Vehicle insurance

Vehicle insurance (or auto insurance, car insurance, motor insurance) is insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents and against liability that could be incurred in an accident.

Coverage levels
Insurance can cover some or all of the following items:
The insured party
The insured vehicle
Third parties
Different policies specify the circumstances under which each item is covered. For example, a vehicle can be insured against theft, fire damage, or accident damage independently.

Excess
An excess payment, also known as a deductible, is the fixed contribution you must pay each time your car is repaired through your car insurance policy. Normally the payment is made directly to the accident repair garage when you collect the car. If your car is declared to be a write off, your insurance company will deduct the excess agreed on the policy from the settlement payment it makes to you.
If the accident was the other driver's fault, and this is accepted by the third party's insurer, you'll be able to reclaim your excess payment from the other person's insurance company. If the other driver is uninsured, a policy's minimum limits include coverage for the uninsured/underinsured motorist(s) at fault.

Compulsory Excess
A compulsory excess is the minimum excess payment your insurer will accept on your insurance policy. Minimum excesses do vary according to your personal details and driving record and by insurance company.

Voluntary Excess
In order to reduce your insurance premium, you may offer to pay a higher excess than the compulsory excess demanded by your insurance company. Your voluntary excess is the extra amount over and above the compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by your insurer, your insurer is able to offer you a significantly lower premium.

Public policy
In many countries it is compulsory to purchase auto insurance before driving on public roads. In the United States, penalties for not purchasing auto insurance vary by state, but often involve a substantial fine, license and/or registration suspension or revocation, as well as possible jail time in some states. Usually the minimum required by law is third party insurance to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle. Typically, coverage against loss of or damage to the driver's own vehicle is optional - one notable exception to this is in Saskatchewan, where SGI provides collision coverage (less a $700 deductible) (such as a collision damage waiver) as part of its basic insurance policy. In South Australia Third Party Personal insurance from the State Government Insurance Corporation (SGIC) is included in the license registration fee. South Africa allocates a percentage of the money from petrol into the Road Accidents Fund, which goes towards compensating third parties in accidents.[1] Most countries relate insurance to both the car and the driver, however the degree of each varies greatly.
In the United States, auto insurance is compulsory in most states, though enforcement of the requirement varies from state to state. The state of New Hampshire, for example, does not require motorists to carry liability insurance, while in Virginia residents must pay the state a $500 annual fee per vehicle if they choose not to buy liability insurance.[2]
A 1994 study by Jeremy Jackson and Roger Blackman[3] showed, consistent with the risk homeostasis theory, that increased accident cost caused large and significant reductions in accident frequency.

Basis of premium charges
See main article auto insurance risk selection
Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company in accordance to a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.
When the premium is not mandated by the government, it is usually derived from the calculations of an actuary based on statistical data. The premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims.[4] Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).[5][6]

Gender
Men average more miles driven per year than women do, and have a proportionally higher accident involvement at all ages. Insurance companies cite women's lower accident involvement in keeping the youth surcharge lower for young women drivers than for their male counterparts but adult rates are generally unisex. Reference to the lower rate for young women as "the women's discount" has caused confusion that was evident in news reports on a recently defeated EC proposal to make it illegal to consider gender in assessing insurance premiums.[7] Ending the discount would have made no difference to most women's premiums.

Age
Teenage drivers who have no driving record will have higher car insurance premiums. However young drivers are often offered discounts if they undertake further driver training on recognised courses, such as the Pass Plus scheme in the UK. In the U.S. many insurers offer a good grade discount to students with a good academic record and resident student discounts to those who live away from home. Generally insurance premiums tend to become lower at the age of 25. Senior drivers are often eligible for retirement discounts reflecting lower average miles driven by this age group.

Distance
Some car insurance plans do not differentiate in regard to how much the car is used. However, methods of differentiation would include:

Reasonable estimation
Several car insurance plans rely on a reasonable estimation of the average annual distance expected to be driven which is provided by the insured. This discount benefits drivers who drive their cars infrequently but has no actuarial value since it is unverified.

