Uninsured Drivers Travel Under the Radar

Two things are abundantly clear when it comes to the issue of uninsured motorists: The problem is a big one and it’s nearly impossible to know with any certainty how many uninsured drivers there are on the nation’s roads.

“The problem of uninsured motorists is one of those problems that’s more than a problem, it’s a dilemma,” said Pete Moraga, a spokesperson for the Insurance Information Network of California (IINC). “Part of the dilemma is that it’s very hard to ascertain a true measure of how many uninsured motorists there are in a given area, whether it’s a state, a local municipality, a city. However you’re looking at it, the most difficult thing is arriving at a number. Because obviously since these people are not insured you have to rely on figures and extrapolation of information and research.”

Moraga’s comments are echoed by insurance professionals across the board, from agents to carrier associations to insurance commissioners. Even the Insurance Research Council, a trade group whose studies on the problem of uninsured motorists are highly regarded, admits “the statistics are not hard and fast, for a number of reasons.” In its most recent report, “Uninsured Motorists 2000 Edition,” released in 2001, the IRC found an average of 14 percent of the drivers across the U.S. don’t have automobile insurance. The study is an update to a previous IRC report examining the uninsured motorist problem and contains data for the period of 1995 to 1997. It showed that percentages of uninsured drivers on a statewide basis ranged from a low of four percent in Maine to a high of 32 percent in Colorado.

Carolyn Gorman, a vice president with the Insurance Information Institute, agreed that with states like Colorado and New Mexico seeing rates of uninsured drivers running at 32 percent and 30 percent, respectively, “it can be a huge problem.” Gorman added, however, “There’s one way to clarify the impact on insurance consumers—it is uninsured motorist coverage. The prices for uninsured motorist coverage are going up at a faster rate than any other part of the auto insurance policy. Everyone pays for it through higher premiums, because you have to insure yourself for an act that another person should be paying for.”

A January 2003 “e-Texas” report on the problem of uninsured motorists published by the Texas Comptroller’s Office (www.window.state.tx.us/etexas2003) confirmed Gorman’s assertion that the UM portion of the auto policy is increasing, at least in Texas. The report noted, “In many cases, the damage done by uninsured motorists to other drivers’ vehicles is never reimbursed, though in some cases, uninsured motorist insurance or collision insurance will cover such damage. This type of insurance drives up costs for insured motorists, though. Recently, insurers raised the rates for the uninsured motorist portions of Texas auto insurance by 23.5 percent, a bigger increase than in any other category.”

Many solutions, no cure
While solutions for dealing with the problem of uninsured drivers vary widely from state to state, one of the main reasons why people don’t carry insurance on their cars is economic. They can’t afford it.

“I think given choices and a limited amount of money, most people will choose to pay their rent first, feed their kids second or some order thereof,” said Texas Insurance Commissioner José Montemayor. “And I think insurance falls pretty quickly a distant choice. Unfortunately this is reality.”

Insurer trade associations, like the Alliance of American Insurers, the National Association of Independent Insurers and the Insurance Information Institute maintain, too, that despite the fact that most states have them, mandatory insurance laws are not particularly effective. (See the comments of the Alliance’s Lynn Knauf in “Parting Shots,” on page 38 of this issue of Insurance Journal.)

For various reasons, including the fact that a policy bought for the purpose of renewing a drivers license or securing automobile registrations is in many cases cancelled by the insured or allowed to lapse, “compulsory auto insurance laws rarely work,” Gorman said. “Because it is so costly and so difficult to track whether or not a person has dropped their insurance. So while the idea of compulsory auto insurance is a good one, in practice, it’s just almost impossible. And it can be a very costly process for insurance companies to go through.”

Most states do have some form of requirement to purchase a minimum amount of liability insurance, but they vary on required limits and enforcement tactics. Utah, with a relatively low rate of uninsured motorists (nine percent, according to IRC figures), utilizes an electronic database system for checking drivers’ insurance status. North Carolina, where only six percent of drivers are uninsured has strong measures in place and is diligent about enforcing them. Louisiana (eight percent) uses a “No Pay, No Play” system of enforcement and police officers there are allowed to impound uninsured vehicles. California, with a rate of 22 percent according to the IRC, although many people believe the figure to be much higher in Los Angeles and San Francisco, is piloting a low cost insurance program and operates a “No Pay, No Play” system, as well.

