Reader’s Question:

I don’t need fancy insurance; just enough to comply with the law. However, I noticed that a lot of insurance companies here in the US are private, profit-oriented companies. What’s the deal? Why don’t we have national or state auto insurance company handle insurance?
Marco N. M.

Santa Fe, NM

A state auto insurance company (not to be confused with the privately owned insurance company with the same name, State Auto Insurance Company) is a proposal that may seem to solve attractive: setting national standards and rates for purchasing insurance. It all sounds perfect on paper.

However, there’s a major problem when everything about anything is left to one entity: competition. If there’s only one state auto insurance company, the resulting lack of competition will result to slips in quality that will go unnoticed in time.

With competition, insurance companies will be forced to ‘race’ with each other, trying to be the best in order to get customers. Keeping the customers in mind, private, profit-oriented companies will maximize the benefits they give to customers while minimizing costs to attract customers to sign up. Keeping the customers happy brings in the money for the company. Thus, both parties are happy.
Now private companies may seem to be expensive, but that’s because the fields they cover match the price tags that come along with their policies. You could apply for the cheapest insurance policy in a private company, but you’d also get the least coverage they could offer. The point is that you have a choice: get a better plan for a higher price, or get a cheaper price for less coverage.