Odometer-based systems
Cents Per Mile Now[8](1986) advocates classified odometer-mile rates. After the company's risk factors have been applied and the customer has accepted the per-mile rate offered, customers buy prepaid miles of insurance protection as needed, like buying gallons of gasoline. Insurance automatically ends when the odometer limit (recorded on the car’s insurance ID card) is reached unless more miles are bought. Customers keep track of miles on their own odometer to know when to buy more. The company does no after-the-fact billing of the customer, and the customer doesn't have to estimate a "future annual mileage" figure for the company to obtain a discount. In the event of a traffic stop, an officer could easily verify that the insurance is current by comparing the figure on the insurance card to that on the odometer.
Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and reconnecting them later. However, as the Cents Per Mile Now website points out: "As a practical matter, resetting odometers requires equipment plus expertise that makes stealing insurance risky and uneconomical. For example, in order to steal 20,000 miles of continuous protection while paying for only the 2,000 miles from 35,000 miles to 37,000 miles on the odometer, the resetting would have to be done at least nine times to keep the odometer reading within the narrow 2,000-mile covered range. There are also powerful legal deterrents to this way of stealing insurance protection. Odometers have always served as the measuring device for resale value, rental and leasing charges, warranty limits, mechanical breakdown insurance, and cents-per-mile tax deductions or reimbursements for business or government travel. Odometer tampering—detected during claim processing—voids the insurance and, under decades-old state and federal law, is punishable by heavy fines and jail."
Under the cents-per-mile system, rewards for driving less are delivered automatically without need for administratively cumbersome and costly GPS technology. Uniform per-mile exposure measurement for the first time provides the basis for statistically valid rate classes. Insurer premium income automatically keeps pace with increases or decreases in driving activity, cutting back on resulting insurer demand for rate increases and preventing today's windfalls to insurers when decreased driving activity lowers costs but not premiums.

GPS-based system
In 1998, Progressive Insurance started a pilot program in Texas in which volunteers installed a GPS-based technology called Autograph in exchange for a discount. The device tracked their driving behavior and reported the results via cellular phone to the company.[9] Policyholders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns.[10]
In 1996, Progressive filed for and obtained a US patent (US patent 5,797134) on their process. Progressive has also filed corresponding patent applications in Europe and Japan. UK auto insurer, Norwich Union, has obtained an exclusive license to Progressive's European patent application. They have recently completed a successful pilot test of the technology and it is now available commercially under the tradename "Pay As You Drive™"[11]
Recent theoretical economic research on the social welfare effects of Progressive's telematics technology business process patents have questioned whether the business process patents are Pareto efficient for society. Premliminary results suggest that they are not, but more work is needed. [12] [13]

OBDII-based system
In 2004, Progressive launched another pilot program to allow policyholders to earn a discount on their premiums by consenting to use its TripSense device. TripSense connects to a car's OnBoard Diagnostic(OBD-II) port, which exists in all cars built after 1996. The discount is forfeited if the device is disconnected for a significant amount of time.[14]

Auto Insurance in the United States

Coverage Available
The consumer may be protected with different coverage types depending on what coverage the insured purchases.
In the United States, liability insurance covers claims against the policy holder and generally, any other operator of the insured’s vehicle, provided they do not live at the same address as the policy holder and are not specifically excluded on the policy. In the case of those living at the same address, they must specifically be covered on the policy. Thus it is necessary for example, when a family member comes of driving age they must be added on to the policy. Liability insurance sometimes does not protect the policy holder if they operate any vehicles other than their own. When you drive a vehicle owned by another party, you are covered under that party’s policy. Non-owners policies may be offered that would cover an insured on any vehicle they drive. This coverage is available only to those who do not own their own vehicle and is sometimes required by the government for drivers who have previously been found at fault in an accident.
Generally, liability coverage does extend when you rent a car. Comprehensive policies ("full coverage") usually also apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on, among other factors, the value of the insured’s vehicle. This coverage may not apply to rental cars because the insurance company does not want to assume responsibility for a claim greater than the value of the insured’s vehicle, assuming that a rental car may be worth more than the insured’s vehicle. Most rental car companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many customers as credit card companies, such as Visa and MasterCard, now provide supplemental collision damage coverage to rental cars if the transaction is processed using one of their cards. These benefits are restrictive in terms of the types of vehicles covered.[15]

