2006 Spring Forum
Transportation Session: Reducing the Number of Uninsured Motorists
April 2006
Speakers:
James Whittle, American Insurance Association (AIA)
Libby Clapp, Chief Information Officer, DC DMV
Corey Buffo, General Counsel DC DMV
James Whittle, AIA—This issue affects all jurisdictions and insurance companies since the insurance companies have to write uninsured coverage into they policies that they sell. It can be expensive to have insurance and a segment of population often finds it difficult to pay for it, so they have to make a choice. Many go without. Some solutions are important but rife with implications. How do we get people to buy the insurance that they need?
A year or so ago the three speakers on this panel were dealing with confirming insurance of motor vehicles. They were working on an online application to verify that motorists were insured. Insurers find this type of system costly and it takes up a lot of resources to use databases. The industry is not confident that it is a solution.
Private market solutions—The industry would like pursue lower financial minimum responsibility laws. The industry wants lawmakers to look at this possibility since most minimums are higher than your typical crash. Actual claims are much smaller than the requirements in law. By reducing financial responsibility levels cost will go down making it more affordable to low income persons.
Another potential solution is to reduce the minimums for certain segments of the population, maybe at certain income levels.
Another possible solution is the idea of "No pay/No play." Like Proposition 213 in California, if people do not meet legal obligations to insure their vehicles and they are involved in a crash, they are not able to sue for personal/property loss. Under "No pay/No play" if you do not have insurance you are not able to sue regardless of whether you were at fault or not. It would apply only to the driver and not to other passengers like children. California has witnessed a 5 percent premium savings with "No pay/No play."
Strong penalties for driving without insurance are needed. Sen. Teichman from Kansas (chair of the NCSL Financial Services Standing Committee) proposed legislation similar to graduated penalties for uninsured driving. Penalties include possible jail time and higher fines. These solutions have possible market implications.
The industry does not believe we have true "no-fault" in the United States—where you are truly responsible for the costs yourself. They believe this could be a potential solution to the issue of uninsured motorists but only if it is a true no fault system.
New York has made an effort to reduce premiums through fraud reduction. The vast majority of states have mandatory minimums. Do the numbers of uninsured go up when you pass mandatory minimum laws? The industry feels that this probably happens since more and more people will have a difficult time paying for the mandatory minimum coverage. Some motorists will cancel the insurance policy as soon as they get their car registered. In order to compensate for the policy cancellations, premiums start to go up.
Corey Buffo, DMV District of Columbia – The state DMV's are responsible for the enforcement of the auto insurance laws. DMV's are required to verify the insurance coverage for every vehicle being registered. In DC we started looking at ways to fix the problem of uninsured motorists. If someone comes in with proof of insurance, it’s difficult, if not impossible, to know if the person cancels the policy right after they register their car—many do. If they cancel, the insurance company needs to report the cancellation to the DMV within 30 days of the cancellation. The driver must then prove to the DMV that they are covered elsewhere. If they have no insurance, they must pay a fine. Some insurance companies simply do not report cancellations to the DMV. DMV's have resorted to occasional random sampling of motorists to see if insurance companies are reporting accurately. Many DMV's do not have the resources to track down motorists with cancelled policies. There is a limited burden on motorists and insurance companies.
Libby Clapp, DMV District of Columbia—Technology may offer answers. Before Microsoft there were a lot of other operating systems in existence. There was a lack of standards which made it difficult for systems to communicate and interact with other systems. That’s the problem now with insurance companies. There is no standardization among insurance companies. Some companies are good about reporting, some are not. There are no reporting requirements. This leaves the DMV with no choice but to require the motorists to prove that they have coverage. Some possible solutions would be to have a $2500 maximum fine and place a hold on a driver’s license to try and get the motorist back into the DMV. Another problem is fraud; insurance documents are the easiest to fake. There are no security features in the documents. In DC alone, there are over 100 certified insurance companies. About 80 percent of the motorists are with 20 percent of the companies. Some are huge and highly technical; some are small and still hand-write policies. The answer is a clearinghouse or a portal, if you don’t have an industry giant driving the standardization. From one state to the next there are no standards on information (names, addresses, etc) contained in the insurance record. REAL ID will drive the industry to have a level of standardization and will lead to the sharing of information. Technology is going to be the answer. In order to do so, the states will have to legislate standards.
Jim Whittle—Standardization is a problem for insurers because they are all competing with one another and have proprietary concerns on software. Some companies say it would take about 6 months to implement such programs because of budgetary and resource issues. Trying to work collectively through the Insurance Industry Committee on MVA (IICMVA) and has worked with the American Association of Motor Vehicle Administrators (AAMVA) to try and figure out a way to work this out. What IICMVA advocates is a system where they make an inquiry based by pinging system to get verification info (yes or no) and not all the proprietary information. It's not perfect, but it is an effort at standardization.
Libby Clapp—DMV's still need a level of standardization that pinging the system won’t handle. Whether it’s real-time or a batch file, it still needs standardization. Maybe we need a federal mandate to push it?
Additional comments—on the affordability issue, state financial minimums are way too high. If lowered, premiums would be lowered.
Florida is going to start a pilot project on real-time pinging verification. Jim Whittle thinks the system will have merit and thinks AAMVA will be satisfied as well. The problem of course is the real small companies still handwriting policies.
In Delaware they are working to link all health insurance companies and hospitals. What about doing that? And does the National Association of Insurance Commissioners (NAIC) have model standardization? Jim Whittle – models aren’t always “models.” AIA supports federal legislation. Some companies would prefer it to be from the federal level instead of state-by-state.
Kansas is trying to be proactive. Getting lots of feedback from NAIC since Kansas Insurance Commissioner is vice-chair of NAIC. Graduated penalties (phase 1-3) including jail time and fines.
DC holds registration and license when they find out you do not have insurance. They can revoke the license but have not done that yet. Kentucky has license plate confiscation. DC uses parking enforcement staff but it is hard to give them real-time information.
Other possible solutions—No insurance required if you pay into an uninsured motorist pool. But it only covers crashes that happen in that state. Ping systems at the gas pump—if you don’t have insurance you’d pay an extra fee at the pump (like 10 cents a gal). Hopefully it would be cheaper to buy insurance and push people that way.
It's hard to believe big companies aren’t interested in working together, but they are competitors. The standardization would impact everyone. It’s costly. Easier to have them change 4-5 fields instead of standardizing the forms. Insurers don’t even have full VIN numbers always. With commercial insurance you don’t always know which vehicles are insured. So sellers can write blanket policies to cover trucks (contractors, etc will be insured).
Jim Whittle – mini policies are the way to go. Give small and cheap alternatives. Lots of legal issues, anti-trust, privacy, etc. in terms of the industry getting together.
DC a pretty good example of how things should work. Still, they have issues but they have a pretty good system.
 Transportation Presentations
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