Compulsory Auto/Uninsured Motorists
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THE TOPIC
OCTOBER 2008
Most states require drivers to have auto liability insurance before they can legally drive a car. (Liability insurance pays the other driver’s medical, car repair and other costs when the policyholder is at fault in an auto accident.) All states have laws that set the minimum amounts of insurance or other financial security that drivers have to pay for the harm caused by their negligence behind the wheel if an accident occurs. The public generally supports compulsory auto insurance and wants these laws enforced.
Liability insurance is compulsory in 48 states and the District of Columbia. Only New Hampshire and Wisconsin do not have compulsory auto insurance liability laws. Laws in most states have proven ineffective in reducing the number of drivers who are uninsured. There are many reasons for this. Some drivers can’t afford insurance and some drivers with surcharges for accidents or serious traffic violations don’t want to pay the high premiums that result from a poor driving record. With the percentage of uninsured motorists close to 30 percent in some states, it is 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 flout 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.
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RECENT DEVELOPMENTS
- Under a law enacted in July 2008, motorists in North Carolina will be required to purchase uninsured and underinsured coverage. The law goes into effect January 1, 2009.
- Insurers in Idaho will be required to offer underinsured motorist coverage to their policyholders for medical bills that exceed the amount that another driver’s insurance will pay. Although this coverage will not be compulsory, motorists will have to sign a form if they reject the coverage. The law will take effect January 1, 2009. Previously, Idaho was one of only a handful of states that did not require insurers to offer underinsured coverage.
- Minimum liability 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 will go into 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.
- The minimum liability limits in Utah will increase from 25/50/15 to 25/65/15. The new law, which goes into effect on January 1, 2009, increases the limit for bodily injury or death to two or more people in an accident.
- Minimum liability limits in Alabama will increase from 20/40/10 to 25/50/25. The new legislation—which increases the limits to $25,000 per person and $50,000 per accident for bodily injury or death and $25,000 for property damage—will take effect on or after August 30, 2008 for new business and on or after November 28, 2008 for renewal policies.
- Web-based Auto Insurance Verification Systems: In Texas a Web-based auto insurance verification system using a database that can be searched to determine if 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 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 insurers. (See also Background: Computer Databases.)
- The Utah Department of Public Safety launched a Web-based insurance verification system pilot program in March 2008. Utah’s program is based on a system developed by the Insurance Industry Committee on Motor Vehicle Administration, which provides police officers with a standard online method of verifying insurance coverage during traffic stops. A similar system has been tested in Florida. (See also Background: Computer Databases.)
- Low-cost Auto Policies: A few states with large urban populations and high auto insurance premiums have created 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 for drivers in Los Angeles and San Francisco counties. By the end of 2007, low-cost auto policies had become available to all drivers in the state. To be eligible, vehicles insured through the program must not exceed $20,000 in value. Another provision limits the number of low-cost policies to two per person. According to the Property Casualty Insurers Association of America, the number of 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. Of note, low-cost auto policies were available in only 16 counties in the first four months of 2007. Now, low-cost auto policies are available in all 58 California counties.
