Auto insurance got cheaper in states that legalized medical marijuana

A study finds that premiums fell following medical cannabis legalization.

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a certified personal finance counselor and former senior reporter at Policygenius, where he covered insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Auto insurance premiums declined in states that legalized medical cannabis, a study published in Health Economics finds. Legal cannabis is often portrayed as a negative when it comes to automobile safety, but authors Cameron Ellis, Martin Grace, Rhet Smith, and Juan Zhang analyzed ZIP code-level insurance data from 2014 to 2019 and found that premiums fell by $22 per year on average following medical cannabis legalization. 

Premiums fell even more in areas near dispensaries and in areas with a higher rate of drunk driving before legalization. The study estimates that legalization reduced health expenditures due to auto accidents by almost $820 million a year, and that national legalization would save another $350 million.

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Insurance companies set premiums based on risk factors, including driving history, age, and credit score, as well as your location. In general, the more likely someone is to file a claim for medical expenses or property damage from an accident, the higher the premium they’ll pay. If premiums fall in an area, it’s a good bet insurance companies view that area as less risky for drivers.

The result was somewhat of a surprise, given past studies have shown increases in car crashes and deaths in states that legalized marijuana. [1]

“We did not expect the result we got, but we went in with an open mind,” says Ellis, an assistant professor of finance at the University of Iowa’s Tippie School of Business. 

Ellis also pointed out that the latest results aren’t necessarily inconsistent with previous studies, which assumed that alcohol usage was steady after legalization.

“In contrast, we argue that the reduction in DUIs outweighs the increased stoned driving,” Ellis says.

The study finds the increase in auto safety is partially due to a decrease in driving under the influence of alcohol. While they didn’t find any evidence that medical cannabis reduces alcohol consumption (though other studies have), [2] the authors suggest that greater availability of cannabis, which you can’t smoke in a bar, leads more people to stay home to smoke and drink. 

At the federal level, cannabis remains illegal, but 37 states and the District of Columbia have legalized the use of the drug for medicinal purposes. [3] Previous studies have tried to measure how legalization affected traffic safety by focusing on fatal crashes. The authors say this is “a significant shortcoming,” since only a fraction of a percentage of auto crashes result in a death. Instead, they obtained ZIP code-level data on auto insurers, who end up paying for the majority of medical and property damage resulting from crashes.

Ellis hopes the findings contribute to the discussion around cannabis, as more states, including Minnesota, Kentucky, and North Carolina, consider legalization.

“There are a lot of moving parts to consider when thinking about legalizing cannabis, and some of the positive secondary effects can actually outweigh the negative primary ones,” he says. 

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