In the early 20th century, cities across the United States grappled with the rising toll of pedestrian deaths caused by automobiles. Baltimore, for example, erected a monument in 1922 commemorating 130 children killed by drivers the previous year. Efforts to reduce fatalities included proposals like Cincinnati’s 1922 ballot measure to limit car speeds to 25 miles per hour, which ultimately failed amid opposition from car dealers and auto clubs.

States soon adopted financial responsibility laws requiring drivers to prove they could cover damages from crashes. Massachusetts led the way in 1927 by mandating minimum insurance coverage of $5,000 per person and $10,000 per crash. While these laws aimed to ensure victims received compensation, they did little to prevent accidents themselves.

Today, all states except New Hampshire require drivers to carry insurance, but the minimum coverage amounts have not kept pace with inflation or the true costs of crashes. California, for instance, set its minimum liability coverage at $15,000 per person and $30,000 per crash in 1967. Despite inflation, these limits remained unchanged for nearly six decades. A recent law (Senate Bill 1107) raised the per-person minimum to $30,000 starting in 2025, with a scheduled increase to $50,000 in 2035. However, even this increase represents only about one-fifth of the inflation-adjusted value of the original 1967 minimum.

According to the National Highway Traffic Safety Administration (NHTSA), the average economic cost of a traffic fatality was $1.6 million in 2019 dollars, approximately $2 million today. This figure includes lost productivity, medical expenses, emergency services, legal costs, and property damage. Total crash costs in 2019 reached $340 billion, or 1.6% of the U.S. GDP.

Most of these costs are borne by people not directly involved in crashes. NHTSA estimates that roughly 75% of crash-related expenses are covered by insurance premiums, taxes, and congestion costs paid by the general public. Public revenues alone account for about $30 billion annually, translating to an average of $230 in extra taxes per American household each year.

The gap between actual damages and insurance coverage often leaves victims undercompensated. Drivers who cause fatal crashes owe the full judgment amount, but insurance policies cap payouts at the coverage limit. Beyond that, personal assets are frequently protected by state exemption laws or discharged through bankruptcy, except in cases involving drunk driving. As a result, a driver can cause a fatality, pay only a fraction of the economic damage, and retain their assets.

Compounding the issue, a significant portion of U.S. drivers—15.4% uninsured and another 18% underinsured in 2023—lack sufficient coverage to pay for damages they might cause. Victims without their own uninsured motorist coverage, such as pedestrians or cyclists who do not own vehicles, often rely on health insurance, which typically does not cover all related expenses.

The low minimum coverage requirements are influenced by affordability concerns. Higher mandated minimums increase insurance premiums, potentially pricing some drivers out of the market and leading to more uninsured driving. For example, raising California’s per-person liability limit from $30,000 to $50,000 is projected to increase annual premiums by about $101, or roughly $8 per month.

In contrast, European Union countries mandate much higher minimum coverage levels, with the EU motor insurance directive requiring at least €1.3 million (~$1.5 million) per injured person, adjusted regularly for inflation. The United Kingdom requires unlimited personal injury coverage. California’s current minimums amount to only about 2% of the EU’s per-person floor.

Attempts to index California’s minimum coverage to inflation have so far failed. A 2022 bill proposing automatic increases every five years was removed during negotiations with the insurance industry. Without such indexing, the erosion of coverage value will continue, repeating a pattern seen over the past half-century.

Technological advances now allow insurers to monitor driver behavior more accurately, potentially enabling more precise risk-based pricing. However, current regulations do not require insurers to price coverage based on the risk a vehicle poses to others, only on the capped liability limits set by law.

Unless California lawmakers act to adjust minimum coverage requirements to reflect inflation and actual crash costs, the financial burden of traffic fatalities will continue to fall disproportionately on victims, uninsured drivers, and the public at large.