Driving Affordability in Washington s Liability Insurance Marketplace

Evans School Student Spotlight Driving Affordability in Washington s Liability Insurance Marketplace EXECUTIVE SUMMARY The Problem Washington State s current liability insurance regulatory environment is characterized by a pricing scheme that presents significant economic barriers for low-income drivers and an ineffective verification process available to law enforcement. As a result, an estimated 16 percent of drivers do not purchase required motor vehicle liability insurance. Conventional liability insurance is priced as a lump-sum premium for an all-you-can-drive policy, which causes low-income and high-risk drivers to face particularly onerous liability premiums, pushing many to drive without insurance. In Washington State, these high premiums are coupled with the low likelihood of incurring a penalty for driving without insurance. Why should we care? This environment creates financial risks for law-abiding drivers and other road users such as bicyclists and pedestrians. The costs of damages caused by uninsured motorists are shared by those who do pay for insurance in the form of: Higher premiums for those drivers purchasing liability insurance. Unrecoverable medical and property damage caused by uninsured motorists, leaving victims with potentially severe financial burdens. The purchase of Uninsured Motorist Coverage, an additional requirement in Washington State. Who are these drivers? A significant segment of the uninsured motorist population includes drivers who require the use of a vehicle for daily commutes, but face budget constraints that make insurance unaffordable. High-risk drivers with poor records also face significantly higher than average premiums. The remaining drivers include those who can afford insurance, but choose not to buy it. Evans School of Public Affairs MPA Program Policy Competition Winning Team: Benjamin Adrian adrianbl@uw.edu Evans School of Public Affairs MPA Candidate 15 Andrew Calkins calkins1@uw.edu Evans School of Public Affairs MPA Candidate 15 Hannah Schlesinger hannahschlesinger@gmail.com Evans School of Public Affairs MPA Candidate 14 Roberto Treviño rntrev@uw.edu Evans School of Public Affairs MPA Candidate 15 28 THE EVANS SCHOOL REVIEW

Adrian, Calkins, Schlesinger, Treviño The Solution: Driving Affordability Our solution addresses both the challenging cost and lax verification elements of the existing liability insurance environment. This two-pronged approach illuminates the necessity of addressing the pricing and cost concerns in the insurance marketplace as part of any increase on the enforcement side. It does this by creating new opportunities designed to help low-income drivers enter the insurance market and by improving the enforcement of car insurance requirements. Affordable Insurance Pricing Program The first component of our proposal is tailored to help low income drivers enter the marketplace through the creation of an Affordable Insurance Pricing Program. This program will allow insurance companies to offer more affordable liability premiums through the following steps: Amend state law to allow qualifying low-income residents to purchase liability insurance with a reduced coverage amount. Increase usage of Pay-As-You-Drive and mileage-based insurance plans by creating a regulatory environment that will foster the use of, and innovations surrounding, telematic driving technology. A Verification System to Enable Event-Based Insurance Checks The second component of our proposal addresses the inefficient verification and enforcement of liability insurance in Washington State. Current rules allow for fraud and the opportunity to break rules or avoid them altogether. The rather antiquated use of paper insurance cards, in addition to a lack of a system to track policy cancellations in coverage, creates shortfalls in enforcement. To compel drivers to buyinsurance, our proposal recommends the following: Establish an electronic portal, the Washington Automobile Insurance Verification System (WAIVS), for insurance carriers and law enforcement that enables the real-time verification of liability insurance status. Near-Term Impacts: Outcomes More affordably-priced insurance options will be available to consumers, resulting in more Washingtonians driving with coverage. Increased levels of compliance as fewer drivers who can afford insurance will opt to go without it due to the introduction of a real-time verification system. VOL 4, NO. 1, SPRING 2014 29

