On the whole, Pennsylvania has low minimum requirements for car insurance with liability at 15/30/5, making it one of the lowest in the country. It is also one of the few no-fault states, meaning that the insurance has to pay your medical bills no matter who is at fault in the accident. On the other hand, that doesn't guarantee that insurance itself is low-cost, especially not in high-crime areas like Philadelphia.

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Paying More in Philadelphia

Those living in Philadelphia pay about three times more than what people in Milwaukee pay and twice the rate of Seattle. In fact, they pay substantially more than those who live in Baltimore, Chicago, and Cleveland in spite of the higher incidence of car thefts in those cities. If the theft rate is the basis for higher car insurance, then why is Philadelphia's car insurance more expensive than in cities with more car thefts?

The first thing anyone would think is that it is totally removed from economics and is based upon how state regulatory agencies behave. Unfortunately, the facts don't support that theory since other cities in Pennsylvania pay far less in car insurance than Philadelphia – car insurance in Pittsburgh, for example, is about half the price of that in Philadelphia.

The Catch 22

What many believe in theory is that uninsured drivers cause high premiums while at the same time high premiums create uninsured drivers, somewhat of a Catch 22 situation. In other words, with so many uninsured drivers, there is a higher risk that a policyholder's insurance company will have to pay for an accident even if the other driver was at fault, so they charge higher premiums to compensate. However, when premiums are high, more people choose to not buy insurance, which creates more uninsured drivers, a vicious circle from which city's can't escape once it begins.

The problem with this line of thinking is that state law requires liability insurance, and if you are caught without insurance, you run the risk of losing your license and/or paying a high fine. Not only that, if you cause an accident, and you have no insurance, the other driver and/or his insurance company can sue you personally for damages and take any property you own including your home to satisfy the judgment. Unfortunately, the high cost of car insurence has led many Philadelphians to take this very approach, hoping that they will never be in a position of such vulnerability.

Solving the Problem

Is there a solution to the problem? Perhaps it lies in the population becoming more optimistic about the insurance industry and agreeing to insure their cars, thus reducing the pool of uninsured drivers in Philadelphia. That would then be an income boost for the insurance companies and would invalidate the excuse that they need to charge higher premiums to compensate for the number of uninsured drivers. Of course, in reality, the excuse seems invalid anyway since there are many insured drivers who are fortunate enough to never have an accident that is their fault, so insurance companies are collecting millions from policyholders who never have an opportunity to collect any of that money back.

 

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