Why is My Car Insurance So HIgh?

A new survey by Insure.com ranks auto insurance by state and makes a clear point about economic understanding.

This USA Today article explains that rates are higher in general where there are more accidents and more claims, so states with big cities tend to rank higher, but individual factors also play a large role.

The highest auto insurance rates are found in Louisiana.  “Louisiana's problem, according to Insure.com, is that folks there make big claims and sue each other a lot in front of friendly judges. Says the site: ‘A high portion of Louisiana drivers who are in accidents file bodily injury claims. Also, car accident lawsuits for less than $50,000 go before elected judges,’ who it says tend to side with consumers more than insurers.”  Are they really favoring consumers over insurers or are they merely spreading around the cost of these litigious citizens, making their state number one in premium costs for all citizens?  The answer is clear from the data.

In Michigan, the number-two state, “residents pay more in part due to ‘the state's guarantee of unlimited, lifetime personal injury protection benefits for treatment of injuries from a car accident.’  It says insurers pay the first $500,000 and medical expenses above that are paid by a Michigan Catastrophic Claims Association, which adds a fee to everyone's insurance premium ($175 per vehicle this year).”  Again the costs of a few are spread over the entire population.  A number of years ago the citizens of Michigan were given an opportunity by referendum to overturn this costly rule.  They overwhelmingly voted to keep it in place, but continue to complain about extremely high auto insurance premiums.  (Legislation is currently pending to modify this requirement.)

This reinforces the point that there is no magic money tree, no secret stash to absorb excessive legal damages or medical claims.  Despite what friendly judges might think, the insurance companies are not going to absorb those costs – not if they expect to stay in business.  Michigan’s state fund does not have it’s own source of income.  It must be financed by the high premiums everyone resents.  Whenever payments are handed out or future benefits promised, it is crucial to ask where the money is coming from.  Too few Americans do this and always seem surprised when they are required to pay the higher cost in the end.  Sometimes they pay through higher insurance premiums, sometimes through higher prices, unfortunately, in a few cases they pay by losing their jobs.  Understanding the economic process, keeps us from looking at short-term benefits as windfalls, knowing that it will be us (or our children) who will eventually pay the price.

When is a Drug not a Drug?

I’ve written before about the placebo effect, the phenomenon where a patient is given a harmless sugar pill, yet experiences improvement.  That’s why this article from CBS News about the use of placebos in England caught my eye.  A recent survey revealed that 77% of British doctors admitted to treating a patient with a placebo at least once a week.  The treatment could be an unnecessary test, a real pill not deemed effective for the patient’s specific complaint, or just a sugar pill.  In England, as in the US, this is considered unethical, but doctors contend that it works.

Reading the article led me to a few more links and finally to this 60 Minutes Extra video on one of their earlier stories about the placebo effect and anti-depressants.  The original interview was with a placebo expert from Harvard who believes that most anti-depressant drugs are not much more effective than placebos.  This short video is worth watching.  He explains how capsules are more effective than pills, injections more effective than capsules and surgery most effective of all.  And the color of the pill makes a difference as to how it is perceived.  Remember that this entire conversation relates to remedies with no active ingredients, non-drugs.  Another article mentioned one study where patients who merely had their knees cut open and then sewn shut with no further intervention did better after the fake surgery than those who had the real surgery!  This is the healing power of the mind unleashed!

Consider that the antidepressants and other drugs referred to in these articles have earned FDA approval, a several-year long, intense, progressive testing process.  The drugs are tested against placebos and checked for side effects to ensure that they are both safe and effective.

If these highly tested drugs could be of questionable value, what about those untested pills and treatments backed by no more than endorsements and advertising material that we run across every day?  How much of their positive results come from nothing more than hype and the placebo effect?  Are we spending time and money on the equivalent of sugar pills?  Shouldn’t we be asking that question of every cure or treatment or feel-good experience that we go after:  all the supplements, non-traditional remedies, homeopathy, or even visits to chiropractors?  Are we getting our money’s worth or are we playing into the hands of people who either believe their own hype, or don’t think it’s unethical to sell us a placebo as long as it makes us feel better, makes them a buck and keeps us coming back for more?

This subject brings up some interesting and possibly troubling questions.