Driving across Texas
While the IRC estimated the percentage of uninsured drivers in Texas at 18 percent, the state “e-Texas” report asserted that “Texas has no verifiable statistics. In 2002, the Texas Department of Insurance (TDI) matched the number of vehicles covered by policies in 2001 with the number of Texas vehicle registrations and estimated that 23.7 percent of the vehicles were uninsured. Some motorists, however, drive vehicles with expired registrations or none at all. In 2002, the Texas Department of Public Safety (DPS) estimated that 25 percent of vehicles in Texas were uninsured. The Automobile Insurance Agents of Texas [AIAT] believe the percentage of uninsured drivers in Texas is closer to 30 percent. Figures provided by police departments across Texas show that the problem is much greater in some cities than others, and TDI statistics show wide variation among counties.”

Tom Sorrels, owner of the Tom Sorrels Insurance in Tyler, Texas, and a former chair of the legislative committee of the AIAT—the majority of whose members work with the non-standard auto markets—said that through experience the group felt the 18 percent estimate was too low. They met with the comptroller’s office and outlined how the state was losing out on many millions of premium tax dollars by not enforcing the compulsory insurance laws.

“They gave us a charge to do our own survey, to do our own data gathering if you will,” Sorrels said. “So we contacted the top 50 cities in the state of Texas, and they ranged, population wise, anywhere from Houston, Dallas, San Antonio down to Flower Mound, Texas. … We took the top 50 cities, and we called on the municipal courts and police chiefs, and sent them a letter. And it wasn’t a rocket science survey. We asked, ‘How many tickets did you give last year and how many of them were for uninsured motorists?’ And … by their own records, they ranged from about 20 percent to 59 percent.”

The AIAT advocates the use of an electronic database system to cross reference drivers licenses and vehicle registrations with insurance records. “Other states are using it,” Sorrels said. “It’s been successful in Nevada, it’s been successful in Utah. Georgia’s working on it, New Mexico just recently implemented one.”

The comptroller’s report supported the use of an electronic database as well. It noted that an electronic “database that can match insurance coverage with motor vehicle registration records, coupled with effective enforcement and meaningful penalties, can reduce the number of uninsured vehicles significantly. Utah reduced its percentage of uninsured motor vehicles from 23 percent in 1995 to 9 percent in 1999.Nevada reduced its percentage from 25 percent in 1993 to 5 percent in 1996.”

An alternative method of enforcing the compulsory laws was presented in the recent regular legislative session, by Sen. Teel Bivens, Amarillo, in the form of Senate Bill 422. Although the bill did not pass, it would have established a process in which the Texas Department of Transportation (TxDOT) or its designated agent would select a random sample from its records of motor vehicle registrations, send letters to the owners, and check their responses with the insurance companies allegedly issuing their policies. Initial figures estimated that about 500,000 citizens of the state would have been asked to send in proof of insurance.

According to the Alliance’s Knauf, insurers are not generally opposed to such a random sampling method as the impact on carriers is not as great as it is with the database systems. The AIAT, however, opposes such a measure. The agents’ group believes a random sampling system would not work for a number of reasons, including the fact that the numbers of drivers targeted would be too low and the high mobility of the population would result in too many cards being returned to the state because of wrong addresses.

While acknowledging that uninsured drivers are a problem all over the state, Commissioner Montemayor believes the statistics are skewed by the “fact that we share a very large border with Mexico where insurance is not compulsory. I think it’s fair to say the close you get to the border, the higher the incidence of uninsured drivers there.”

Montemayor has proposed the development of a program in which minimum liability coverage could be sold at the border on an all-taker basis, by the day. Similar to the purchase of insurance for a rental car, no underwriting would be involved. He noted, however, that the events of Sept. 11, 2001, which ushered in tighter security at border crossings, “complicated the whole issue of having our agents there or having contractors to sell it and we had to go look at alternatives.”

