Insurance for Leadfoots

I saw an interesting post on Autoblog this morning that described a relatively new service called Ticket Assurance. Ticket Assurance, as the company's title implies, pays for your speeding tickets should you "accidentally" (cough, cough) exceed the speed limit while Johnny Law is watching. The individual service plan costs $9.95 per month (recently discounted from $15.95 for some reason.) In return, the company will pay for 3 moving violations, 3 non-moving violations and 2 tow and/or boot fines, with a total yearly limit of $1,000. Two people can be covered for $19.95 per month.

Insurance by another name is still insurance

While I commend the company's founder Terrence Byrd for grabbing an interesting idea and running with it (but not too fast, ha, ha) I can see a few "potholes" in the "road" ahead (don't you just love my car analogies?) First of all, I hope that the insurance commissioner in the company's home state has approved of this little operation, since this looks a lot like insurance. Insurance is very highly regulated by the states, and practicing insurance without a license is a big no-no.

Can you say "moral hazard" and "adverse selection?"

Second, this business is exposed to the two biggest problems that plague all insurance companies - moral hazard and adverse selection. Moral hazard means that people who know they have a "backstop" will tend to exhibit more risky behavior. I can imagine a new customer saying "hey, I'm covered, so I'll just drive a little faster today." Now, this issue may not pose too much of a problem, since the insurance policy won't "fix" your ticket or prevent your insurance company from jacking up your premium. However, adverse selection may pose more of a problem, which is similar to the difficulties facing the flood insurance program. Who do you think will buy this insurance? People who drive slow? Maybe Mr. Byrd has looked at the data closely and adjusted his pricing to account for this issue, but he only has about 1-1/2 years of performance data, so he better stay on top of his claims trends.