Mike the Actuary (here and here) is musing about how to fix the mandatory auto insurance system. Most states mandate coverage, penalize those without insurance, and then lean on insurers to keep the rates low. This causes all sorts of pressure to refrain from rating based on risk and, in general, turns the automobile insurance system into a socialized risk program.
After musing along with Mike, I started to question why we even have this mandatory coverage. One could make the argument that the automobile insurance system should be socialized due to the negative externality caused by those #$%@ uninsured motorists. I recall seeing an Insurance Research Council study of uninsured motorists and there was approximately 15 percent unisured motorists across the states. I wonder (no data, just wondering) if the costs to the auto liability system would be lower if we had no mandatory coverage. We could examine this, presumably, if we had the data on participation across states and across time. This sounds like a job for a hungry Ph.D. student!
Update: This thread has also continued off campus at https://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=69297.