Montemayor said negotiations have taken place with the Texas Alcoholic Beverage Commission, which collects taxes at the border on bottles of alcohol brought into the U.S. from Mexico, to work out a deal in which the insurance could be sold by TABC agents. “The beauty of doing it with the Texas Alcoholic Beverage Commission is they’re already set up,” Montemayor said. “They sell a liquor stamp. As people bring booze across the border they simply pick another lane … they pull in they give them their dollar and they get their stamp.”

The commissioner also suggested an ATM-type machine that would issue a short-term policy may be a feasible alternative.

California’s big city problems
California has around 26 million registered drivers and the IRC estimates that 22 percent of them are uninsured. Moraga said the IINC, using figures from the Department of Motor Vehicles as well as the IRC, estimates that in Los Angeles and in the San Francisco Bay area, the numbers of uninsured motorists can be as high as 50 percent. Meanwhile, another insurer group, the Personal Insurance Federation of California (PIFC) believes overall around 25 percent of the state’s drivers are uninsured and that in certain pockets of Los Angeles the uninsured driver population can reach as high as 75 percent.

One of the ways California is working to combat these high numbers is through the California Low Cost Auto Insurance Program, which is administered by the California Auto Assigned Risk Plan (CAARP). The pilot program, initiated in January 2000, is available only to residents of Los Angeles and San Francisco who can prove their income is equal to or lower than 250 percent of the federal poverty level. That means an individual can make no more than $22,450 per year and the income for a family of four can be no greater than $46,000. Other restrictions also apply.

The controversial program, originally set to expire Jan. 1, 2004, was extended this year and now has an expiration date of Jan. 1, 2007. In addition to extending the lifespan of the program, the legislature made some other changes, lowering the cost of the premiums, as well as the minimum liability amounts required, and raising the maximum income requirements from 150 percent of the federal poverty level to the 250 percent indicated above. The rates in San Francisco were lowered from $410 per year to $314. In Los Angeles they dropped from $450 per year to $347. For an accident caused by an insured, the policy provides a maximum of $10,000 liability for bodily injury or death, per person, per accident; a maximum of $20,000 total bodily injury or death to all persons; and a maximum of $3,000 liability for damage to the personal property of others.

The program is new enough that it’s difficult to assess its true effectiveness. At the end of July 2003, 6,502 applications had been processed and sent to participating carriers, according to CAARP’s Richard Manning. Manning said quarterly surveys of the top ten companies participating in the program show that retention rates vary from about 12 to 40 percent. He noted that with the lowering of the premium rates in March and added media attention in May, applications for the program have steadily increased since the new rates went into effect. In January 2003, 220 applications were processed by CAARP and in July 2003, the plan processed 670.

Part of the problem for insurers and consumers is whether the liability rates are high enough in case an accident occurs, along with the potential for abuse of the program.

“It’s bare-bones liability,” IINC’s Moraga said. “As a matter of fact, what the legislature did, is they approved the policy to actually offer less liability than the normal state requirement so that it could be priced more affordably. The standard in California under our must-have insurance law is that the rest of the drivers have to have $30,000 bodily injury per incident total, individual cap bodily injury is $15,000. And then the property is $5,000.”

“In this experiment,” said Michael Gunning, senior legislative counsel for the PIFC, “we will have to watch carefully to see how widely it’s used. And that there’s no abuse in the program. For us particularly, we don’t want to see subsidization of the Low Cost Auto Program from the voluntary market. So we’re really watching to make sure that the people who apply truly meet the income categories and are not people just trying to get a low cost policy.”

One of the issues that compounds California’s uninsured driver problem is the fact that millions of residents who are not legally there can’t get a drivers license. Gunning said the PIFC estimates there are three to four million drivers, mostly undocumented residents, who are driving on California’s roads without licenses, are operating unregistered vehicles and, by extension, are uninsured.