Liability
Liability coverage provides a fixed dollar amount of coverage for damages that an insured becomes legally liable to pay due to an accident or other negligence. For example, if an insured drives into a telephone pole and damages the pole, liability coverage pays for the damage to the pole. In this example, the insured also may become liable for other expenses related to damaging the telephone pole, such as loss of service claims (by the telephone company).
Liability coverage is available either as a combined single limit policy or as a split limit policy:

Combined Single Limit
A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, an insured with a combine single liability limit strikes another vehicle and injures the driver and the passenger. Payments for the damages to the other driver's car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.

Split Limits
A split limit liability coverage policy splits the coverages into property damage coverage and bodily injury coverage. In the example given above, payments for the other driver's vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage.
Note that bodily injury liability coverage is also usually split as well into a maximum payment per person and a maximum payment per accident.

Collision
Collision coverage provides coverage for an insured's vehicle that is involved in an accident, subject to a deductible. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the cash value of the vehicle if it is not repairable. Collision coverage is optional. Collision Damage Waiver (CDW) is the term used by rental car companies for collision coverage.

Comprehensive
Comprehensive (a.k.a. - Other Than Collision) coverage provides coverage, subject to a deductible, for an insured's vehicle that is damaged by incidents that are not considered Collisions. For example, fire, theft (or attempted theft), vandalism, weather, or impacts with animals are just some types of Comprehensive losses.

Uninsured/Underinsured Coverage
Uninsured/Underinsured coverage, also known as UM/UIM, provides coverage if another at-fault party either does not have insurance, or does not have enough insurance. In effect, your insurance company acts as at fault party's insurance company.
In the United States, the definition of an uninsured/underinsured motorist, and corresponding coverages, are set by state laws.

Loss of Use
Loss of Use coverage, also known as rental coverage, provides reimbursement for rental expenses associated with having an insured vehicle repaired due to a covered loss.

Loan/Lease Payoff
Loan/Lease Payoff coverage, also known as GAP coverage or GAP insurance,[16][17] was established in the early 1980s to provide protection to consumers based upon buying and market trends.
Due to the sharp decline in value immediately following purchase, there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle, which is called "upside-down" or negative equity. Thus, if the vehicle is damaged beyond economical repair at this point, the owner will still owe potentially thousands of dollars on the loan. The escalating price of cars, longer-term auto loans, and the increasing popularity of leasing gave birth to GAP protection. GAP waivers provide protection for consumers when a "gap" exists between the actual value of their vehicle and the amount of money owed to the bank or leasing company. In many instances this insurance will also pay the deductible on the primary insurance policy. These policies are often offered at the auto dealership as a comparatively low cost add on that can be put into the car loan which provides coverage for the duration of the loan.
Consumers should be aware that a few states, including New York, require lenders of leased cars to include GAP insurance within the cost of the lease itself. This means that the monthly price quoted by the dealer must include GAP insurance, whether it is delineated or not. Nevertheless, unscrupulous dealers sometimes prey on unsuspecting individuals by offering them GAP insurance at an additional price, on top of the monthly payment, without mentioning the State's requirements.
In addition, some vendors and insurance companies offer what is called "Total Loss Coverage." This is similar to ordinary GAP insurance but differs in that instead of paying off the negative equity on a vehicle that is a total loss, the policy provides a certain amount, usually up to $5000, toward the purchase or lease of a new vehicle. Thus, to some extent the distinction makes no difference, i.e., in either case the owner receives a certain sum of money. However, in choosing which type of policy to purchase, the owner should consider whether, in case of a total loss, it is more advantageous for him or her to have the policy pay off the negative equity or provide a down payment on a new vehicle.
For example, assuming a total loss of a vehicle valued at $15,000, but on which the owner owes $20,000, the "gap" is $5000. If the owner has traditional GAP coverage, the "gap" will be wiped out and he or she may purchase or lease another vehicle or choose not to. If the owner has "Total Loss Coverage," he or she will have to personally cover the "gap" of $5000, and then receive $5000 toward the purchase or lease of a new vehicle, thereby either reducing monthly payments, in the case of financing or leasing, or the total purchase price in the case of outright purchasing. So the decision on which type of policy to purchase will, in most instances, be informed by whether the owner can pay off the negative equity in case of a total loss and/or whether he or she will definitively purchase a replacement vehicle.

