The Gecko (image courtesy of Adweek) may be coming to town.  I got a letter from my insurance company, Amica, the other day. Apparently Masschusetts will be semi-deregulating auto insurance in April of this year. I knew there had been some talk about this last year, but I hadn’t really followed the matter. While this should be great boon to many drivers, it may not be for me.

While I’m supportive deregulation in general, and supportive of deregulating Massachusetts’s auto insurance, I’m not wholly wed to the idea that insurance is an industry that must be universally deregulated. There are many good reasons for the Government to have a hand in how insurance is operated which are due to the most fundamental nature of insurance. Insurance is about risk pooling, and works best when the pool is both large and diverse. Socialization is at the heart of insurance, and the Government, generally speaking, is the arm of socialization.

One of the biggest problems with light to no regulation with respect to insurance is that it allows insurance companies to excessively cherry pick it’s customers. When an insurance company only picks the best customers, i.e. customers who don’t make claims, it can make insurance prohibitively expensive or unavailable for the rest. In the world of Auto Insurance, this is not quite as a big of a deal as these high risk drivers are high risk because of their own bad choices. However, for example in the world of Health Insurance, without Government intervention who most need insurance could be put in position where they can’t afford insurance even when they can get it. Do we allow the “free market” behaveindiscriminately as to deny health coverage to the old, and or sick?

I’ve digressed since I think deregulation of Auto insurance in Massachusetts is a good thing. Hopefully we’ll have more insurance companies such as GEICO coming in and offering lower rates to good drivers. Where as with Health Insurance, I believe there needs to be some regulation to prevent too much discrimination of poor risks, the case to punish good drivers and reward bad drivers is much more valid. At the same time it can be taken too far. Given that auto insurance is required and that not insuring bad drivers would only add to the burden of good drivers, regulation is still required to ensure that everyone can buy insurance at reasonable rates. When someone drives without insurance everyone suffers.

So why do I think I might get hurt in all of this? My driving average is rather pedestrian. Not spectacular, but certainly not terrible either. Very average I Imagine. However, I live in a urban area, and urban areas tend to be more high risk. The last time the state allowed for competitive rates in 1977, rates skyrocketed for urban driver, and the state had quickly re-regulate.