Liability insurance’s purpose is to pay for damage caused by you and your car to other people’s bodies and property due to your negligence. Cars damage other things beyond simply other cars.
> Personally, I think this is quite "regressive", in that the poor have to pay to cover potential damage to cars much more expensive than their own.
Only damage that they have been found responsible for having caused. People of any income level who make a habit of causing extensive damage to expensive cars belonging to other drivers probably should pay increased insurance rates to cover the damages they cause (or become functionally uninsurable).
> It would work better if insurance was completely optional and only paid for damage to your own car, whether caused by yourself or others. That way you would have a lot more control over how much you want to pay and how much risk you want to take on).
Again, that does nothing to cover the damage your car does to, for example, pedestrians, passengers in other vehicles, signs, mailboxes, or any of the other variety of things cars can damage.