In Massachusetts car insurance is required of all drivers by law. However, there

Question

In Massachusetts car insurance is required of all drivers by law. However, there are concerns that the insurance market is not competitive, since it is very costly for insurance firms to vet policy holders (i.e. drivers). (Vet means to tell whether a driver is high or low risk.) In response, the state is mulling whether to enact a controversial law that makes it a crime for policy holders to mislead insurers. The law will also force all drivers to install a monitoring device in their cars that reports how fast the car is moving to the newly established Bureau of Road Rage. The state has hired you to review the policy. Use what you know about competition and information asymmetry to discuss how this policy will affect the quality and price of insurance. You are also encouraged to discuss the tradeoffs between efficient markets and privacy. Your answer should include definitions of competition and market failures, and discussion of the market failures caused by information asymmetry (hint: adverse selection and moral hazard).

Explanation / Answer

An auto protection is a contract between you and an insurance company. You conform to pay the fee of the insurance plan, referred to as a top rate, and to obey the coverage manufacturer's stated ideas. In return, the coverage organization consents to pay for distinctive bills associated with an accident or other covered losses.

Coverages

An auto insurance policy is made of unique varieties of insurance coverages. Even as there are lots of types of coverages available, you are only required to have 4:

Bodily injury to Others;
private injury protection (PIP);
Bodily injury induced by an Uninsured Auto; and
damage to any one Else's Property.
Non-compulsory insurance coverages comparable to comprehensive and Collision are on the whole bought by means of patrons.

Every variety of insurance insurance policy has a restrict, meaning that the coverage corporation won't pay more than this amount for a declare. You are required to buy certain minimal limits for each of the specified coverages. Given the high bills related to critical accidents, most drivers purchase insurance plan limits past the minimal requirements.
Required protection

to be able to register and drive your car in Massachusetts, you are required to as a minimum buy the auto coverages and bounds proven within the desk above. Your auto coverage have to list all licensed drivers living on your family who are related to you with the aid of blood, marriage, or adoption, together with drivers already protected through their possess coverage insurance policies. You must also list any person who now and again drives your automobile. Even as the policy only requires you to list "customary" operators, insurers as a rule interpret this time period widely, and some require that you just list someone who could use your vehicle.

Most of the time, drivers who've their possess auto insurance insurance policies can also be listed for your coverage as "deferred operators at no extra cost. However, below Managed competition, no longer all insurance organizations will enable you to defer a driver who has his or her own insurance plan, and some carriers will charge you extra premium for doing so.

That you can regularly exclude any loved ones member who does no longer drive your vehicle, however in order to do so, you have to publish an "exclusion kind" to your insurance enterprise. Drivers who most effective have a Learner's permit aren't required to be listed to your policy until they are totally licensed.

In case you fail to record any "normal" operator or licensed household member, your coverage enterprise would refuse to pay your claim, even though you had been driving on the time of the accident.

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