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AUTOMOBILE FINANCIAL RESPONSIBILITY LIMITS AND ENFORCEMENT BY STATE
As of October 2008
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Proof of insurance required (1) |
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State |
Insurance required (2) |
Minimum liability limits (3) |
At registration |
At time of accident |
At all times in vehicle |
Insurer verification of insurance (4) |
| AL | BI & PD Liab | 25/50/25* | Yes | Yes | Yes | c |
| AK | BI & PD Liab | 50/100/25 | No | No (5) | Yes | b |
| AZ | BI & PD Liab | 15/30/10 | No (6) | Yes | Yes | a,b,d |
| AR | BI & PD Liab, PIP | 25/50/25 | Yes | No | No | b,d |
| CA | BI & PD Liab | 15/30/5 (7) | Yes | Yes | Yes | a,b,d |
| CO | BI & PD Liab | 25/50/15 | Yes | Yes | Yes | a,d |
| CT | BI & PD Liab, UM, UIM | 20/40/10 | Yes | Yes | Yes | a |
| DE | BI & PD Liab, PIP | 15/30/10 | No | Yes | Yes | b,c,d |
| DC | BI & PD Liab, UM | 25/50/10 | Yes | Yes | Yes | a,c |
| FL | PD Liab, PIP | 10/20/10 (8) | Yes | Yes | Yes | a,d |
| GA | BI & PD Liab | 25/50/25 | Yes | Yes | Yes | a,d |
| HI | BI & PD Liab, PIP | 20/40/10 | No | Yes | Yes | a |
| ID | BI & PD Liab | 25/50/15 | No | Yes | Yes | none |
| IL | BI & PD Liab, UM | 20/40/15 | Yes | Yes | Yes | b,c |
| IN | BI & PD Liab | 25/50/10 | Yes | Yes | No | a |
| IA | BI & PD Liab | 20/40/15 | No | Yes | Yes | a |
| KS | BI & PD Liab, PIP, UM | 25/50/10 | Yes | No | No | a |
| KY | BI & PD Liab, PIP | 25/50/10 | Yes | Yes | Yes | a,d |
| LA | BI & PD Liab | 10/20/10** | Yes | No (5) | Yes | a,d |
| ME | BI & PD Liab, UM, UIM | 50/100/25 (9) | No | Yes | Yes | a,b |
| MD | BI & PD Liab, PIP (10), UM | 20/40/15 | Yes | No | No | a |
| MA | BI & PD Liab, PIP, UM | 20/40/5 | Yes | No | No | a,d |
| MI | BI & PD Liab, PIP | 20/40/10 | Yes | No | No | a |
| MN | BI & PD Liab, PIP, UM, UIM | 30/60/10 | No | Yes | Yes | c |
| MS | BI & PD Liab | 25/50/25 | No | Yes | Yes | a |
| MO | BI & PD Liab, UM | 25/50/10 | Yes | Yes | Yes | a,d |
| MT | BI & PD Liab | 25/50/10 | No | Yes | Yes | a |
| NE | BI & PD Liab | 25/50/25 | Yes | Yes | Yes | a,b |
| NV | BI & PD Liab | 15/30/10 | No | Yes | Yes | a,d |
| NH | FR only, UM | 25/50/25 | No | No (5) | No | None |
| NJ | BI & PD Liab, PIP, UM | 15/30/5 (11) | No | Yes | Yes | a,d |
| NM | BI & PD Liab | 25/50/10 | Yes | No | No | a,c,d |
| NY | BI & PD Liab, PIP, UM | 25/50/10 (12) | Yes | Yes | Yes | a,d |
| NC | BI & PD Liab, UM, UIM*** | 30/60/25 | No | No | No | a,d |
| ND | BI & PD Liab, PIP, UM | 25/50/25 | No | No (5) | No | c |
| OH | BI & PD Liab | 12.5/25/7.5 | No | Yes | Yes | a (13),c |
| OK | BI & PD Liab | 25/50/25 | Yes | Yes | Yes | a,d |
| OR | BI & PD Liab, PIP, UM | 25/50/10 | No | Yes | Yes | a,c |
| PA | BI & PD Liab, PIP | 15/30/5 | No | Yes | Yes | a |
| RI | BI & PD Liab, UM | 25/50/25 (8) | No | No | No | c |
| SC | BI & PD Liab, UM | 25/50/25 | Yes | Yes | Yes | a,d |
| SD | BI & PD Liab, UM | 25/50/25 | No | Yes | Yes | a |
| TN | BI & PD Liab | 25/50/10 (8) | No | No | Yes | a |
| TX | BI & PD Liab | 25/50/25**** | Yes | Yes | No | d |
| UT | BI & PD Liab, PIP | 25/50/15 (8)***** | No | Yes | Yes | d |
| VT | BI & PD Liab, UM, UIM | 25/50/10 | No | Yes | Yes | c |
| VA | BI & PD Liab, UM | 25/50/20 | No | No | No | a,b,c,d |
| WA | BI & PD Liab | 25/50/10 | No | No | No | a |
| WV | BI & PD Liab, UM | 20/40/10 | Yes | Yes | Yes | a |
| WI | FR only, UM | 25/50/10 | No | No | No | a |
| WY | BI & PD Liab | 25/50/20 | Yes | Yes | Yes | c,d |
(1) Physical proof of valid insurance. The form of evidence varies by state and may take the form of an insurance policy, binder, certificate of self-insurance, surety bonds or certificate of deposit. Many states require insurance identification cards issued by the insurer. "No" in the "At Registration" column indicates that no physical proof of insurance is required, or that the state only requires the driver to identify the insurer and/or policy number on an application (i. e., "self-certification"). "Yes" in the "At all times" column indicates states where drivers must produce proof on demand.
