If you owned a business and state law required people to buy your product, how would you feel? Thrilled? Unable to believe your good fortune?
For many car insurance companies, the answer is "unhappy."
Surprisingly, there is broad insurer opposition to state laws that require drivers to buy car insurance.
Alex M. Hageli, director of personal lines at the Property Casualty Insurers Association of America, an industry trade group, says mandatory auto insurance laws work poorly and fail to get uninsured drivers off the road.
Car insurance companies are required to monitor uninsured drivers by notifying the motor vehicle department whenever an auto insurance policy is canceled or fails to be renewed – a major inconvenience for the industry, Hageli says.
In some states, insurers are required to verify that motorists were insured at the time of specific accidents. In others, car insurance companies are provided with lists of randomly selected car registrations and asked to match them with insurance policies
David Snyder, vice president and associate general counsel for the American Insurance Association, says mandatory car insurance laws are "used as a justification for a lot of intrusive regulations that limit your ability to price for risk."
Compulsory auto insurance laws lead to "prior-approval rate regulation, an extreme form of price control absent in the rest of our economy," Snyder says. "We feel the public is better insured by a freer auto insurance market."
Nonetheless, Snyder says the industry is resigned to the fact that mandatory car insurance is here to stay.
"Our focus is to make it work as well as we can," he says.
All states except New Hampshire require drivers to have auto liability coverage. The uninsured driver problem varies greatly from state to state and is influenced by the economy.
The Insurance Research Council says a 1 percent rise in the unemployment rate can increase the rate of uninsured motorists by more than three-quarters of a percentage point. The council found that in 2007, 14 percent of all drivers in the U.S. were uninsured.
In a 2009 study, the research council found that New Mexico had the highest uninsured motorist ratio, at 29 percent. Massachusetts had the lowest rate, at 1 percent. The council also has found that the recession led several hundred thousand drivers to drop their car insurance in 2008.
California's Department of Insurance reported more than 3 million uninsured motorists were driving on that state's roadways in 2006, despite ongoing efforts to crack down on lawbreakers.
Hageli says state lawmakers around the country are too eager to pass new laws aimed at uninsured drivers.
"Someone inevitably will get hit by someone who does not have insurance and then complain to their state legislator and say, 'What are you doing to enforce the law?'" says Hageli. "States typically try to create a database with all registered vehicles in the state."
Douglas Heller, executive director of the nonprofit Consumer Watchdog organization, does not feel sorry for car insurance companies. He says mandatory car insurance laws benefit the public.
"I think the insurance industry has managed just fine to understand and implement the rules of 50 different states," he says. "I don't think that is the issue."
Heller says car insurance companies dislike the regulatory oversight that goes along with having mandatory insurance laws. When people are forced to buy insurance, there is added pressure to make sure it is fairly priced, he adds.
"When you require people to buy an industry's product, it exposes that industry to more scrutiny," he says.
Recently, computer data laws have required insurers to submit updated lists of auto policies to some agencies (which vary from state to state). These agencies use the lists to verify whether registration applicants have current policies.
Hageli says mistakes often occur when insurers and state agencies have conflicting or erroneous records that mistakenly flag policyholders as lacking auto insurance.
"The state [government] and insurance companies spend most of their time trying to resolve discrepancies between their data," he says.
Loretta Worters, a spokesperson for the Insurance Information Institute, says the industry addresses the issue of uninsured drivers by offering consumers uninsured and underinsured motorist coverage. Both types of coverage are available nationwide and are optional in most states.
While such insurance does nothing to reduce the number of uninsured drivers, it does provide protection for people who suffer injuries or property losses in collisions with uninsured motorists.
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