Insurance Verification Systems May Save States Money

Uninsured drivers are a potential cash cow for states, but only if managed correctly. Currently states use old fashioned methods to verify whether a driver has auto insurance. Auto insurers are required to notify a driver’s DMV when she has dropped her insurance policy, but there is a significant lag time between when the customer cancels her policy and when the DMV is notified. In the meantime, the state could have brought in revenue by charging a fine of $250 or more to uninsured drivers.

States like Nevada and Montana are looking into online insurance verification systems that would verify whether a driver’s insurance policy is active so that law enforcement and DMV employees could instantly search for a driver’s record to see if they have insurance. If the driver does not carry insurance, they would not be allowed to renew or register a vehicle, and would receive a traffic citation if pulled over.

In a state like Montana, where 15% of drivers are uninsured, this could be a boon for the state in terms of revenue from fines. In the economic crisis, states need revenue where they can get it, and with tax hikes being unfavorable, charging fines for uninsured drivers may be a way to bring money into these states.

If a driver is pulled over and has the necessary paperwork showing he has car insurance, it may not be accurate. Policies can be cancelled and if payments aren’t made on a policy, they are terminated. But an insurance card doesn’t reflect this. A real-time online insurance verification system would prevent fraud and help identify the drivers who are putting themselves and others at risk by not carrying car insurance.

Alternative Solutions in Hard Times

Understandably, the rate of uninsured drivers has risen since the economy crashed a few years ago. Increases in unemployment as well as tighter budgets mean many Americans simply do not have the money to pay for car insurance.

Unfortunately, auto insurance is a necessity, not a luxury. But many state lawmakers are making efforts to provide lower cost insurance options to assist lower income drivers in having appropriate coverage. These states may offer subsidized car insurance or lower coverage to ensure that every driver has access to affordable vehicle insurance, at any income level. Some insurance providers also negotiate rates for drivers who have been involved in catastrophic illness, loss of employment or death of a family member.

Other states are looking at alternate ways for people to pay for their car insurance, which may help them pay less. These include:

Paying by the mile: a driver would purchase a set number of miles that her car would be insured for, such as 10,000. The more miles purchased, the lower the per-mile rate. After those miles are used, the driver can buy more.

In-vehicle devices: some states are considering installing a device that would track how many miles a car drives and base the insurance rate on that.

Pay at the pump: Insurance costs could be added on to the price of fuel.