As a business solutions company, we were asked to consider a uniform cost-effective approach to how to minimize the number of motorists operating without insurance and registration, as required by law in most jurisdictions. Before examining any particular solution, we asked the regional licensing authorities and the general insurance communities to comment on the extent of the problem and conducted extensive research in the Caribbean and United States where there is much more data for analysis. Our research suggested that those who avoid insurance also avoid registration, so the key area of focus was insurance.
Requirements related to maintaining auto insurance
Auto insurance is compulsory in most jurisdictions although the type of insurance and the amount of coverage required varies widely. Twenty-one jurisdictions in the Caribbean and 46 states in the United States and the District of Columbia require citizens to maintain auto insurance.
In spite of laws that compel the purchase of auto insurance, many choose to drive without it. Those who abide by compulsory insurance laws end up paying for those who don’t, and this is a problem. The costs are passed on to the law-abiding public in the form of uninsured motorists’ coverage. So, in addition to paying for their own actions, insured motorists also pay a portion of the costs for those who choose to disobey the law. There is also the use of vehicles for criminal activity, vehicle theft, and having to make good on repairs when uninsured drivers are involved in collisions.
Many jurisdictions have tried to solve the uninsured motorist problem in a variety of ways. One is mandating the offer or purchase of uninsured motorists’ coverage. This solution apparently recognizes that the compulsory auto insurance law does not work as intended. Other solutions include no-pay, no-play legislation where a person is barred from recovery if they do not maintain the minimum required auto insurance coverage and a variety of verification systems.
Addressing issues that increase auto insurance costs is a concern for insurance regulators. If a cost-effective national approach could be identified that reduces the cost of monitoring compliance with auto insurance laws, then insurers, motor vehicle administrators, insurance regulators, law enforcement authorities and the public would be better served.
A significant percentage of national revenues which should be collected through the registration and licencing of vehicles is lost each year due to non-compliance from the driving public. This is further underpinned by imperfect manual collection and enforcement models. The addressable market for tax on vehicles, secure licence plates, roadworthiness tests and driver’s licence issuance, based on conservative estimates, is BDS$ 90 million annually. This addressable market in small territories could sometimes be as much as 0.5% of the GDP. The revenue at risk in Barbados is very close to this percentage.
Credit must be extended to the current Barbados Labour Party-led administration and Ambassador Clyde Mascoll in particular, for his initiative in solving the manual collection issue raised above by a mandatory tax at the pump. This works well for Government. The next step must be to address the insurance element.
Other areas of interest would be the establishment of transparent, auditable processes that plug loopholes, prevent leakage of revenue, and minimize manpower and public expenditure while improving the service to the public and the maintenance and management of the operational modalities.
According to the Barbados Licensing Authority (BLA), the proportion of untaxed vehicles on the roads in Barbados cannot be verified. What can be confirmed, however, is that from the number of vehicles that should be active on the roads, more than 40% of the road tax revenue is not collected. It should be noted that this figure includes motorcycles, of which it is believed a disproportionate number – around one-quarter – are untaxed. This amounts to a total of about 44, 000 untaxed vehicles, meaning an annual loss of approximately BDS$28.6 million to the Treasury on the tax alone. These losses could easily be compounded if we assume that unregistered vehicles are also uninsured.
Despite the cost of the tax not being increased in line with the cost of providing the service, it is clear that a minority of road users are not averse to motor tax or insurance evasion. Police argue that increasing insurance costs, combined with increasing taxation, could place legitimate car ownership out of the reach of many on low incomes, including young people. With regard to young people, the increased rigour of the driving test may be a further barrier to some of them becoming legitimate vehicle users. A recent report by the Global Automobile Association states that the practice of driving without having been qualified to do so is “becoming more socially acceptable, especially amongst young people”. These factors coupled with the existence of social pressures and practical necessities for driving may, in some circumstances, lead to a sub-culture of virtually unregulated vehicle ownership and use.
The expense of disposing of old vehicles responsibly means that car owners may be inclined to sell their cars at very low cost to anyone interested in buying, without registering the transaction. In addition, some vehicles that have been abandoned and yet remain roadworthy may be picked up and used, and hence join the number of uninsured vehicles on the road.
The presence of uninsured vehicles on the roads itself brings a variety of problems, including a considerable loss of revenue to insurers and the Treasury. If an uninsured vehicle is involved in a collision or crime, it usually results in financial penalties for third parties involved in a collision with them.
Police officers also point out that uninsured vehicles are frequently used for ‘joy-riding’, or used criminally as get-away cars or in ‘bilkings’ (when petrol is stolen from garage forecourts). Other links with crime, according to the police, involve the possible use of uninsured vehicles as ‘pool cars’ by criminals who access the vehicle as their needs arise, possibly abandoning or burning the vehicle after use.
All organizations require a discipline that forces them to live up to reality. In this vein, all organizational leaders know that virtually no programme or activity can perform effectively indefinitely without modification and sometimes substantial redesign. What is required now in the next phase of this transformation is the following:
· Standardized national reporting of the status of auto insurance coverage;
· Use of an insurance industry developed ANSI ASC X12 standardized record layout and reporting format that will reduce compliance costs for the insurance industry,
· Decreases in the number of uninsured motor vehicles resulting in lower auto insurance costs for law-abiding drivers;
· Enhancement of anti-fraud efforts by regulators and insurers;
· Creation of a nationwide secure digital tool for management and enforcement of compulsory insurance laws; and
· Facilitating the ability for insurance regulators to utilize the Barbados Licensing Authority as a clearinghouse of factual, timely data with regard to motorists and vehicles.
We need to continue developing robust, effective and citizen-friendly solutions that deliver on the needs of all.
George Connolly is CEO of Business Technology Solutions Firm and a former candidate of the Democratic Labour Party.