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How Does Compulsory Auto Insurance Affect Uninsured Motorists?
by Doug Cohen

Almost every state in America requires us to carry some form of auto insurance, at the very least liability insurance. Liability insurance is essential to the protection of society in general because it pays your medical bills, car repairs and other costs when a policyholder is at fault in an auto accident with you. And each state (except New Hampshire and Wisconsin) has laws that prescribes the minimum amounts of auto liability insurance - or other financial security - that drivers must carry for harm caused to you by their negligence in an auto accident. This is called "compulsory auto insurance" because we are compelled to buy it if we want to operate a car on public roads where others in society are at risk.

It should be noted for purposes of this article that the public generally supports compulsory auto insurance and wants these laws enforced. Yet despite the fact that liability insurance is compulsory in 48 states and the District of Columbia, they have proven to be ineffective in reducing the number of drivers who are uninsured.

There are many reasons why people still drive without insurance. Some drivers simply cannot afford auto insurance. Others can't afford it because they have surcharges for accidents and traffic violations and donít want to pay the high premiums that result from a poor driving record.

With the estimated percentage of uninsured drivers in the United States close to 14 percent, it is very costly to track down violators of compulsory insurance laws. And unless the odds of getting caught are high and the penalties severe, drivers will continue to dodge the law.

A handful of states have passed laws and begun to develop and implement online auto insurance verification systems to identify uninsured motorists. These systems require insurers to maintain up-to-date databases of insured motorists that can be accessed by law enforcement officers instantly when motorists are stopped for traffic infractions.

The Insurance Research Council (IRC)ís Uninsured Motorists, 2008 Edition, released in January 2009, shows that the estimated percentage of uninsured motorists declined nationally, from 14.9 percent in 2003 to 13.8 percent in 2007. The IRC measures the number of uninsured motorists based on insurance claims, using a ratio of insurance claims made by people who were injured by uninsured drivers relative to the claims made by people who were injured by insured drivers. The study found that, as in the past, the uninsured motorist problem varies greatly from state to state. At the extremes, New Mexico had the highest uninsured motorist ratio, at 29 percent, and Massachusetts had the lowest, at 1 percent.

There is evidence that the current economic downturn resulted in several hundred thousand drivers dropping their car insurance in 2008 as the unemployment rate climbed, according to the IRC study . The IRC found that a single percentage increase in the unemployment rate is associated with an increase in the uninsured motorist rate of more than three-quarters of a percentage point. Using current unemployment rate projections, the IRC expects the percentage of uninsured motorists to rise from 13.8 percent in 2007 to 16.1 percent in 2010.

Insurers in Idaho will soon be required to offer underinsured motorist coverage to their policyholders for medical bills that exceed the amount that another driverís insurance will pay. Although this coverage will not be compulsory, motorists will have to sign a form if they reject the coverage. The law took effect January 1, 2009. Previously, Idaho was one of only a handful of states that did not require insurers to offer underinsured coverage.

Minimum auto liability insurance limits in Louisiana will increase from 10/20/10 to 15/30/25, or $15,000 per person and $30,000 per accident for bodily injury or death, and $25,000 for property damage. The new limits take effect for new policies written on or after January 1, 2010. The governor allowed the legislation to become law without his approval in July 2008.

In Texas a Web-based auto insurance verification system using a database that can be searched to determine whether a driver has auto insurance was implemented statewide in October 2008, after a successful field test conducted in the Austin area. By that time, an estimated one in five vehicles, about 4 million, did not have proper car insurance, according to TexasSure, the verification program. The program, funded by a $1 fee on vehicle registrations, allows law enforcers and others to instantly verify whether a motorist has the minimum insurance required by law. The program, a joint effort by the Texas Departments of Public Safety, Transportation and Insurance, uses a central database maintained by a private vendor from records supplied by auto insurers.

In Oklahoma where a law required the online verification system to be in place in July 2008, tests show that the system, while operational, is accurate only 60 percent of the time, according to the Oklahoma Tax Commission. The system is only able to verify auto coverage from some insurance companies but not others since a few auto insurance companies have not yet entered their information. Law enforcement officials and the stateís tag agents are therefore being told not to rely on the information it provides.

A few states with large urban populations and high auto insurance premiums have even created affordable auto insurance programs to encourage drivers to purchase coverage. In California low-cost policies are available to low-income drivers who meet income and good driver eligibility requirements. The program was originally set up in 1999, to begin in 2000 for drivers in Los Angeles and San Francisco counties. All carriers such as Progressive, GEICO, Liberty Mutual, Esurance, and alike were all required to participate by sharing the offering of these policies. Per the rules of the Program, every automobile insurance company in California must bear their "fair share" of low cost applications. In 2005, the California Legislature passed Senate Bill 20, which expanded the Program to the counties of Alameda, Fresno, Orange, Riverside, San Bernardino and San Diego, effective April 1, 2006. This legislation also authorized the Insurance Commissioner to launch the Program throughout the state upon determination of need in each county. By the end of 2007, low-cost auto policies had become available to all drivers in the state. To be eligible, cars insured through the program must not exceed $20,000 in value. Another provision limits the number of low-cost policies to two per person. Yet, according to the Property Casualty Insurers Association of America, the number of these alleged affordable, or low-cost auto insurance policies assigned during the first four months of 2008 fell by 23.4 percent compared with the same period in 2007. Still, the program continues running and these policies are still offered.

[Many thanks to the Insurance Information Institute (III) and the Insurance Research Council (IRC) for supplying much of the data herein.]

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