Nevada Increases Minimum Auto Insurance Limits. Should Other States Follow Suit?

The minimum amount of liability auto insurance required by most states has stayed the same for decades. The cost of collisions hasn't. Does America need new minimum auto insurance limits?
Traffic at an intersection

Drivers in Nevada will face new minimum auto insurance requirements this weekend for the first time since 1958. Proponents of the new limits, which go into effect on Sunday, July 1, point to the fact that the cost of insurance claims has risen dramatically over the past 60 years while the minimum insurance requirements have remained the same.

However, not everybody is pleased with the change. "This bill unnecessarily increases automobile insurance premiums on people who cannot afford it and will lead to more uninsured Nevada drivers," said Jeannette K Belz, a lobbyist for the Property Casualty Insurers Association of America (PCI).

Minimum auto insurance required in Nevada

OldNew
Bodily injury insurance per person$15,000$25,000
Bodily injury insurance per accident$30,000$50,000
Property damage insurance per accident$10,000$20,000

Three in 10 Nevadan drivers currently carry the state's minimum required insurance. Many do so because the minimum level of insurance is all they can afford, and raising this limit could increase their insurance premiums by at least 8.8%, according to PCI. The association also found a positive correlation between average liability premiums and the rate of uninsured drivers, indicating that an increase in minimum limits could lead to more drivers dropping their coverage altogether.

However, the severity of average claims has steadily increased since the ‘60s, according to the Insurance Information Institute (III) and in recent years, their frequency has increased, also.

Between 2014 and 2016, collision claim frequency increased by 2.6%, according to III. During the same time frame, claim severity also increased for each of the five types of coverage in a standard auto insurance policy.

SeverityFrequency
Bodily Injury7.0%2.2%
Property Damage11.5%2.9%
Personal Injury Protection7.7%10.2%
Collision8.2%2.6%
Comprehensive8.3%2.6%

Several factors have contributed to these changes, including an increase in the number of miles drivers spend on the road, the emergence of high-tech vehicle components, the increased cost of labor, and, especially, the increased cost of medical care.

"It costs a lot more to repair people than to fix cars," said Michael Barry, a spokesman for III. "So when you look at the medical cost increases in the U.S. over the past couple of decades—that's the big cost driver for auto insurance. Paying medical bills, physical therapy and any other injuries that are incurred because of an auto accident."

In 2016, the average liability claim for bodily injury was $16,110. If these dollars represent the medical care of one person, they already exceed the original state minimum required by Nevada. However, in cases where an individual is critically injured or killed, the liability costs can quickly climb into the millions.

This disparity—between the rising costs incurred by car accidents and the reluctance of state legislatures to increase limits—is pervasive across the country. Most states set their minimum auto insurance requirements in the ‘60s or ‘70s, and few have updated them since.

This is at least partially due to the fact that the average liability claim for property damage—$3,683 in 2016, according III—still falls well within the typical minimum limit. As long as fender benders are covered by state minimums, lawmakers are less likely to feel significant pressure to increase requirements.

Without that pressure, most legislatures would be happy to leave minimum requirements where they stand. Any increase in requirements likely will lead to an increase in rates for low-income individuals. That could be a pock on the track record of any politician—even if the increase is small and actuarially necessary.

"It would be a TV spot, where 'so-and-so' increased rates," said Barry. "There could be a good public-policy reason for taking this step, but it could be turned into a political negative if, in fact, the rates went up for low-income drivers."

Such concerns might have played a role in Arizona's recent failed attempt to increase its minimum limits. The state currently enforces the same 15/30/10 coverage Nevada is about to increase. However, Arizona Governor Doug Ducey vetoed an attempt to increase this coverage just last month, despite the fact that its current limits haven't been raised since 1972. There's no telling how many years it might take for these rates to come under review again.

In the meantime, Barry recommends purchasing underinsured or uninsured motorist coverage to those who are concerned about their state's low auto insurance requirements. Such coverage is generally a small percentage of your total auto insurance bill, but it could provide crucial compensation if you're injured by another driver who only carries your state's minimum coverage.

Daniel Caughill

Daniel is a Staff Writer at ValuePenguin, covering insurance, retirement and other personal finance topics. He previously wrote about compliance and best practices for K-12 school districts at Frontline Education.

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