Driving Affordability in Washington s Liability Insurance Marketplace Long-Term Impacts: Safer driving behavior: Tying insurance rates to a driver s driving behavior pattern over a shortwindow of time incentivizes safer driving habits because of the lowers rates associated with less risky driving. High-risk drivers become safer drivers. Lower premiums: Pay As You Drive (PAYD) and usage-based premiums will result in fewer milesdriven and in turn fewer accidents. Over time, this will produce lower premiums for all consumers. Safer roads: Usage-based insurance policies contribute to safer driving habits in the long-term. 1. The Problem Washington State s current liability insurance regulatory environment features a pricing scheme thatpresents significant economic barriers for low-income and high-risk drivers. These high costs are coupled with an ineffective insurance verification system. As a result, an estimated 16 percent of Washington drivers do not have required motor vehicle liability insurance. 1 Why should we care? The high rate of uninsured motorists on the road is an ongoing concern for Washington State, as evidenced by the several bills considered in recent years by the State legislature. Liabilities caused by uninsured drivers are borne by all other road users, including other drivers, passengers, bicyclists, and pedestrians. These costs manifest themselves in the form of: Higher premiums for those drivers purchasing insurance. Unrecoverable health care bills caused by uninsured motorists, leaving victims with potentially severe financial burdens. The purchase of Uninsured Motorist Coverage, an additional insurance requirement in Washington State. Unreimbursable damages to vehicles and property. Who are Uninsured Motorists? Data on uninsured motorists has been difficult for researchers to gather; there is no centralized database maintained by the State and there is not a straightforward way to otherwise identify uninsured motorists. Uninsured motorist rate estimates are derived from insurance industry trade groups and incorporate statistics from crash reports. Also, many people are hesitant to selfidentify as failing to comply with the law as part of a survey. 1 Insurance Research Council, 2011. 30 THE EVANS SCHOOL REVIEW

Adrian, Calkins, Schlesinger, Treviño Using insurance industry research, we characterize uninsured motorists into three categories: Low-income drivers who require a motor vehicle for daily commutes, but face budget constraints that make insurance unaffordable. Individuals of all income levels with poor driving records facing significantly higher-than-averagepremiums. Drivers who could afford the purchase of insurance, but choose to forego it. National data suggests that the majority of uninsured motorists fall into this first category and comprise a low socioeconomic group with minimal assets and low-incomes. 2 Rates of uninsured motorists can be significantly higher in these communities. In California, the state found that two-thirds of drivers were uninsured in some disadvantaged communities. 3 Why not buy required insurance? Motor vehicle liability laws are intended to protect people from financial loss done to them by other drivers. These laws require drivers to have liability insurance to ensure that they are able to reimburse victims for damages they are responsible for. Threat of a lawsuit serves as a financial incentive for many drivers to insure themselves against potential damages they cause while driving. However, if a driver lacks significant assets, there is no financial self-interest to carry liability insurance. Persons without assets are also more likely to have an income level that makes other driving costs, such as car ownership and gas, a significant affordability challenge, and the purchase of liability insurance beyond reach. In Washington State, the cost burdens of liability premiums are coupled with a low likelihood of incurring a penalty for driving without insurance. Verification of insurance compliance only occurs during a traffic stop by law enforcement or after a road collision. To check a driver s insurance status, law enforcement asks for proof of insurance from the driver. A proof-of-insurance card from the insurer fulfills the requirement. Recent updates to Washington State law include a provision that allows an electronic proof-of-insurance card to be displayed via a mobile phone, however, there is no mechanism available for law enforcement to verify that a driver s policy is up-to-date and current with the insurer. This creates an opportunity to game the system with fraudulent documents by cancelling coverage but keeping the proof-of- 2 Khazzoom, J. D. (September 01, 2000). What We Know About Uninsured Motorists And How Well We Know What We Know. Journal of Insurance Regulation, 19, 1.) 3 Characteristics of Uninsured Motorists (February, 1999). California Department of Insurance. http://www.insurance.ca.gov/0400-news/0200-studies-reports/0600-research-studies/auto-policy-studies/upload/characteristics-of-uninsured-motorist.pdf. VOL 4, NO. 1, SPRING 2014 31