Car Towing Insurance
Car Towing coverage is also known as Roadside Assistance coverage. Traditionally, automobile insurance companies have agreed to only pay for the cost of a tow that is related to an accident that is covered under the automobile policy of insurance. This had left a gap in coverage for tows that are related to mechanical breakdowns, flat tires and running out of gas. To fill that void, insurance companies started to offer the Car Towing coverage, which pays for non-accident related tows.

European Union and United Kingdom Laws regarding motor insurance
In 1930 the UK government introduced a law that required every person who used a vehicle on the road to have at least third party personal injury insurance. Today UK law is defined by the The Road Traffic Act which was last modified in 1991.
The Act requires all motorists to be insured against their liability for injuries to others (including passengers) and for damage to other persons' property resulting from use of a vehicle on a public road or in other public places. This is called Third Party Insurance. It is an offence to drive your car, or allow others to drive it, without at least Third Party insurance whilst on the public highway, on private land no such legislation applies.
The insurance certificate or cover note issued by the insurance company constitutes legal evidence that the vehicle specified on the document is indeed insured. The Law says that an authorised person, such as the police, may require a driver to produce an insurance certificate for inspection. If the driver cannot show the document immediately on request, then the driver will usually be issued a HORT/1 with seven days, as of midnight of the date of issue, to take a valid insurance certificate (and usually other driving documents as well) to a police station of the driver's choice. Failure to produce an insurance certificate is an offence.
Insurance is more expensive in Northern Ireland than in other parts of the UK.
Motorists in the UK are required to display a Vehicle excise duty disc in their car when it is kept or driven on public roads. This helps to ensure that most people have adequate insurance on their vehicles because you are required to produce an insurance certificate when you purchase the disc. However it is a known practice for some people to purchase insurance to gain the certificate and then to cancel the insurance and gain a full refund within the statutory 14 day cooling off period.
The Motor Insurers Bureau compensates the victims of road accidents caused by uninsured and untraced motorists. It also operates the Motor Insurance Database, which contains details of every insured vehicle in the country.

Insurance

Business of providing protection against financial aspects of risk , such as those to property , life, health and legal liability. It is one method of a greater concept known as risk management .

Introduction
In insurance, the insured makes payments called "premiums" to an insurer, and in return is able to claim a payment from the insurer if the insured suffers a defined type of loss . This relationship is usually drawn up in a formal legal contract .

In one classic example of insurance, a ship-owner insures a ship 7and receives payment if the ship is damaged or destroyed. This example is one of the earliest uses and developments of concepts like insurance. Interestingly, ships are now more often insured through risk pooling and spreading organizations such as Lloyd's of London because the loss of a large ship going down is too great for one insurer to accept.

In the case of annuities , such as a pension , similar concepts apply, but in some sense in the reverse. When applied to annuities, the terms risk and loss are somewhat different from traditional insurance as they concern the chances of living beyond life expectancy and the need for income during the period between annuitization and death.

