What are some common auto insurance regulations?
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UPDATED: Jul 8, 2021
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The auto insurance industry is regulated just like any other large, finance-related industry. Regulations are generally aimed at protecting consumers and limiting fraud.
In the US, auto insurance companies are regulated by state governments, rather than the federal government, so each state will have different regulations. However, there are a few common regulations that can be found in most or all states.
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Other regulations might be aimed at maintaining competitive markets or improving transparency in the industry. Individual state laws, rules and regulations can be found at each state’s department of insurance’s website.
For instance, the Florida Office of Insurance Regulation reports on insurance regulations concerning the sunshine state.
Licensing and Reporting Regulations
One regulation that can be found in every state is that auto insurance companies must report to their state’s department of insurance.
All states have laws regarding the licensing requirements for car insurance companies, and each must report earnings, assets and other important financial data on an annual basis.
This regulation helps to weed out fraud and insurance companies that do not have the monetary resources to meet their financial obligations of covering auto insurance policies.
State insurance regulators also receive and research consumer complaints against an auto insurance provider.
State regulators also impose sanctions and levy fines against insurance companies that are found to have broken any laws in the course of providing auto insurance protection.
Regulations for Minimum Coverage
All states have requirements for the minimum amount of coverage that drivers need on a vehicle to be legal. Drivers who get caught operating a vehicle without the minimum amount of insurance will face fines and possible revocation of their vehicle’s registration.
There are two types of insurance coverage that are required in all states. The first is Bodily Injury Liability. This coverage provides compensation for injuries sustained by at-fault drivers, the driver who is not at fault, and all passengers.
Each state has its own regulations as to the minimum dollar amount of coverage. Florida has the lowest amounts of minimum coverage with $10,000 required per person and $20,000 per accident.
Alaska, Maine, and Wisconsin have the highest minimums with $50,000 required per person and $100,000 per accident.
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The second required insurance coverage is Property Damage Liability. This coverage pays for damages caused by the at-fault driver to other vehicles and any damaged physical property such as telephone poles and fences.
California, Massachusetts, New Jersey, and Pennsylvania have the lowest auto insurance minimums with at least $5,000 in coverage required to cover property damage.
Most states have minimums between $10,000 and $25,000, but Wisconsin has the highest with a minimum amount of $55,000 required for coverage.
Some states require Personal Injury Protection or PIP. This coverage will pay for injuries regardless of fault and may cover lost wages, funeral costs and the like, depending on state regulations.
Another coverage required only in some states is Uninsured or Underinsured Motorist Coverage. This part of a policy will provide payment for damages if the at-fault driver has no insurance or not enough insurance.
Coverage such as collision and comprehensive are not required in any state, but they are a good idea to have to protect against damages from an at-fault accident or from non-accident related damages such as theft, fire, and damages from nature.
Furthermore, cars that are financed are usually required by the financer to carry collision and comprehensive coverage.
Regulations for Getting and Losing Insurance
While every state carries a regulation requiring drivers to insure their vehicles, there are also regulations about the ways and means of getting an insurance policy, keeping the policy and when the insurance company can cancel a policy.
For instance, each state has different laws about what information auto insurance companies can use to set premiums. Specifics such as age, gender, a past driving record and where a driver lives can all affect auto insurance premiums.
However, some states limit or restrict some information; for instance, California does not allow a car insurance company to check an applicant’s credit history as part of determining a premium.
Further regulations also prohibit the use of race in determining premiums, but there are rumors that such practices do occur.
There are also regulations pertaining to a denial of coverage for certain reasons.
For example, Massachusetts has a regulation that prohibits auto insurance companies from denying coverage to any driver based on sex, race, religion, national origin, marital status, age, occupation, income, education and homeownership.
However, that doesn’t mean that the company can’t set premiums so high that they are unaffordable, essentially denying insurance to drivers for any one of the above reasons.
Additionally, there are regulations in most states that determine for what reasons an insurance company can cancel a policy. Most insurance companies are legally able to refuse to renew a policy for any reason, but most states limit an insurer’s right to cancel a policy to within the first 60 days.
According to the National Association of Insurance Commissioners, non-payment of a premium or lying on applications are common exceptions to this rule.
Find car insurance policies that fit your state’s regulations by entering your ZIP code into the FREE quotes box now!