Driving Affordability in Washington s Liability Insurance Marketplace insurance card. Washington s current system, without the capability of an accurate and real-time verification check of insurance status, falls short in providing an effective deterrent to driving without insurance. Why Now? As a result of advancing technology and reduced costs, the past two decades have seen a number of states take steps to improve liability insurance compliance and decrease the rate of uninsured motorists. Yet recent legislative attempts in Washington State have been unsuccessful, with a number of bills pertaining to insurance compliance being introduced, but not being passed. This suggests momentum among lawmakers to coalesce around an effective proposal. Technology has continued to evolve, and innovations in insurance pricing has advanced cost-effective and feasible tools to help address participation challenges in the required auto liability insurance market. This proposal provides a policy framework and a path forward to tackle both the affordability of insurance and the verification weaknesses in the current system. 2. THE POLICY SOLUTION 2.1 The Proposal: Driving Affordability Driving Affordability pursues an innovative path to address both the pricing scheme shortfalls and the ineffective verification elements of Washington State s existing insurance environment. Our two-pronged approach is founded on an understanding of the problem as laid out above, and that addressing the pricing and cost concerns in the insurance marketplace must be part of any increase in the verification of compliance with existing laws. This proposal minimizes the economic barriers to insurance for low-income drivers thereby enabling them to more easily enter the market, while also improving the verification of car insurance requirements. As part of the Driving Affordability plan, we suggest both the implementation of the Affordable Insurance Options Program and the Washington Automobile Insurance Verification System (WAIVS). The Affordable Insurance Options Program Reduced Liability Coverage Requirements for Qualifying Low-Income Drivers The Affordable Insurance Options Program is specifically tailored to lowincome drivers who make up the bulk of uninsured motorists. The program will reducing coverage minimums to levels more appropriate to a low-income drivers socioeconomic conditions. The program will authorize reduced liability insurance coverage amounts for qualifying drivers. The reduced coverage amounts will allow 32 THE EVANS SCHOOL REVIEW

Adrian, Calkins, Schlesinger, Treviño for more affordable premiums to be offered by insurance companies. Only lowincome drivers who meet certain eligibility requirements on both income and asset levels would be able to purchase reduced liability coverage plans. 4 The eligibility requirements are meant to ensure that participating drivers are not excessively risky. Insurance would be offered through traditional, private marketplaces in the following forms: A conventional insurance package with an all-you-can-drive premium, and, A Pay-As-You-Drive policy with a usage-based pricing component. In conventional insurance pricing, low-mileage drivers face higher premiums than high-mileage drivers when viewed on a per-mile basis. On average, lowincome households drive fewer miles than other income levels. Also, reduced coverage amounts make economic sense for low-income drivers because they have fewer assets to protect. The reduced rate for PAYD participants provides a further opportunity for drivers to save money while complying with state law. Our proposal recommends reducing liability coverage minimums for qualifying low-income drivers to $10,000/$20,000/$3,000 (bodily injury for first person/bodily injury for second/property damage). These limits are a reduction from the $25,000/$50,000/$10,000 minimums currently required for all drivers. These reduced minimums are equal to the minimum coverage requirements in California. 5 Usage-Based Insurance Pricing The Affordable Insurance Options Program requires that an insurance firm offering reduced liability coverage plans include at least one plan with a usage-based pricing scheme. An additional component of the affordability challenge low-income drivers face is the lump-sum payment structure of conventional insurance. As a tool to help budget-constrained drivers, our proposal includes a provision that participating firms sell one plan with a per-mile pricing component to reduce the impact of a lump-sum payment and allow for savings over all-you-can drive pricing. More flexibility in pricing will further help low-income customers enter the insurance marketplace via reduced-coverage insurance plans. As the below graphic shows, lowincome drivers drive less on average than higher income households. 6 This low-mileage characteristic of low-income drivers suggests greater potential for monetary 4 See Appendix for list of qualifications. 5 Uninsured Motorists. The Insurance Information Institute, 2013. http://www.iii.org/facts_statistics/uninsured-motorists.html. 6 6 Graphic from the Brookings Institution, Pay-As-You-Drive Auto Insurance:A Simple Way to Reduce Driving-Related Harms and Increase Equity, 2008. Page 10. VOL 4, NO. 1, SPRING 2014 33