Insurance attempts to quantify risk by pooling together a large number of risks. This makes use of the law of large numbers . As applied to insurance, this means that the greater the number of similar risks, the greater accuracy with which insurers can estimate the overall risk.

For example, many individual people purchase health insurance policies and they each pay a small monthly or yearly premium to an insurance company. When a policyholder gets ill, the insurance company provides money to cover medical treatment. For some individuals the insurance benefits may total far more money than they have ever paid into the insurance policy. Others may never make a claim. When averaged out over all of the people buying policies, value of the claims even out. Insurance companies set their premiums based on their calculated payouts. They plan to take in more money (in premiums and in profit from the float, see below) than they pay out in the end to cover expenses. For-profit insurance companies set their rates to make a profit rather than to break even.

Insurance companies also earn investment profits, because they have the use of the premium money from the time they receive it until the time they need it to pay claims. This money is called the float. When the investments of float are successful, they may earn large profits, even if the insurance company pays out in claims every penny received as premiums. In fact, most insurance companies pay out more money than they receive in premiums. The excess amount that they pay to policyholders is the cost of float. An insurance company will profit if they invest the money at a greater return than their cost of float.

An insurance contract or policy will set out in detail the exact circumstances under which a benefit payment will be made and the amount of the premiums.

History of Insurance
Insurance has been an institution of human society for thousands of years, having been practiced by Babylonian traders as long ago as the 2nd millennium BCE . Eventually it was given legal mention in the Code of Hammurabi , and practiced by early Mediterranean sailing merchants. The Greeks and Romans had "benevolent societies" which acted to care for the families and funeral expenses of members upon death. Guilds in the middle ages served a similar purpose. Insurance became much more sophisticated in post-Renaissance Europe , and specialized varieties developed. In America, Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire. The 19th century saw a rise in the government regulation of insurance, and the 20th century saw further specialization and, in the United States, a bit of deregulation that allowed other financial institutions, such as banks, to offer insurance. The ever-increasing ability of science to predict catastrophes of any measure or variety continues to affect the way insurance is conducted.

Types of Insurance
There are a number of different types of insurance:

Automobile Insurance , also known as auto insurance , car insurance and in the UK as motor insurance , is probably the most common form of insurance and may cover both legal liability claims against the driver and loss of or damage to the vehicle itself.

Property Insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as Fire Insurance, Flood Insurance, Earthquake Insurance , Home Insurance or Boiler Insurance .

Casualty Insurance insures against accidents, not necessarily tied to any specific piece of property.
Liability insurance covers legal claims against the insured. For example, a doctor may purchase insurance to cover any legal claims against him if he were to make a mistake in treating a patient.

Financial Loss Insurance protects individuals and companies against various financial risks. For example, a business might purchase cover to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover failure of a creditor to pay money it owes to the insured. Fidelity bonds and surety bonds are included in this category.

Title Insurance provides a guarantee on research done on public records affecting title to real property , usually in conjunction with a search done at the time of a real estate transaction, such as a sale, or a mortgage .

Health Insurance covers medical bills incurred because of sickness or accidents.

Life Insurance provides a benefit to a decedent's family or other designated beneficiary, usually to make up for their loss of his or her income .

Annuities provide a stream of payments and are generally classified as insurance because they are issued by Insurance Companies and regulated as insurance. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the opposite of life insurance.

Credit Insurance pays some or all of a loan back when certain things happen to the borrower like unemployment, disability, or death.

Terrorism Insurance
Political Risk Insurance can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions will result in a loss

A single policy may cover risks in one or more of the above categories. For example, car insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from say, causing an accident). A homeowner's insurance policy in the US typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of health insurance for medical expenses of guests who are injured on the owner's property.

Potential sources of risk that may give rise to claims are known as perils. Examples of perils might be fire, theft, earthquake, hurricane and many other potential risks. An insurance policy will set out in details which perils are covered by the policy and which are not.

