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Louisiana: Insurance Required

BY Chris Gautreau
by Chris Gautreau on 10/15/00.

Driving without insurance in Louisiana has become increasingly difficult over the past two years.

From October 1998 through June of this year, thousands of cars were impounded when drivers were unable to prove they carried state-mandated liability insurance policies. That law combined with court-approved insurance checkpoints and so-called "no pay, no play" laws that limit an uninsured driver's claim to damages comprise some of the country's toughest compulsory insurance laws.

Some state officials say the tough laws are worth it and point to recent insurance premium reductions as proof. But it is unclear whether the laws and lower rates are connected. Experts say the state's insurance reforms may play a role in the reduction, but one that is small and indirect.

And whether compulsory laws actually work is equally unclear. No Louisiana agency currently tracks figures on numbers of uninsured motorists, while a pair of insurance industry studies indicate that mandated insurance laws generally do not lower the number of uninsured drivers. The vehicle impoundment law was passed in 1997 as part of a package of bills proposed by state Insurance Commissioner Jim Brown.

The law allows police to immediately seize cars when drivers cannot produce proof of liability insurance. Owners can retrieve their cars once they offer proof of insurance, which could mean they then are buying coverage.

The measure tightened previous laws that gave uninsured drivers up to 10 days to show proof of insurance after being caught without it.

The impoundment law was overturned in January 1998 in state district court, but was reinstated that October when the ruling was overturned by the state Supreme Court.

State records indicate enforcement of the impoundment law is not uniform in Louisiana. The number of insurance-related vehicle impoundments is tracked by the Office of Motor Vehicles, which reports them to the Council on Automobile Insurance Rates and Enforcement, or CAIRE, a division of the state Insurance Department.

According to the Office of Motor Vehicles, Baton Rouge impounded 4,207 vehicles - the highest number of vehicle seizures among Louisiana cities - between October 1998 and June 2000, the latest period for which complete figures were available. New Orleans, the state's largest city, was next with 2,810, or about one-third fewer.

Monroe was third on the list with 722 seizures, followed by Lafayette with 630. Shreveport, which is larger than Monroe and Lafayette, was ninth with 317.

Baton Rouge police officials voiced surprise at the local impoundment figures. Police Chief Greg Phares said he did not necessarily dispute the figures but said that his office was in the process of trying to verify exactly how many violations his officers have written.

Phares said his department's enforcement of the impoundment law is often dictated by its budget, specifically how much money is available for the overtime officers earn to set up periodic checkpoints.

"We have proposals for all kinds of specialized enforcement. As police chief, I have to prioritize them," Phares said. "It's clear to me that there is a significant problem with uninsured motorists in this state, not just in Baton Rouge. It clearly is a problem for those drivers who are more responsible and meet their obligation to society but run the risk of being hit by someone without insurance." Insurance Commissioner Brown, who was suspended last week after being convicted on seven counts of making false statements to an FBI agent investigating an insurance settlement case, has attributed recent insurance rate reductions in large part to the state's tough stance against uninsured drivers.

"No doubt about it," Brown said recently. No pay, no play; vehicle impoundment; and a crackdown on drunk drivers "are playing a larger part in lowering insurance claims and costs."

But other experts stopped short of making a direct correlation. Rich Piazza, an actuary for the state Insurance Rating Commission, said the state's reform measures may have played a part in recent rate reductions but rates rise and fall based on a number of variables. "Lots of things affect rates - impoundment and no pay, no play are just two," Piazza said.

Insurance companies often use complex formulas that take into account myriad factors in an effort to forecast rates over the next three to five years, he said. "Who knows what we might encounter? We could have environmental issues. We could have more rain that causes more accidents," he said.

An industry representative agreed. Compulsory laws are "not part of the rate-setting equation," said Gary Stephenson, a regional spokesman for State Farm, the state's largest auto insurer.

In August, State Farm reduced premiums an average 2.3 percent in Louisiana. Stephenson said the reform measures did play a part in the reduction, but so did other factors, such as State Farm's lower operating costs, safer-made cars and an ongoing fight against fraud.

The vehicle impoundment law can affect rates, but indirectly, he said. If drivers face the threat of having their cars seized, they are more likely to buy insurance. With more drivers in insurance pools, the costs for individual policyholders is reduced, Stephenson said. "More people buying insurance would spread the cost of claims." One consumer advocacy group claims compulsory insurance laws could be driving up premium costs. The Citizens for a Sound
Economy Foundation points to a National Association of Independent Insurers study that found uninsured-motorist coverage in states with compulsory laws averaged about 27 percent more than non-mandatory states. The study also found drivers in states with compulsory laws were 21 percent more likely to file an injury claim caused by an uninsured driver. Injury claims can be very expensive and drive up costs for insurance companies.

Whether compulsory insurance laws actually reduce the number of uninsured drivers is unclear as well. Currently, no state agency is charged with keeping such figures.

Brown said that since such laws have hit the books in Louisiana, the number of uninsured motorists have dropped from an estimated 33 percent to about 24 percent.

Brown, who acknowledged that accounting for uninsured drivers is not an exact science, said he based his figures on state police data, such as citations handed out at insurance checkpoints and new car registrations. State police could not confirm those figures, however. "I think it would be very difficult, if not impossible, to quantify the exact number of people who are driving without insurance," said state police spokesman Lt. Mike Edmonson.

A pair of national studies by NAII found that over the long run, mandatory insurance laws don't lower the number of uninsured drivers. NAII tracked compliance in states with mandatory insurance laws in 1985 and 1995. Both studies concluded that the number of uninsured drivers declined when compulsory laws were enacted, but the levels eventually increased as many drivers allowed policies to expire. In 1995, NAII found 14 percent of U.S. drivers were uninsured. Compulsory laws' effectiveness largely depends on the level of enforcement, said Ruth Gastel of the Insurance Information Institute. The industry-funded organization based in New York collects and distributes information about insurance. "Many states have compulsory insurance laws, but police departments usually have more important things to do," Gastel said. "If you have a law on the books and it's not enforced, you might as well not have the law." Gastel said drivers ignore mandatory insurance laws for several reasons, but primarily cost.

Some drivers can't afford it, while others with poor records don't want to pay higher premiums.

Even when uninsured drivers buy a policy to retrieve their seized cars, Gastel said, there is no guarantee that regular policy payments will be maintained.

"With the percentage of uninsured motorists as high as 30 percent in some states, it is costly to track down violators. And unless the odds of getting caught are high, drivers will continue to flout the law," Gastel said.

Nonetheless, the legislator who shepherded the vehicle impoundment measure into law steadfastly defends it.

Sen. Jay Dardenne, R-Baton Rouge, said the law was never intended to lower insurance rates or get more drivers to buy insurance. "My whole objective in the impoundment law was to move uninsured vehicles from the streets," Dardenne said. "The bigger motivation in my mind was telling drivers, 'If you're not going to follow the law, you're not going to have the privilege of driving and put other people in danger by not having insurance.' "