Dummies for Dummies

Many years ago when my sons were young, we would watch TV together.  I remember one particular ad featuring young boys playing with a plastic car.  In the ad the car was doing amazing things.  Any kid would want a car like that.  So I casually asked my sons, then around 5 and 8 years old, “Do you really think the car would fly though the air like that if we had it at home?”  They had no question that it wouldn’t and that the effects on TV were added to make it seem more exciting.  They probably grew up believing that everyone had this figured out by the age of 10.

I must have led them astray, because a few days ago I came across this article (with references to others on the same subject) about an overwhelming response to a Facebook posting of a picture of mannequins in a Swedish clothing store.  “The mannequins displayed softer stomachs, fuller thighs and generally more realistic proportions than the traditional department store models.”  After some discussion of the controversy over mannequin shapes and sizes, the article concludes: “women’s self esteem takes a nosedive when exposed to models of any size, so maybe there is no easy answer. But as long as mannequins are influencing people to buy fashion, reflecting real-life bodies is a step in the right direction.”  Where were the parents of these women when the toys were being unrealistically promoted on the Saturday-morning cartoons?  Do dummies deserve this level of attention?

Just as the little plastic cars will not look as impressive as they did on TV, you will not look as good in the clothing as an unrealistically proportioned dummy.   The job of these mannequins is not to present a realistic picture.  Their job is to separate you from your hard-earned money before you take time to consider wiser alternatives.  The same can be said of most other advertising.  They are competing for your attention.  To react so strongly to the proportions of the dummies is to play into the hands of the people using them.  The entire episode demonstrates pretty much the opposite of critical thinking.  Will we now patronize stores based on their use of more lifelike mannequins, motivated by another emotional response instead of a thoughtful consideration of the substance of what we are buying?

And men, there is no reason to sit around feeling smugly superior about this issue, especially if you buy basketball shoes, golf equipment or underwear expecting to look or play more like the pros who endorse them.  It’s the same trick in different packaging.  We are all vulnerable to the siren song of clever advertising luring us into an emotional response instead of a well-considered purchase.


Update:  Less than two months ago, I warned of the distinct possibility that overweight people could begin to be treated the same as smokers for tax and insurance purposes.  This week brought news of CVS Pharmacies' new insurance program requiring all employees to be tested for weight, body fat, glucose levels and other factors or face a $50 monthly penalty.  

The Second Heat Wave

It was quite a few summers ago.  I remember the headlines about a terrible heat wave in a major city, possibly Chicago.  The reporters were going on and on about the number of elderly people who died due to the heat.  What a tragedy it was!  They made a point to call out the mayor and his team, decrying how irresponsible it was that they were not prepared for the heat wave and how they should be held accountable for those deaths.  The mayor made public announcements and apologies declaring how personally upset he was at the tragedy and how he and his department heads would be taking immediate steps to ensure nothing similar happened in the future.  The weather cooled.  The press had gotten the desired response, both in terms of promised action and attention from the public.  Things went back to normal.

Several weeks later a second heat wave struck the same city.  This time the press was happy to report that the number of deaths among the elderly was much lower.  The mayor and his staff took bows and patted each other on the backs over how effective their quick response was in allaying the problem, avoiding a second tragedy of the same proportions.  The weather cooled, and things went back to normal.

No one asked the important question.  No one pointed out that it was probably the most fragile of the elderly that died in the first heat wave.  The only elderly left when the second heat wave struck were the ones who had survived the first.  What actions did the mayor take?  Were those actions really effective (and proper use of taxpayer money) or was the difference driven primarily by the fact that the first heat wave had already reduced the population of vulnerable elderly?

Keeping in mind the case of the second heat wave, I tend to question such headlines as: “Sharp Drop in US Homes Lost to Foreclosure in Feb.”  It sounds like good news, but I need more information.  Foreclosures may be 11% lower than January, but one data point does not constitute a trend.  They may be 29% lower than February of last year, but is that the sign of real economic progress or is it just the same situation as the second heat wave?  Isn't it reasonable to expect foreclosures to be lower after so many earlier foreclosures during the years of the housing crisis?  

The same applies to new job numbers, auto sales, housing starts and many other economic statistics reported to us every day where numbers are compared to last month or last year, but reference to what is considered normal or strong performance is omitted.  Read headlines such as these carefully.  It is easy to be misled when we don’t really understand the baseline from which we are measuring.  The numbers may represent real progress, or it may be like the second heat wave, perceived improvement due to a changed environment.