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How States Monitor Car Insurance Compliance

Many wonder how states monitor car insurance compliance. The law is one thing: virtually every state in the country requires auto liability insurance, and some have additional requirements on top of that for their local drivers. But compliance is another, with a sizable minority of motorists still operating their vehicles without insurance. Because of the problem of uninsured motorists, those who are in line with the law pay higher rates, including mandatory uninsured motorist coverage in some states. Auto owners who are insured pay higher premiums to cover the losses that pile up when uninsured drivers are involved in auto accidents. And states also pay big, spending millions to try to track down those who flout insurance laws. In the end, drivers pay for the problem twice, in the form of higher premiums and higher state taxes.

Government Attempts at Insurance Compliance

Through the years governments have used many different methods to try to keep track of drivers and force them to comply with their state auto insurance laws. Some methods have been more successful than others. Some states have required insurers to file monthly reports on cancellations and new insurance policy purchases so that they can check their registration data against the insurers' information. This system is less than perfect because of the problem of address changes and the possibility for errors due to long vehicle identification numbers used for recordkeeping.

In some states insurers are required to report on all cancellations, lapses in coverage and non renewals. The states then use the information to create lists of drivers to follow up with. They normally ascertain that a lapse in coverage has occurred and give drivers a window of time to get insured before levying fines and other punishments. Another version of this strategy is to get monthly reports from insurers on their entire list of clients and compare it to the previous month's list. Missing drivers who do not appear on another insurer's list are targeted for this same type of contact and warnings or other actions.

Random sampling is another method that basically carries the same purpose but works in a slightly different way. In a typical application, insurers get a list of about one twelfth of their total client list each month from the state and are asked to verify that they are still insured and in good standing. Again, drivers who are fingered for lack of insurance are given warnings, fines or other means to motivate them to get insured.

What Insurance Monitoring Costs Drivers

The auto industry spends millions of dollars per year on compliance issues in the various states, and since there are no uniform rules and regulations spread out across the different localities, insurers have to work on a state by state basis in this area. This costs them in terms of efficiency. If the industry could implement nationwide compliance regulations it would save insurers a lot of money. But this is not the case; and as an end result, auto owners end up footing the bill. Insurance premiums in various states are certainly higher than they would be otherwise as a result of this kind of car insurance review. In addition to paying higher premiums to pay for the losses incurred by uninsured motorists and to finance uninsured motorist policies, drivers also pay higher taxes to fund the government activities regulating the insurance industry and the treatment of uninsured motorists in particular.

Why People Drive Without Insurance

Still, even with all the industry and government's best efforts to combat the problem of uninsured motorists, a very significant minority (varying in size and percentage in different areas of the country) continues to drive without auto insurance. There are many different reasons why this is so. Some drivers simply cannot afford it. For a portion of the uninsured, recent citations and accidents have pushed their rates too high to fit their budget. For others, economic troubles unrelated to their driving records are to blame. Job loss or other significant changes in personal financial situations often make auto insurance premiums expendable.

Another group of drivers has other reasons. Some believe the government is overstepping its bounds trying to force them to be insured. And others go without because the chances of getting caught are not high enough for them to justify the expense.

Trying to find ways to enforce the law is tough. Many punitive measures only put drivers in a position where it is even tougher to afford their policies. Fines put them deeper in the red, and suspended licenses can cost them their jobs and increase financial problems.

One system that has shown some promise is an online verification system that can be put to immediate use at the scene of an accident or traffic stop. This may be the future of governmental auto insurance compliance efforts.

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