government for starters. What, too radical? Fine, how ‘bout we abolish insurance companies? Still too far? OK, let’s try something you can stomach.

How about a law requiring every driver to invest the amount they would normally pay in insurance premiums into an account, which could only be used to pay auto insurance settlements until age 65. After 65, you could begin drawing income from it, much like an IRA. In fact, let's call it the "Driver's IRA." If starting at age 18, the average American were to invest $1647 per year they pay in premiums in the S&P 500, at the typical rate of return, they would amass $1.9M in their "driver's IRA" by age 65. If you were at fault in an auto accident, you could pay from this account, or if your account did not have enough funds, you would be required to pay your "premium" to the injured party until the debt was settled. After age 65, you could begin drawing a certain percentage from your fund balance for retirement income and bequeath any remainder to your heirs upon your death.

So, in reality, even if you're a terrible driver and have exceptionally bad luck when driving, and you have to pay multiple accident settlements in your lifetime, you would still be much richer, probably by several hundred thousand dollars. The average driver would be about $600,000 richer, assuming they had payout 2 average-sized settlements in their lifetime, specifically at a younger age. If you got into accidents later in life, it would have a minimal effect on your nest egg. A good driver, who had no at-fault accidents in their life, would be nearly $2 million richer. Even the poorest Americans who can only afford the bare minimum coverage required by law would retire with roughly $100,000 assuming an average number of accidents in their lifetime. It’s not much, but it’s a hell of a lot better than retiring in the red under our current system.

So now that you understand the true fix to auto insurance, repeat that thought experiment with health insurance, life insurance, homeowner's insurance, etc. You'll probably realize how the entire insurance industry is a complete scam. The average American family pays $1,779 per month in total premiums for auto, life, health, home, renter's insurance, etc. Total yours up and see where you’re at. If you were to invest that $1,779 per month in the market with an average rate of return through your working years, then you would have – through the miracle of compounding interest – $27.4 million dollars at age 65 on average.

Without insurance, you could afford to wreck a lot of cars, burn down a lot of houses, spend many months in a hospital, and still have enough left over to enjoy your twilight years at a 5-star beach resort with a margarita in your hand.