Insuring Unlicensed Drivers

By Author: Norris Rios
Total Articles: 572
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In most states, all drivers have to carry key documents with them so that, if stopped by the police while driving, they can prove a license to drive, that they are insured and that the vehicle is properly registered. In California, you need all three to be legal on the road. Yet here's an oddity. In California, no one can apply to register their vehicle unless they have insurance. So if someone proves ownership of a vehicle and has paid for an insurance policy, the Department of Motor Vehicles will accept the registration. This will be so even though the owner can't legally drive, say, because the license has been revoked or suspended due to traffic violations. This produces the odd statistic that about 12% of unlicensed drivers in California are actually fully insured. Drivers may not care whether they break the law on licensing, but they do care whether someone might invite them to pay if there's an accident.

This is not a secret. Indeed, many of the smaller insurers actively advertise this possibility and have found quite a substantial market of unlicensed drivers who do not want to risk their savings or credit limits ...
... should they get into an accident. This bends a more common rule used by some insurers to avoid payment. If an unlicensed driver fails to disclose the fact no license is held, this makes the driving illegal and insurers can cancel the policy. But if the Californian driver is honest to the insurer, all claims will be met even though the police might impound the car for driving it without a license.

More generally, it points to the fact the Californian insurers know which drivers are on the road illegally. Yet the police, the Department of Motor Vehicles and the insurers never talk to each other. Just think how easy it would be to enforce the mandate on holding a license and liability insurance if the three key players shared a database. Then the police could scan every tag as vehicles pass through a checkpoint and detect which are unregistered, whether the drivers are licensed and if there are valid policies of insurance in place.

As an example of how data sharing might help everyone, let's move down to the border between Mexico and Arizona. One company is selling short-term insurance to drive on the US roads, ignoring whether the Mexican drivers have valid licenses. This company also offers to share all their data on Mexican drivers and vehicles with US law enforcement agencies. This is self-interested. The more uninsured drivers who are caught, the more Mexican drivers will be motivated to buy the short-term policies. But, in a state like Arizona which is deeply suspicious of immigrants, this will make it quick and easy to take uninsured drivers off the road. Now all we want is the same approach applied to US drivers.

Car insurance quotes will fall for all drivers if the mandate to carry liability insurance is properly enforced and the number of uninsured drivers falls. It's actually the same for health insurance but that's another article. The general rule is that, if all the affected parties pay their insurance premiums, everyone pays less. Only if people ignore the mandate does car insurance cost more.