Driving Affordability in Washington s Liability Insurance Marketplace savings from usage-based policies. Average Mileage Per Vehicle, by Household Income Level 15,000 14,000 13,000 12,000 11,000 Average Annual Mileage 10,000 9,000 8,000 0 0 $2,500 $7,500 $12,500 $17,500 $22,500 $27,500 $32,500 $37,500 Annual Household Income $42,500 $47,500 $52,500 $57,500 $62,500 $67,500 $72,500 $77,500 $90,000 >$100,000 WAIVS (The Washington Automobile Insurance Verification System) Using Technology to Hold Drivers Accountable The second component of our proposal addresses the ineffective verification of liability insurance compliance in Washington State. Vulnerabilities in the current verification system diminish law enforcement s capability to hold drivers accountable, and fails to reach sufficient compliance. To better compel drivers to buy insurance, our proposal recommends the following: Establish an electronic portal, the Washington Automobile Insurance Verification System (WAIVS), for insurance companies and law enforcement that enables the real-time verification of liability insurance status. Limit law enforcement s usage of WAIVS to only when a traffic stop has already been made. 2.2. Intended Beneficiaries and Needs Assessment Informed by the strengths and weaknesses of the shifting insurance market over the past two decades, Driving Affordability is an innovative approach that connects the fragmented elements of Washington State s insurance market to create more affordable and equitably priced options. Driving Affordability bridges the gap between what low-income drivers are willing to pay and what the insurance indus- 34 THE EVANS SCHOOL REVIEW

Adrian, Calkins, Schlesinger, Treviño try is willing to offer. By improving the affordability of liability insurance for lowincome drivers and a system to verify insurance compliance, Driving Affordability has several social, economic, and institutional benefits. Social: Driving Affordability incentivizes the creation of a marketplace where consumers and producers can benefit, while also addressing broader goals of providing better access for underserved populations. Driving Affordability creates marketplace equity by reducing coverage minimums to levels more appropriate to a low-income drivers socioeconomic conditions. Additionally, Driving Affordability helps to reverse the regressive subsidization of high-mileage drivers by low-mileage drivers. When low-income individuals are insured, they benefit from increased economic security by reducing the potential of financial hardships incurred through car collisions. Further, individuals who become insured receive the added benefit of complying with social norms. 7 Economic: In the service delivery industry, where customer loyalty is directly linked to price sensitivity (and this is especially true for new customers), expanding insurance plan options has a cascading effect of a thriving insurance market where consumers and produces benefit. By encouraging fair competition, Driving Affordability promotes greater levels of market activity and provides more reasonable rates for consumers. The equitable liability minimums and reduced rates will allow low income drivers to participate in the market. As more drivers enter in market, personal cost will be redistributed resulting in cheaper premiums overall. Moreover, once in the door, opportunity now exists for insurance companies to improve upon their standing with their customer by cross-selling insurance products. These factors combined improve insured retention and yield greater earning potential for the insurance industry. 8, 9 Institutional: WAIVS offers a seamless integration of technology which can enable Washington State to more effectively protect the consumer and hold the public accountable. 10 A number of key benefits include: 7 Felner, T.; D. Heller and J.R. Hunter. (2013). What Works: A Review of Auto Insurance Rate Regulation in America and How Best Practices Save Billions of Dollars, Washington, D.C.: Consumer Federation of America. 8 Ibid. 9 Dawes, J. (2009). The effects of service price increases on customer retention the moderating role of customer tenure and relationship breadth. Journal of Service Research, 232-245. 10 American Association of Motor Vehicle Administration. (2014, January 24). Auto Insurance and Financial Responsibility. Retrieved from American Association of Motor Vehicle Administration: http://www.aamva.org/auto-insurance-and-financial-responsibility/. VOL 4, NO. 1, SPRING 2014 35

Driving Affordability in Washington s Liability Insurance Marketplace Preserving the legal framework integrity and providing victims a path toward compensation. Providing law enforcement better tools enabling them to carry out duties in public safety. The government will benefit from compensation for damages to government property, and costs reduced as payer of last resort. Financial responsibility assigned to culpable party leading to fewer claims originating from uninsured motorist accidents. 2.3. Structure of Implementation Two state agencies will be responsible for ensuring Driving Affordability s two pieces are successfully implemented: The Office of Insurance Commissioner (responsible for the Affordable Insurance Options Program) and the Department of Licensing (responsible for WAIVS). Our plan will require approval from the state legislature. Our draft legislation (see Appendix 2) illustrates one way in which legislation could be brought forward. Affordable Insurance Options Program Once approved by law, insurance providers will be the vehicle through which reduced liability coverage insurance is sold to low-income drivers (consumers). The approval of the new reduced coverage plans will function similar to the current rate-approval process where companies submit rate requests annually to the State Office of the Insurance Commissioner. Companies which have already filed to offer PAYD or usage-based policies will be able to enter the low-income insurance market relatively quickly. While others firms will enter the market because there are profits to be made, if they lack existing PAYD plans or technologies, there will be an additional ramp-up period to acquire or license usage-based technology. Many Washington companies, such as MetroMile, already offer PAYD policies and would need to make only minor adjustments to pricing models to account for reduced-coverage plans. WAIVS The implementation of WAIVS will require more direct participation by the Department of Licensing at the outset than the Affordable Insurance Options Program. The WAIVS portal will involve a connection between insurance companies and law-enforcement agencies. First, the DOL will select a contractor to build a design for the interface to be used by law enforcement when pinging insurance companies for compliance checks. The design of the portal will include insurance 36 THE EVANS SCHOOL REVIEW

