Despite Compulsory Coverage Laws, Fight Against UMs Marches On

Compulsory auto insurance. It sounds like the “silver bullet” for the problems of uninsured motorists, doesn’t it? Make it mandatory for all motorists to purchase coverage and you won’t have an uninsured motorist (UM) problem, right?

Not exactly! The fact of the matter is that, while only a few holdout states remain without compulsory automobile insurance laws on the books, virtually ALL states continue to struggle with the problem of uninsured drivers. The Alliance of American Insurers is of the opinion that compulsory laws do very little to eliminate uninsured drivers from the road.

There are several reasons why some people will continue to drive uninsured. Along with career scofflaws, some cannot afford auto insurance; some may mistakenly think they have insurance; and some may be unable to obtain insurance due to suspended licenses—but they will continue to drive anyway.

Eventually, legislators are called on to make compulsory insurance laws work. This usually starts with complaints from a few constituents who have been involved in an accident with an uninsured driver. All too often, legislators may try to make the law more effective by enacting more statutes—including data reporting requirements for insurers. Data collection vendors, seeking to expand their market, may fuel constituent complaints—and may present states with solutions “guaranteed” to work.

In over half of the states, the adopted “solution” has been automobile liability insurance data reporting programs. The basic idea behind these programs is that insurers report their policy records to the state, and the state then matches those records each month to identify those drivers who have dropped their insurance; or the state matches insurance records with vehicle registrations in an effort to identify uninsured vehicles by the process of elimination.

In other words, the burden of proving that one has insurance falls to insurers and the departments of motor vehicles. Lawfully insured drivers, however, suffer the consequences, as too often they are incorrectly identified as “uninsured” when records don’t match perfectly. Worst of all, insured drivers end up “paying” in three ways: they pay for their own insurance protection (which includes protection in the event of an accident caused by an uninsured driver); they pay increased insurance costs; and they often pay higher registration and licensing fees as the exorbitant costs of these mandatory insurance enforcement programs are ultimately passed on to them.

It is also worth noting that automobile liability insurance reporting mandates may be a deterrent to companies entering or remaining in a market, as some insurers may have a difficult time justifying the cost of complying with such requirements.

If it sounds too good …
Mandatory automobile liability insurance reporting programs have never been proven effective in reducing the percentage of uninsured drivers on the road. Certainly, some states have made claims that these costly reporting mandates are helping to eliminate the number of uninsured drivers, but often such claims are made simply based on an increase in the number of drivers reported in the state’s database—which proves only that more drivers are being reported, or that more insurer records are matching with state vehicle registration records—not that more drivers are dutifully obeying the law. States also might point to increased fines collected from uninsured drivers, or increased registration suspensions for vehicles not found in the state’s insurance database. While this may mean increased revenue for the state, it does not prove that more drivers are buying—and maintaining—automobile insurance.

In a perfect world, maybe automobile liability insurance reporting solutions would work as envisioned. Unfortunately, our world isn’t perfect. Instead, records frequently don’t match and insurance companies often have difficulty complying with reporting deadlines for new or terminated policies due to business practices that vary based on marketing strategy. Some insurers offer grace periods, issue coverage without payment upfront and some—gasp!—even allow for backdated coverage.

Some states have turned to random sampling laws—requiring proof of insurance from registered drivers selected at random, drivers convicted of specific offenses, or targeting drivers that appear uninsured based on policy terminations. Insurers seldom oppose random sampling efforts because such programs are typically less costly and intrusive for everyone involved. Do they reduce the number of uninsured drivers on the road? Probably not, but they do avoid many of the problems of more high tech solutions.

Topics Carriers