Navigating Auto Insurance Requirements in the United States

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In the United States, automotive insurance covering liability for injuries and property damage is compulsory in most states, but different states enforce the insurance requirement differently. Penalties for not purchasing insurance vary by state, but often include a substantial fine, license and/or registration suspension or revocation, and possible jail time. Usually, the minimum required by law is third party insurance to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle.

California and New Jersey have enacted “Personal Responsibility Acts” which put further pressure on all drivers to carry liability insurance by preventing uninsured drivers from recovering non-economic damages (e.g., compensation for “pain and suffering”) if they are injured in any way while operating a motor vehicle.

North Carolina is the only state to require that a driver hold liability insurance before a license can be issued. North Carolina does allow for a “fleet license” to be issued if the license holder has no insurance, however the fleet license only allows for the driver to operate vehicles owned and insured by their employer. The license holder must produce a state form (DL-123) to prove they have insurance, requiring the signature of an insurance agent, in addition to a ten-dollar fee, in order to convert the fleet license to a full license.

Some states require that proof of insurance be carried in the car at all times, while others do not. For example, North Carolina does not specify that proof of insurance must be carried in the vehicle; it does, however, require that a driver have that information to trade with another driver in the event of an accident. Some states allow for an electronic insurance card to be produced on a smartphone

Arizona Department of Transportation Research Project Manager John Semmens has recommended that car insurers issue license plates and be held responsible for the full cost of injuries and property damage caused by their licensees under the Disneyland model. Plates would expire at the end of the insurance coverage period, and licensees would need to return their plates to their insurance office to receive a refund on their premiums. Vehicles driving without insurance would thus be easy to spot because they would not have license plates, or the plates would be past the marked expiration date.

The compulsory insurance debates

A brief history of car insurance

With the invention of the automobile in the late 19th century came the inevitable side effect of automobile collisions. As automotive collisions increased in frequency, it became clear that, unlike other torts, which relied on personal responsibility, there was a possibility that automobiles would need to be governed by laws because “[t]here was no way of assuring that even though fault was assessed the victim of an automobile collision would be able to collect from the tortfeasor.

This led Massachusetts and Connecticut to create the first financial responsibility and compulsory insurance laws. Connecticut’s 1925 financial responsibility law required any vehicle owner involved in a collision with damages over $100 to prove “financial responsibility to satisfy any claim for damages, by reason of personal injury, to, or death of, any person, of at least $10,000. This early financial responsibility requirement only required vehicle owners to prove financial responsibility after their first collision. Massachusetts also introduced a law to address the problem of collisions, but theirs was a compulsory insurance, not financial responsibility law. It required automotive liability insurance as a prerequisite to vehicle registration.

Until 1956, when the New York legislature passed their compulsory insurance law, Massachusetts was the only state in the U.S. that required drivers to get insurance before registration. North Carolina followed suit in 1957 and then in the 1960s and 1970s numerous other states passed similar compulsory insurance laws. Since the genesis of automotive insurance schemes in 1925 nearly every state has adopted a compulsory insurance scheme.

Requirements by state

The tables below contain minimum liability requirements for vehicle owners within the United States. They are divided into two categories: compulsory and non-compulsory. See the table on the right for an explanation of the values.

High-risk market

Insurers may be unwilling to insure drivers (especially at an affordable price) with particularly bad histories, which had led states to create “residual market” programs through which insurers are required to make insurance available. There are various ways that this is accomplished, with the most common being an assigned risk plan and other programs including joint underwriting associations, reinsurance facilities, and in the case of Maryland a state-owned fund subsidized by insurers. However, the Consumer Federation of America found that drivers who have high-risk auto insurance, even if they have safe driving records, may be quoted higher-than-average rates by insurers when they seek new coverage.

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