Adrian, Calkins, Schlesinger, Treviño company input to ensure technical standards are met for enabling a real-time signal to be sent back to the requesting user, indicating insurance compliance status. 2.4. Has This Idea Been Tested Before? Driving Affordability brings together a number of policies and technologies that have been proven to work well in other states: Reduced Liability Coverage: California is one state where policymakers have worked since 1999 to make insurance available to low-income drivers through the California Low-Cost Automobile Insurance Program (CLCA). The CLCA, like the first component of our own proposal, offers reduced liability minimum plans to qualifying low-income drivers. The program in California has been successful at keeping premiums down, increasing enrollment with each year, 11 and is estimated to have decreased the uninsured motorist rate by one percent in counties where it was initially rolled out. 12 Yet, it is clear that there is a lot more interest than is reflected in the program s enrollment numbers. In 2014, the CLCA program reported that 567,500 drivers expressed interest in the program but only 9% were deemed eligible. 13 Some of these limitations included inadequate outreach and publicization of the program, stringent eligibility requirements, and difficulty in turning eligible applicants into buyers. 14 Our proposal improves upon these limitations by creating a competitive environment where companies will be incentivized to build innovative insurance products to gain customers. On a practical level, our proposal suggests less stringent income eligibility requirements as a means of reaching a more economically robust group of eligible customers. Pay-As-You-Drive Insurance Pricing: Pay-As-You-Drive and usage-based technology have been used by several insurance companies inwashington and is more widespread in the state to our south, Oregon. Many states have promoted PAYD as a way to create more equitable insurance marketplaces. Studies show that PAYD increases fairness and helps to reverse the subsidization of high-mileage drivers, in 11 California Low Cost Auto Insurance Program, Report to the Legislature & Consumer Education and Outreach Plan (2014). http://www.insurance.ca.gov/0100-consumers/0060-informa- tion-guides/0010-automobile/lca/upload/2014-clca-report-to-legislature-rev- 03-06-14.pdf. 12 Sun, Stephen Teng and Yannelis, Constantine (2013): The Real Effects of the Uninsured on Premia.http://mpra.ub.unimuenchen. de/50087/1/mpra_paper_50087.pdf. 13 California s Low Cost Auto Insurance Program Report to the Legislature & Consumer Education and outreach Plan (2014). 14 In 2013 51,755 people were found to be eligible but only 10,153 purchased insurance. VOL 4, NO. 1, SPRING 2014 37