(2) Compulsory Coverages:
BI Liab=Bodily injury liability
PD Liab=Property damage liability
UM=Uninsured motorist
PD=Physical damage
Med=First party (policyholder) medical expenses
UIM=Underinsured motorist
PIP=Personal Injury Protection. Mandatory in no-fault states. Includes medical, rehabilitation, loss of earnings and funeral expenses. In some states PIP includes essential services such as child care.
FR=Financial responsibility only. Insurance not compulsory.
(3) The first two numbers refer to bodily injury liability limits and the third number to property liability. For example, 20/40/10 means coverage up to $40,000 for all persons injured in an accident, subject to a limit of $20,000 for one individual, and $10,000 coverage for property damage.
(4) a. Insurer must notify Department of Motor Vehicles or other state agency of cancellation or nonrenewal.
b. Insurer must verify financial responsibility or insurance after an accident or arrest.
c. Insurer must verify randomly selected insurance policies upon request.
d. Insurers must submit entire list of insurance in effect, which may be compared with registrations at a state agency. Also known as a computer data law.
Also includes cases where insurers are required to report new issues and/or renewals.
(5) Insured must provide evidence of insurance at some point after the accident to the Department of Insurance, other state agency, or law enforcement officer. Deadlines vary among the states.
(6) Proof of insurance must be presented within 30 days of registration.
(7) Low-cost policy limits for low-income drivers in the California Automobile Assigned Risk Plan are 10/20/3.
(8) Instead of policy limits, policyholders can satisfy the requirement with a combined single limit policy. Amounts vary by state.
(9) In addition, policyholders must also carry at least $1,000 for medical payments.
(10) May be waived for the policyholder but is compulsory for passengers.
(11) Basic policy (optional) limits are 10/10/5. Uninsured and underinsured motorist coverge not available under the basic policy but uninsured motorist coverage is required under the standard policy.
(12) In addition, policyholders must have 50/100 for wrongful death coverage.
(13) For high risk drivers only.
*Effective for renewal policies on or after November 28, 2008.
**Minimum coverage requirements will increase to 15/30/25 on January 1, 2010.
***Uninsured and underinsured coverage compulsory effective January 1, 2009.
****Minimum coverage requirements will increase to 30/60/30 on January 1, 2011.
*****Minimum coverage requirements will increase to 25/65/15 on January 1, 2009.
Source: Property Casualty Insurers Association of America; state departments of insurance and motor vehicles. |
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The chart above provides a state-by-state overview of minimum auto liability limits and the measures used to enforce compulsory liability laws. For each state the insurance required by state law is listed. Coverages that may be rejected by the policyholder, either in writing or verbally (i.e., are not mandatory) have been excluded.
Increasingly, laws are being passed that expand the role of the insurer in verifying compliance with compulsory liability laws and aiding in their enforcement. Insurance companies often work in conjunction with state motor vehicle departments to verify insurance coverage. Most states have laws that specify that insurers must notify the motor vehicle department when a policy is cancelled or not renewed. In some states, insurers are asked to verify the existence of insurance at the time that a specific accident occurred. In other states, insurers are given lists of randomly selected auto registrations, which they are asked to match up with insurance policies that the motorists claim were in effect. Newer laws, known as computer data laws, require an insurer to submit its entire list of automobile liability policies, updated at specified intervals, to a state agency such as the motor vehicle department. The state agency can use the lists to verify registration applicants' declarations that insurance is in effect. (See also Background: Computer Databases.)
Penalties for driving without compulsory insurance include fines, which can be as high as $5,000 for a subsequent offense, to license or registration suspension or revocation. Some states can impose jail time, confiscate license plates and impound vehicles.
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BACKGROUND
In 1927 Massachusetts became the first state to require the purchase of auto liability insurance. Since then 48 states and the District of Columbia have followed suit. Such laws usually have the support of the public despite the fact that compliance with such laws is generally poor and enforcement activities are costly. Compulsory auto insurance laws do nothing to protect drivers involved in accidents with drivers of stolen vehicles or drivers from one of the two states where insurance is not compulsory, drivers of unregistered vehicles, the insurance dodger who cancels a policy immediately after receiving a proof-of-insurance certificate and the hit-and-run driver.
Uninsured Motorists: It is hard to assess the extent of the uninsured motorist problem and devise an effective way to deal with it. According to the latest study by the Insurance Research Council (IRC), the estimated percentage of uninsured drivers in the United States increased from 12.7 percent in 1999 to 14.6 percent in 2004. The IRC’s study, released in 2006, used the ratio of insurance claims made by people who were injured by uninsured drivers to claims made by people who were injured by insured drivers to estimate the proportion of uninsured drivers. The three states with the highest uninsured driver estimates were Mississippi (26 percent), Alabama (25 percent) and California (25 percent). The three states with the lowest uninsured driver estimates were Maine (4 percent), Vermont (6 percent) and Massachusetts (6 percent).
