Financial responsibility law
Every state in the union has financial responsibility laws and, in theory, every driver must either prove available funds or buy a car insurance policy as a precondition to driving on the public roads. It’s perhaps rather strange that the auto insurance industry is not universally in favor of mandatory insurance whether to pay liability claims or to insure against uninsured/underinsured drivers. This is counterintuitive.
Common sense says the insurers should all want more people to buy insurance. That’s a lot more profit for them. But experience with enforcement programs shows a different reality. If a state announces an enforcement crackdown, there’s a short-term spike in the number of people buying insurance After a few months, the number of uninsured drivers goes back to what it was. Worse from the industry’s point of view, it has to pick up costs to implement reporting systems to support the state’s crackdown. So it spends money and gets little in return. Indeed, the statistics in Colorado show the number of claims involving uninsured drivers has not fallen. Yet here comes an unusual fact. Colorado is one of three states which has privatized the management of its car insurance database. This has produced better results in reducing the number of people driving uninsured than the remaining states which run their own systems. It seems the financial incentives given to the private sector encourage more effective enforcement. No one can explain why the number of uninsured drivers is falling while the number of claims remains steady.
The minimum requirements
The basic liability coverage is 25/50/15, i.e. if only one person is injured, $25,000 is available. If more than one person is injured, a maximum of $50,000 is available. The remaining $15,000 is intended to cover damage to property. Because these amounts were set some years ago and there has been no effort to keep them relevant to today’s costs by index-linking, it’s advisable to carry additional liability cover where there are assets or savings to protect.
As from January 1, 2009. all car insurance policies must be accompanied by med-pay cover unless policyholders expressly opt out in writing. The Colorado Auto Theft Prevention Authority also surcharges all policies $1 per year to cover the cost of its operation. To help consumers if they are unlucky enough to be involved in a traffic accident, there’s a new WreckCheck app which offers a step-by-step guide of what to do. For the record, Colorado is one of the states which switched from at-fault to no-fault insurance. The consumer experience was not good so, in 2003, it switched back to the at-fault system.
To get your vehicle registered, you have to produce proof of car insurance cover to the Colorado Department of Motor Vehicles. Remember if you will not be driving your vehicle on the road or you will be out of the state for a reasonable period of time, you must retain your Colorado registration. This involves you filing an affidavit confirming non-use. If you do not have another vehicle, you will be required to retain your current car insurance policy.
There are two offenses:
• not to produce proof of car insurance if you are asked by a police officer when stopped, or
• If you are involved in an accident, not to be carrying proof of insurance so you can exchange details with the other driver(s) involved.
A fine may be payable even though you are actually insured. But if it appears you did not have the mandatory minimum liability cover in place, your driving privileges may be suspended until you prove you have insurance and up to forty hours of community service can be ordered. For subsequent offenses, your license will be suspended for up to eight months. If your license is suspended, the next round of car insurance quotes will come in much higher. You will also be required to file SR-22 form which confirms your commitment to maintain liability insurance for a preset period of time. If you fail to maintain cover during this period, your driver’s license will be suspended again. The aim is to give you every incentive to maintain some car insurance cover.
If there’s an accident, the process for suspension is straightforward. The Colorado DMV will send the drivers involved a letter requesting them to produce evidence they were insured on the date of the accident. If you cannot prove a valid car insurance policy and you are the party at fault, your driver’s license will be suspended. The fact of court proceedings is relevant to this process. If you were sued as the driver and a court found you at fault, you will have to prove you have paid the amount ordered by the court or posted a sufficient bond to cover payment. You are only allowed to continue driving if you have discharged your financial responsibility. You can be saved by the passage of time. If more than three years has passed since the date of the accident and no court proceedings have begun, you are free from responsibility and can continue driving.
How much does car insurance cost?
In a recently survey, Colorado was ranked the 26th most expensive state for auto insurance. This is based on multiple requests for quotes made to all the major insurers in all the states. The hypothetical person was 40 years old who commuted twelve miles to work. The assumption was for standard terms on liability coverage in the amounts: 100/300/50 which offers a not unreasonable level of protection for the average driver. The average annual premium rate was $1,508.