Most uninsured motorists in the U.S. are responsible, safe drivers who simply cannot afford to purchase liability coverage with their income but who still need to drive for their work, according to a consumer advocacy group.
The Consumer Federation of America (CFA) recommended that instead of cracking down on such motorists with harsh penalties, a better policy would be to find ways to provide more affordable insurance and lower the minimum liability limits for safe, uninsured drivers who have lower income.
The group also said that even as more states implement stiffer penalties for violating mandatory liability coverage laws, there is little correlation to suggest that harsh penalties help lower the number of uninsured drivers.
CFA’s latest report, titled “Uninsured Drivers: A Societal Dilemma in Need of a Solution,” examined challenges faced by low- and moderate-income individuals who need to drive but have trouble affording auto insurance required by all states except New Hampshire.
“Our earlier reports documented the high and discriminatory prices that most auto insurers charge lower-income individuals who are good drivers with no accidents or moving violations,” CFA Executive Director Stephen Brobeck said during a press conference call Monday.
‘Complex and Difficult Problem’
Brobeck said CFA’s new report focuses on those individuals who drive without insurance, the important distinctions between different types of uninsured drivers and possible ways to mitigate “this complex and difficult problem.”
“So, how many unlicensed drivers are there?” Brobeck asked, adding he does not believe there is a completely reliable way to establish this number.
However, the most widely used numbers for uninsured motorists are from the Insurance Research Council, whose latest estimate is that 14 percent of all drivers are uninsured.
Brobeck said it’s also known that the percentage of low- and moderate-income drivers who are uninsured is much higher than 14 percent. “All surveys from past 15 or so years have shown this,” he said.
CFA’s past reports estimated that between one-quarter and one-third of all lower-income drivers are uninsured. The percentage of those who are uninsured is also higher for lower-income than for moderate-income drivers and also higher for city dwellers.
In many urban areas in California for example, more than two-fifths of drivers are uninsured, Brobeck said. And in some areas, this percentage exceeds three-fifths.
Regardless of where they live, good lower-income drivers tend to be charged more than higher-income drivers, even many who drive less safely, Brobeck argued. He said most insurers use factors such as education, occupation and credit scoring, all highly correlated with income, in their pricing of policies. “So in general, regardless of where they live or their driving record, the poor tend to be charged more,” he said.
Yet also by definition, lower- and moderate-income drivers can least afford to pay more, Brobeck said. For a family with an annual income of $20,000 or $30,000, auto insurance premiums of $1,000 or more, or even just $500, can be a real strain.
Brobeck said that while many lower-income drivers — especially those living in cities — can manage without a car, most of those who work, or are actively looking for work, cannot.
Brobeck said numerous academic studies have shown that those without access to a car have greatly limited economic opportunities. “It is this denial of economic opportunity that is a key reason that CFA is addressing lower income insurance issues,” he explained. “In this context, the effort by some state and local authorities to target all uninsured drivers is misplaced and unfair.”
Brobeck noted that states are increasingly spending money to identify uninsured drivers, step up enforcement efforts and increase penalties. He said CFA’s research on penalties has shown that for a first offense, 33 states have possible fines of $500 or more, 32 states allow for license suspension and 14 states allow for jail time.
“These penalties, when imposed, often create a hellish situation,” he argued. “As our report notes, uninsured drivers continue to drive to the job they desperately need, but increasingly without a license and with culminating fines they will never be able to pay.”
Fortunately, Brobeck said, some judges avoid putting violators in jail or, as permitted in several states, impounding their cars.
Brobeck also said the evidence suggests that the majority of uninsured drivers try to act responsibly, noting that one study even suggested uninsured individuals tend to drive more carefully than insured drivers. “However,” he added, “we recognize, and our report shows, that there are some uninsured drivers who are less responsible. They have such poor driving records that their auto insurance is extremely expensive regardless of where they live.”
And as the numbers show, there are also some drivers with higher incomes that just choose not to purchase insurance, he said.
Brobeck recommended that if authorities are going to try to crack down on uninsured drivers, these last two groups — those with poor driving records and those with higher incomes who choose not to buy insurance — should be the focus of their attention. But more importantly, he argued, the top priority of state lawmakers and regulators should be to ensure that low- and moderate-income drivers can afford the mandatory insurance coverage.
Public Support for Mandatory Insurance
Also speaking at the press conference call was J. Robert Hunter, CFA’s director of insurance and former Texas insurance commissioner. He spoke about the new survey data in the new CFA report that shows strong public support for mandatory insurance.
“The public is overwhelmingly supportive of the requirement that drivers carry liability insurance as a condition of driving a car,” Hunter said. “We commissioned a study of more than 1,000 representative adult Americans that shows well over four-fifths of respondents stated this requirement. And somewhat to our surprise, even lower-income respondents supported it.”
Hunter recommended a number of steps that state and local officials can take to help mitigate this dilemma. “While there is no easy way to resolve this dilemma, it can be mitigated,” he said. His recommendations include:
• Establish state programs like California’s in which low- and moderate-income residents with good driving records can purchase liability coverage for $350 or less. “For several years, California has offered this type of coverage to good lower-income drivers for between $250 and $350 a year, and these premiums require no subsidies to cover accident-related losses,” Hunter said. But unfortunately, even drivers in California do not participate in this program as much as they should, and there is now work underway by the state officials to make this plan better known, he observed.
• For a start, lower liability minimums for those lower income drivers with good driving records. “To respond to the legitimate concern that low limits will not cover accident-related losses, states might lower these limits only for lower income drivers,” perhaps only for those who qualify for Supplemental Nutrition Assistance Program or the Earned Income Tax Credit, he said. “That could well reduce annual premiums for lower-income drivers by more than $100, persuading a larger number that they can afford insurance coverage,” Hunter said.
• Restrict insurer use of rating factors – such as occupation, income, credit rating, marital status, and homeownership – that Hunter said are highly correlated with income and discriminate against lower-income drivers.
• Focus laws and enforcement efforts on drivers who have demonstrated that they do not drive safely. “Law enforcement officials should use mandatory insurance laws to crack down on unsafe and irresponsible drivers, not on those who are trying hard to avoid accidents,” Hunter recommended.
• States also should not look to “no pay, no play” laws as a solution, Hunter suggested. Restricting the ability of uninsured but safe drivers to sue for non-economic damages in accidents caused by others is unfair to the many uninsureds who want insurance but cannot afford to purchase coverage, he said.
Hunter also suggested state legislators should resist the marketing of vendors who sell verification programs to identify the uninsured. These funds should instead be spent pursuing strategies to help ensure that all drivers can afford liability coverage, he recommended.
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