The National Association of Insurance Commissioners (NAIC) has suggested that strict enforcement of compulsory auto insurance laws, with mandatory and "significant" fines for first time offenders, may be the key to lowering the uninsured motorist population. In 1989 it identified North Carolina as having one of the highest rates of compliance at the time (96.6 percent) and one of the strictest and swiftest enforcement programs. The NAIC said the program’s effectiveness relied largely upon the cooperation of the state's insurance and motor vehicle departments, insurers, and state and local law enforcement agencies—following up on reports of insurance policy cancellations, for example, to make sure that new policies were purchased or that the license plates were turned in. Such cooperation may not be possible in states with larger metropolitan areas, where other law enforcement priorities may limit the resources devoted to enforcing compulsory auto liability insurance laws. A 2002 study from Florida State University’s College of Business also noted the positive effect of compulsory laws combined with high noncompliance fines saying that states that had this combination from 1995 to 1997 were able to decrease their uninsured motorist rates. While high fines were found to be an effective deterrent, jail time for noncompliance was not, probably, as the authors said, because motorists don’t believe that the penalty will be enforced.
Compulsory auto liability insurance is not necessarily the most effective solution. A 1994 study by the National Association of Independent Insurers (now known as PCI) found that New Hampshire, a state that does not have compulsory insurance laws, had a smaller percentage of uninsured drivers than the nearby states of Rhode Island, Vermont and Connecticut. Only 10 other states had fewer uninsured drivers. New Hampshire also had the lowest percentage of uninsured drivers—9.5 percent—of all the states without compulsory laws.
Affordability influences decisions about whether to purchase auto insurance. Risk Information, Inc. found that the 1995 Insurance Research Council (IRC) uninsured motorist rates by state, when compared with average personal auto insurance expenditures from the NAIC, points to cost, along with enforcement and culture, as factors in decisions not to buy compulsory coverage. For instance, some states such as New Jersey, New York and Louisiana have high insurance costs, especially when measured against median family income, yet their uninsured motorist rates were 12 percent or less at the time of the study. On the other hand, Alabama had an uninsured rate of 28 percent even though coverage cost much less there.
Computer Databases: Insurer verification laws mandating that all insurance companies in a state submit the entire list of their policyholders to an outside vendor, which matches them to motor vehicle registrations, were also expected to help solve the uninsured motorist problem. Such a system was thought to be promising by promoting compliance with the law since it would increase the odds of being caught driving uninsured. However, a number of states have reported having problems administering this system, which in some states has had a high error rate, including “mismatch” problems. Mismatch can occur when insurers and the motor vehicle or regulation department have conflicting or erroneous records that mistakenly flag policyholders as flouting the law. Some states now use vehicle identification numbers instead of names. In New York insurers began issuing bar-coded insurance cards in late 2000, the first state to use them; however, the Property Casualty Insurers Association of America (PCI) says that New York’s system is so complex that it has cost some insurers up to $1 million to comply.
The Insurance Industry Committee on Motor Vehicle Administration (IICMVA) has developed an industry-supported Web service system that would create a single online verification system. A state’s Department of Motor Vehicles or law enforcement division would use a Web portal to insurer data to access real-time information about whether a motorist had insurance. The IICMVA proposal also established guidelines for state-to-state uniformity. The system has been tested as a pilot program in Florida.
PCI said in July 2004 that unlicensed and uninsured drivers were involved in more than 20 percent of fatal crashes in the United States. Despite compulsory insurance laws in 47 states at that time, and reporting systems in 23 states, uninsured motorists still accounted for 4 to 34 percent of all drivers in those 23 states. A PCI spokesperson said that state reporting systems were costly, difficult to maintain and result in mismatches 15 to 20 percent of the time, thus harassing law-abiding drivers. However by mid-2007, PCI characterized Web-based online verification systems as the dominant developing trend in compulsory automobile insurance. Systems utilizing the IICMVA protocols have shown improvements in eliminating mismatches. In Texas, the verification program was implemented state-wide in October 2008. Florida was the first state to start a pilot program, followed by Wyoming, where three insurers are testing the pilot program. Laws in Wyoming and Oklahoma required online verification systems to be implemented by July 1, 2008.