Types of Insurance Companies
Insurance companies may be classified as
Life Insurance Companies, who sell life insurance, annuities and pensions products.
Non-Life or General Insurance Companies, who sell other types of insurance.

In most countries, life and non-life insurers are subject to different regulations, tax and accounting rules. The main reason for the distinction between the two types of company is that life business is very long term in nature - coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers shorter periods, such as one year.

Companies may sell both life and non life insurance, in which case they are sometimes known as composite insurance companies.

Insurance companies are also often classified as either mutual or stock companies. This is more of a traditional distinction as true mutual companies are becoming rare. Mutual companies are owned by the policyholders, while stockholders, (who may or may not own policies) own stock insurance companies.

Reinsurance companies sell insurance cover to other insurance companies. This helps insurance companies to spread their risks, and protects them from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves.

Life Insurance and Saving
As well as paying out a sum of money on death, many life insurance contracts also pay out a sum of money after a given time (in which case it is known as an endowment policy), and may also pay out a cash value if the policy is cancelled early. In many countries, such as the US and the UK, tax law provides that the interest on this cash value is not taxable under certain strict circumstances.

This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death. Wealthy individuals buy life insurance policies as a means for avoiding income taxes and estate taxes.

If the tax benefit exceeds the fees charged by the insurance company for maintaining the policy, then the policy serves as a life insurance tax shelter . There is much controversy surrounding this practice, and the financial industry is deeply divided about whether or not these practices work as advertised.

Criticisms of the insurance industry

Lack of knowledge of policyholders
Insurance policies can be complex and some policyholders may not understand all the fees included in a policy. As a result, people could buy policies at unfavorable terms. In response to these issues, governments often make detailed regulations that set down minimum standards for policies and govern how they may be advertised and sold.

Redlining
Location is one of the variables used to set rates. Insurers are also starting to use credit "scores", occupation, marital status, and education level to set rates. Many consider these practices to be "unfair" and even racist. An interesting refutation to this is that the job of an insurance underwriter is to properly categorize a given risk as to the likelihood that the loss will occur. Any factor that causes a greater likelihood of loss should in theory, be charged a higher rate. This is a basic principle of insurance and must be followed for insurance companies or groups to operate properly, even for non-profit groups. Thus, discrimination of potential insureds by legitimate factors is central to insurance. Therefore the only thing that can be considered legitimately "unfair" are practices that discriminate against a given group without actual factors that show that the group is a higher risk.

Health Insurance
Health insurance is one of the most controversial forms of insurance because of the conflict between the need for the insurance company to remain solvent versus the need of its customers to remain healthy, which many view as a basic human right. This conflict exists in a liberal healthcare system because of the unpredictability of how patients respond to medical treatment. Suppose a large number of customers of a particular insurance company were to contract a rare disease costing 100 million dollars to fight for each patient. The insurance company would be faced with the choice of either charging all its future customers astronomical premiums (thus losing customers and going out of business), paying all claims without complaint (thus going out of business) or fighting the customers in an attempt to deny the costly treatment (thus outraging patients and their families, and becoming

a target for lawsuits and legislation).

Many countries have made the societal choice to avoid this important conflict by nationalizing the health industry so that doctors, nurses, and other medical workers become state employees, all funded by taxes; or setting up a national health insurance plan that all citizens pay into with tax payments, and which pays private doctors for health care. These national health care systems also have their problems. Many countries have citizen groups which protest bureaucracy and cost-cutting measures that unduly delay medical treatment.

In the United States, health insurance is made more complicated by Federal Medicare/Medicaid programs, which have had the unintended consequence of determining the price of medical procedures. Many suspect that these prices are set independently of medical necessity or actual cost. A physician who refuses to accept a Medicare/Medicaid payment will be banned from accepting any such payments for a number of years, regardless of the reason for rejecting the payment or the amount offered. In either case, this means that private insurers have little incentive to pay more than the government does.