Driving Affordability in Washington s Liability Insurance Marketplace addition to reducing vehicle-miles-traveled. 15 Progressive, for instance, already has technology to track how you drive and informs premiums based on one s driving score; MetroMile offers mileage-based plans in Oregon and Washington. WAIVS: Many states have used technology such as centralized databases to improve their insurance verification systems to allow real-time verification by law enforcement. However, databases have not been as successful as promised in reducing the uninsured motorist rates. The WAIVS System ensures that law enforcement has access to accurate information when verifying insurance, removing doubt of policy authenticity that exists under the current proof-of-insurance approach. A single-point solution, or clearinghouse, for insurance compliance information is a significant improvement over a paper documentation system. Recent updates to Washington State law allowing electronic insurance documentation, rather than paper, still encumbers law enforcement to be pro-activein asking for insurance status and increases the time required. Today, software firms are able to offer off-the-shelf software solutions designed to work with insurancecompanies and law enforcement technology protocols. We propose up to three years be allowed for the Department of Licensing to implement WAIVS, so that the most cost-effective system can be identified and tailored to Washington State. 2.5. Impacts and Outcomes The near-term goals of Driving Affordability and specifically the Affordable Insurance Options Program are to reduce premiums for low-income drivers. While difficult to estimate what premium reductions insurance firms will offer, using California for rough guideline, we believe the reduction in liability premiums will be a considerable amount given the underlying budget constraint. For example, in 2013, liability premiums in California s low-income program range from $226 to $338 per year, compared to a $745 average premium for non-participating drivers. Washington s higher coverage amounts and average premium of $815 suggest we would not observe as low of a premium here. However, a similar percentage drop would see Washington premiums become significantly more affordable. Additionally, using the annual number of policies in force in California as a conservative benchmark, the insurance industry is set to gain $2.5 million in revenues each year from new policyholders, not accounting for additional revenue gained from cross-selling additional insurance products. Assuming a sustained level of low income policies, over a 10-15 The Brookings Institution, Pay-As-You-Drive Auto Insurance:A Simple Way to Reduce Driving- Related Harms and Increase Equity, 2008. 38 THE EVANS SCHOOL REVIEW

Adrian, Calkins, Schlesinger, Treviño year period adjusting for a general inflation of three percent, the present value that the insurance industry stands to gain is more than $21.9 million in revenues. California reports that on average, there are approximately 10,000 policies under the CLCA program in force annually. Participation in the program has continued growing as the public have become more aware of its existence. Improving upon the concept established by California by altering criteria so that more low income drivers qualify for Driving Affordability s lower insurance plans, and embedding this new market into the existing insurance market, our proposal removes two of the key barriers preventing higher levels of participation in California. 16 Near-Term Impacts More appropriately priced insurance options will be available to low-income drivers, resulting in more Washingtonians being able to afford liability premiums. Expansion of PAYD insurance as Affordable Insurance Options Program develops a marketplace for ideal low-mileage customers. Once implemented, WAIVS will increase liability insurance compliance as fewer drivers who can afford premiums will opt to go without coverage due to higher likelihood of incurring a penalty. Long-Term Impacts Offering mileage-based policies to low-income drivers will help raise awareness of the potential benefits, helping to expand PAYD to low-mileage drivers of all income levels. Lower premiums: Pay-As-You-Drive premiums will result in fewer miles driven and in turn fewer accidents. Overtime, this will produce lower premiums for all consumers. We will measure success in three ways: The number of purchases of Affordable Insurance Options Program plans (tracked by OIC). The average price of premiums offered for Affordable Insurance Options Program plans. The uninsured motorists rate in Washington State. 16 California Low Cost Auto Insurance Program, Report to the Legislature & Consumer Education and Outreach Plan (2014). http://www.insurance.ca.gov/0100-consumers/0060-information-guides/0010-automobile/lca/upload/2014-clca-report-to-legislature-rev-03-06-14.pdf. VOL 4, NO. 1, SPRING 2014 39

Driving Affordability in Washington s Liability Insurance Marketplace Appendix 1 Details of the Affordable Insurance Options Program Eligibility and Entry into the Plan In order for insurers to have a viable and profitable risk pool, they will need safe drivers to purchase their coverage. The Office of Insurance Commissioner will work with industry to implement the plan. We suggest the following eligibility requirements as a starting point: Household income of 300 percent of the poverty line. No accidents within three years. No traffic violations within one year. A car worth less than $20,000. Plan To Be Offered The reduced liability coverage under the Affordable Insurance Programs plan will be lowered to allow for premiums and coverage minimums that better correlate to one s income: $10,000 of bodily injury/death of one person in any one accident, $20,000 of bodily injury/death of any two persons in any one accident, and $3,000 for destruction of property of others in any one accident. Form of Insurance Coverage Insurance companies desiring to offer reduced-coverage plans will be required to offer some form of a PAYD pricing model. Most insurance companies would likely offer: A traditional lump-sum insurance plan with reduced-coverage. A Pay-As-You-Drive policy. 40 THE EVANS SCHOOL REVIEW