Other Solutions to the Uninsured Motorist Problem: Over the years various proposals for dealing with the uninsured motorist problem have been put forward. Unsatisfied judgment funds were set up in a few states to provide a source of funds for accident victims when the at-fault party has no means of paying a judgment, but their effectiveness proved to be limited. A more effective remedy is uninsured (and underinsured) motorist coverage that provides compensation to policyholders when an at-fault motorist has no liability insurance (or insufficient amounts) or when the at-fault motorist is a hit-and-run driver. Like unsatisfied judgment funds, this program does nothing to reduce the number of uninsured motorists but it does provide a way for individual drivers to deal with the financial consequences of accidents with hit-and-run or uninsured drivers. In about 20 jurisdictions, uninsured motorist coverage is mandatory. In other states, insurers are required to offer the coverage but a driver does not have to purchase it. Only a handful of states require drivers to purchase underinsured motorist coverage.
The price of uninsured motorist coverage varies considerably from state to state, depending in part on the percentage of drivers who are uninsured. The price is also influenced by whether the amount available to pay claims can be increased by "stacking," a practice that works to the benefit of people who own more than one insured vehicle. In states where stacking is not specifically prohibited, liability limits under the uninsured motorist coverage may be multiplied by the number of cars insured under a single policy or may be added together where multiple vehicles are insured under different policies. Thus, in a three-car family, where uninsured motorist liability limits are $20,000, in a state that does not prohibit stacking, the amount available to pay a claim in an accident with an uninsured driver would be $60,000. Because stacking drives up the cost of auto insurance, most states now prohibit stacking. However some states, such as Missouri, Arizona and Pennsylvania have upheld stacking provisions.
No-fault insurance laws also provide some relief from the problem of uninsured motorists. Under no-fault auto insurance plans, accident victims can collect benefits from their own insurance companies, regardless of whether the other party has insurance coverage (see paper on no-fault auto insurance for more information).
“No Pay, No Play”: In response to public concerns that those who obey compulsory laws subsidize scofflaws, legislators in more than 20 states have proposed “no pay, no play” laws that ban uninsured drivers from suing for noneconomic damages such as pain and suffering. Five states—Alaska, Michigan, California, Louisiana and New Jersey—have enacted such laws. In Michigan uninsured drivers who are 50 percent or more at fault cannot collect noneconomic damages in the event of an auto accident. California's plan (Proposition 213) goes further by curtailing lawsuits for drunk drivers as well as for those who are uninsured. Louisiana’s law compels uninsured motorists to pay for the first $10,000 in out-of-pocket medical expenses and the first $10,000 in property damage before they can sue the other party. New Jersey's law, similar to California’s Proposition 213, specifies that uninsured and drunk drivers, as well as motorists who intentionally commit other crimes, may not file lawsuits for economic or noneconomic damages. These laws were upheld in New Jersey and Louisiana. A related issue was addressed in Iowa where the governor signed a bill prohibiting motorists from collecting noneconomic damages for injuries resulting from an accident if the motorist was using the vehicle while committing a felony.
Low-cost Policies: Low-cost auto policies are designed for drivers who cannot afford regularly priced auto policies or who have little or no assets to protect. New Jersey's Basic Policy offers $15,000 in personal injury protection, up to $250,000 in medical benefits for catastrophic injuries and $5,000 property damage liability. Policyholders have the option to buy $10,000 bodily injury liability coverage but they cannot buy uninsured, underinsured or collision and comprehensive coverage. The newer Dollar-A-Day policy provides emergency medical care coverage immediately after an accident and $10,000 death benefits but no coverage for liability.
California's program for low-income drivers is administered by the California Assigned Risk Program. Every auto insurer doing business in the state must take their “fair share” of applicants. Only drivers over age 19 with good driving records and low incomes (up to 250 percent of the poverty level) are eligible. Applicants must have motor vehicles valued at $20,000 or less. Rates are set in each county so that premiums are sufficient to cover losses and expenses in each county. The policy provides up to $10,000 in liability coverage for one person involved in an accident and up to $20,000 for more than one person. It also includes payment options, allowing a 15 percent deposit and six monthly installments, optional $10,000/$20,000 uninsured motorist bodily injury coverage and $1,000 medical payments coverage.
Colorado has a low-cost plan for families with incomes of up to $31,000 per year that provides a maximum benefit of $25,000 for medical expenses or personal injury protection. However, as of January 2004, insurers are no longer required by law to offer these policies.
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