My Traffic Court Judge Is Not An Economist

I had the happy experience of visiting traffic court this week. The judge opened with a bit of comedy, asking:

"I'm guessing most of you are here so you won't get points on your license?"

"Yes," said the people in the courtroom.

"I CAN'T HEAR YOU!" the judge said.

"YES!" the people shouted, and then started laughing.

The judge went on to say that this was the "people's court" and explained that if she gave probation on a ticket, no points would appear and the insurance companies wouldn't find out. "This court is not in the business of enriching the insurance companies," she said.

Clearly the idea was that if the insurance companies find out, they'll charge you higher premiums and make more money.

But I don't see why that would necessarily make them more money.

Insurance companies are in the business of assessing risk. If you're such a bad driver that you're 100 percent likely to drive into a fire hydrant, the insurance company arguably needs to be charging you more. At some point they're going to have to pay out for the value of your car plus medical expenses, plus maybe a new fire hydrant.

If they don't charge you more, they're going to have to raise premiums on everyone else.

Maybe it's true that insurance companies make more profit on people who have a couple points on their licenses. But raising premiums for riskier drivers makes some basic sense — it's how the companies even things out.

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