Appendix 2 Draft Legislation Adrian, Calkins, Schlesinger, Treviño SENATE BILL [] State of Washington 64 th Legislature 2015 Regular Session By Sponsoring Senators AN ACT Relating to a low-income automobile insurance program; usage-based insurance; the creation of an insurance verification portal; amending 46.29.090 RCW; adding a section to Chapter 48.22 RCW; adding a section to 46.30 RCW. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON: NEW SECTION. Sec. 1: A new section is added to 48.22 RCW to read as follows: (1) The legislature finds that the high rate of uninsured motorists in the state warrants a policy action to lower costs of insurance plans and provide more equitable insurance options to low-income consumers. The choices of automobile insurance policies available for purchase in the state are not sufficient to address the needs of low-income and low-mileage drivers. Current minimum liability coverage as mandated by RCW 46.29.090 do not take into account the lower net-worth of low-income drivers or the ability of these drivers to pay for the cost of this coverage. Further, the introduction of usage-based or pay-as-you-drive automobile insurance policies are not being offered in sufficient numbers to provide for widespread adoption. This bill provides qualifying low-income drivers with more options through reduced liability coverage policies and the option of buying this coverage through usage-based insurance plans. (2)(a) For purposes of this section, low-income driver means a person with household income not greater than two hundred and fifty percent of the federal poverty level. (b) For purposes of this section qualifying drivers means drivers who meet safe driving requirements as established by the Office of the Insurance Commissioner. (c) For purposes of this section insurance providers means firms authorized by the Office of Insurance Commissioner to sell insurance in the State of Wash- VOL 4, NO. 1, SPRING 2014 41

Driving Affordability in Washington s Liability Insurance Marketplace ington. (3)(a) Insurance providers are permitted to sell reduced liability coverage insurance plans with minimums as described by 46.29.090 RCW to low income and qualifying drivers. Reduced liability coverage plans and their rates are subject to the approval of the Office of the Insurance Commissioner. (b) The Office of Insurance Commissioner shall work with insurance providers to establish reasonable eligibility requirements to determine who qualifies as an eligible driver. The requirements shall be sufficient to maintain a sustainable risk pool which may include driving history, at-fault accidents, and traffic violations. (c) Each policy offered by an insurance provider shall not insure motor vehicles worth more than twenty thousand dollars. (d) Each policy shall have a term as determined by agreement between the insurance provider and the low-income and qualify driver. (4)(a) For the purposes of this section pay-as-you-drive insurance means any insurance policy that in calculates premiums on a per miles traveled basis. (b) Any insurance provider offering reduced liability coverage insurance as defined by 46.29.090 RCW must provide a pay-as-you-drive insurance policy to low-income and qualifying drivers. NEW SECTION. Sec. 2: A new section is added to 46.29.090 RCW to read as follows: (1)(a) Mandatory liability insurance coverage for automobile liability insurance sold under the reduced liability coverage plan as described by 48.22 RCW shall cover ten thousand dollars because of bodily injury to or death of one person in any one accident and, subject to this limit for one person, twenty thousand dollars because of bodily injury to or death of two or more persons in any one accident, and three thousand dollars because of injury to or destruction of property of others in any one accident. NEW SECTION. Sec. 3: A new section is added to 46.30 RCW to read as follows: (1) The legislature further finds that the current insurance compliance laws as cited in 46.30.020 RCW do not provide sufficient incentives for drivers to purchase insurance because of a low probability of being in an accident and the low probability of being asked by law enforcement to present proof of compliance with existing liability insurance laws. Therefore, the purpose of this bill is to provide a new verification system to assist law enforcement in verifying automobile liability insurance compliance. (2)(a) For the purposes of this section, insurance verification portal means the Washington State Automobile Insurance Verification System (WAIVS). 42 THE EVANS SCHOOL REVIEW

Adrian, Calkins, Schlesinger, Treviño (b) The Department of Licensing shall work with insurance providers to establish an insurance verification portal between insurance providers and law enforcement. (c) The insurance verification portal shall facilitate a real-time law enforcement request to insurance providers requesting compliance status on a Washington State driver or vehicle. (d) The insurance verification portal shall be used by law enforcement only after a routine traffic stop has been made or at the site of a vehicle collision. VOL 4, NO. 1, SPRING 2014 43