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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Oct 26, 2021

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Louisiana Representative Katrina Jackson (D-Monroe) doesn’t believe people should have to pay a deductible on their auto insurance to get their cars repaired when uninsured drivers hit them. This is why she’s introduced a bill to remedy what she sees as a serious problem for the average consumer.

HB1195 would abolish the $500 deductible associated with an uninsured motorist property damage claim.

This sounds like a great idea, but there’s a cost to it. You have to understand the concept of how a deductible works, specifically with regard to insurance premiums.

Nothing comes for free. It’s a transfer of costs. Instead of paying your deductible at the time of a claim, you pay it in your insurance premium. TTAI believes insurance premiums for LA drivers will likely increase (they currently pay the second highest in the nation, next to Michigan) if this bill becomes a law. For the most financially vulnerable drivers, this is a double edged sword. On one hand, it drives up costs. On the other, it could save them money when they don’t have to pay a deductible and their car can get fixed faster. This means an auto insurance company and your mechanic can get you back on the road faster.

Why will rates go up if this bill passes?

Louisiana drivers can certainly expect to see increased costs for auto insurance after a short time. Why? It’s simple; costs for insurers will increase and those costs will be passed on to insurance consumers. This may be more complicated in other ways as well.

In Florida, they faced a PIP fraud “problem” where millions of dollars are paid in fraudulent claims each year, costing Florida drivers millions of dollars in additional premiums, this bill would lend itself to the potential for abuse. How?

Here’s an example:

Imagine a driver who did not purchase physical damage coverage for their vehicle (in order to save money), but did have uninsured motorist coverage. They get into an accident, maybe with no other vehicles involved, or perhaps with a “partner” in the scam.

The driver would then be able to file an uninsured motorist claim – without having to pay an auto insurance deductible – and collect for damages to get their vehicle repaired. Depending on the situation, they could profit from the insurance claim. Without a deductible, there’s one less deterrent to do so.

Repeat this situation (just like in Florida PIP claims) 10,000 times per year and you can easily see how insurers will get taken for a ride. Unfortunately, an auto insurance company paying out these extra claims will raise rates even more passing on the costs to consumers.

Sound like a stretch? Talk to a few people in Florida regarding the matter. They will tell you otherwise.

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Are deductibles necessary?

While property damage deductibles aren’t an insurance consumer “favorite,” they provide some basic benefits to consumers. What are they good for? Read more about why insurance companies have deductibles.

They keep insurance costs down for everyone. This is accomplished by prohibiting insurance consumers from filing knick-knack claims for “losses” such as paint chips.

What would stop everyone in the U.S. from filing claims to have microscopic paint chips repaired on their cars as a result of everyday driving on the freeway?

Additionally, deductibles are designed to help prevent individuals from filing illegitimate insurance claims to recover “damages” from insurers. This is also related to keeping costs down.

A deductible may make a person think twice about leaving their keys in their car overnight or allowing a car to be stolen simply because they do not want to make their monthly payment anymore – after that “new car” euphoria fades and you’re left with a $500.00 per month car payment.

Insurance costs are passed on to consumers. It’s a fact of life. If claims were increased by the millions each year, insurer costs to adjust and repair damages would skyrocket, which would lead to substantially higher costs for the rest of us.

Of course, the people who would benefit most from no collision deductible in a larger claim would also suffer the most with higher insurance rates from their primary insurance carrier. The current laws cannot account for this in part because insurance is a business. They have to balance their books to remain profitable.

How does this apply to uninsured motorist coverage?

Deductibles are generally only necessary for property damage claims. That is, if your property is damaged, you file a claim and are responsible for sharing in the cost of the repair or replacement of the property.

Uninsured motorist and underinsured motorist are technically liability coverage parts of an auto insurance policy. This can be a little hard to explain/understand, but just think of it this way.

Your own insurer is “covering” you against the liability of a third party that is simply not listed on your policy. When you file a claim form, it’s still coming out of your policy. But it’s paid out situationally (i.e. when you’re hit by an uninsured or underinsured driver). Keep in mind, when you complete forms to file this claim, your rates can still go up, and your insurance company can still pursue the offending driver to balance out your auto insurance policy.

Basically, you have purchased insurance for those who have not done so, but continue to operate a motor vehicle and subject others to damages for which they would be liable, i.e. they were “at-fault” for.

Our guess is that Jackson is utilizing this concept as the basis for the bill, even though we think this ideology is flawed – if it is actually the line of thinking being used here.

Final Word

This bill speaks about making the uninsured motorist responsible for the deductible. So, the person who doesn’t purchase the state minimum car insurance coverage (which may be less than $500 per year) is going to be on the hook for paying your deductible?

Have you ever heard the phrase, “squeezing blood out of a turnip?”

Good luck with that. Perhaps it would be a better idea to focus on decreasing budget shortfalls and creating jobs in Louisiana rather than sticking the insurance paying public with higher overall premiums.

The most likely outcome of this piece of legislation would be higher overall insurance rates for drivers in Louisiana, which surely doesn’t make a lot of sense.

Of course, this is probably more of a political move, which has nothing to do with helping people in the long run and more to do with pandering for votes by taking the side “of the people” rather than “the man,” i.e. insurance companies.

Compare insurance quotes online to see if you can obtain cheaper coverage. The idea of beating insurers at their own game is rarely, if ever, a winning idea.

Read more: How are car insurance rates determined?