He noted, however, that a measure awaiting Gov. Davis’ signature, SB 60 by Gill Sedillo, may help lower the numbers of unlicensed drivers on the road. The bill makes it possible for those who are in the process of obtaining legal status to get a drivers license.

No pay, no play in Louisiana
Louisiana has a 10/20/10 liability coverage law for motor vehicles. That is, drivers are required to carry liability amounts of $10,000 for bodily injury to one person, $20,000 for bodily injury to more than one person and $10,000 property damage. In 1998 the state implemented a “No Pay, No Play” statute that prohibits individuals who do not have liability insurance from collecting for the first $10,000 in damages in the event of an accident, no matter who is at fault.

“At the same time that law was passed, we passed a bill that if you don’t have proof of insurance your car can be towed,” said Louisiana Insurance Commissioner Robert Wooley. “So we have ‘No Pay, No Play’ and [the towing law] and that has helped to reduce the number of uninsured motorists in our state.” Wooley added that the state also mandated a 10 percent rollback in auto rates at the time the measures were put in place.

He noted that while the IRC estimates the percentage of drivers in Louisiana to be eight percent, that figure is less than the 12 percent estimated before the laws were enacted. Wooley added that another study showed Louisiana’s percentages dropping from 22 percent to 19 or 18 percent. He said differences in the way researchers calculated the numbers of uninsured motorists account for the variation in the study figures, but pointed out that in both cases the “numbers trended down after the passage of these laws.”

The law wins in North Carolina
North Carolina Insurance Commissioner Jim Long insists that the reason his state has a low percentage of uninsured drivers (6 percent) is because the both the insurance commissioner and the folks at the Division of Motor Vehicles (DMV) are downright “mean.” While that may be debatable, the reality is that North Carolina does have strong enforcement measures in place.

“When you renew your license plate, which you have to do on an annual basis, you have to sign a form, which swears that you have bought your insurance from so-and-so company and the policy number,” Long said. “That’s not real good on its own, but what they [the DMV] do then, they do a tape-to-tape back to the company. And say, ‘Now did she renew with you like she said she did?’ If the company says, ‘Yes,’ that’s the end of the story. If the company says, “No, Ms. Jones did not renew with us, we don’t know what happened to her, then you get a letter, or notice, from the Division of Motor Vehicles saying, ‘Okay Ms. Jones, where do you have insurance?'”

The bottom line, he noted, is that if you can prove you have insurance you’re in the clear. “If you can’t do that, then this nice person in a blue uniform shows up at your house one day and takes the license plate off the back of your car,” Long said. “You have to park it for 30 days and it costs you about $125 to get your plate back. It’s fairly effective.”

He said the DMV also conducts a random sampling every month, where a company may be asked to verify a list of drivers who have indicated they have insurance with that company. In addition, while North Carolina does not require motorists to purchase uninsured and underinsured motorist coverage when they buy auto insurance, they have to formally reject it if they do not want it. In other words, “it’s yours unless you sign and say, ‘I do not want it,'” Long said.

North Carolina also enjoys some of the lowest auto rates in the country, attributable to a variety of reasons in addition to the state’s low rate of uninsured drivers, including a well-maintained road system that is the responsibility of the state rather than counties, as well as strong seat belt and drunk driving laws. Long pointed out that while North Carolina has the ninth lowest auto rates of any state, a figure he hopes to lower, it remains the 11th most populous state according to 2000 Census data. The population per square mile in North Carolina is 165.2, while North Dakota, the state with the lowest auto rates, has a population density of only 9.3 individuals per square mile.

As states struggle with the effort to keep the numbers of uninsured drivers down, they can take heart in the findings of a recent study by the IRC, “Trends in Auto Injury Claims, 2002 Edition,” that showed the frequency of auto accidents has dropped by 16 percent since 1980. However, the same study showed the frequency of auto injury claims rose 26 percent during that period. So while the numbers of accidents have gone down, the costs associated with car crashes have gone up. All the more reason to go back to the drawing board.

To comment on this story, e-mail sjones@insurancejournal.com

Topics California Carriers Texas Auto Agencies Louisiana Personal Auto North Carolina Mexico