Scott Stanford:

Hi everybody, I'm Scott Stanford. Welcome to The Infrastructors. This is the premier podcast for engaging conversations with influential thought leaders in AI, tech, government policy and smart city innovation. Today's guests are the chief insurance officer at the Insurance Information Institute and president of the Insurance Research Council, Dale Porfilio, and the assistant Vice President of the Insurance Research Council, Vickie Kilgore.

Dale and Vickie, thank you guys so much for spending a little time here on The Infrastructors with us. Listen, first off, I got to know, Dale, tell me about the Insurance Information Institute and the Insurance Research Council. What is the mission of both of those organizations before we get into this?

Dale Porfilio:

Sounds great, and thank you, Scott, for having us here on your podcast today. I'll give you a quick history of each of the organizations, and they each have their own foundation and their own mission here. The Insurance Information Institute, or III as we abbreviate it because it gets it a little lengthy, was started in 1960 when the insurance industry, a number of different carriers decided it'd be good to have somebody who can speak on behalf of the industry and give a broader perspective than any one single company can. So, we state our official mission now as we're a trusted source of unique data driven insights on insurance to inform and empower industry's stakeholders and consumers.

The Insurance Research Council, likewise, was created when different insurance companies said, if we came together and shared our claims data, could we perform some research that each of us as an individual company may not be able to do? And in 1977 they came together to start looking at auto injury studies, and that has always been the kind of marquee research that the IRC has done. We do other research too, other topics, but we focus on providing timely research and valuable insights on public policy issues in the property and casualty insurance industry.

Scott Stanford:

Okay. So we're talking about driving safety around the country. Obviously auto insurance is one of the first things that comes to mind. Vickie, I'm one of those guys that I can't sleep at night if I don't have my auto insurance, or my health insurance paid up. I won't get in the car if my car's not inspected. How pervasive is driving without insurance in the country? Is it happening more often than we think?

Vickie Kilgore:

That's a very good question, Scott. And that's one that the IRC has been researching for more than 40 years. There are obviously many different ways to measure the pervasiveness of driving without auto insurance. You can do public opinion surveys and ask people, you can compare registrations to aggregate insurance claims data. You look at police reports, accident reports, all of those have their advantages and disadvantages. One consistent disadvantage is that they are not always consistent across states or across time.

The IRC since the early 1980s has been looking at an insurance claims based method for looking at this issue. We basically look at the frequency of uninsured motorist claims, which is when, for instance, I would be filing a claim because I was injured by a driver who did not have insurance. The ratio of the frequency of those claims to bodily injury claims, which is when my insurance needs to pay for the injury that I caused to someone else. So the ratio of the uninsured motorist to bodily injury claim frequency is what we refer to as our UM rate that we've been calculating over time. And literally that means the likelihood that a person injured in an accident was caused by an at fault driver.

So all of that prelude to say that in our latest study, which had data through 2019, we found that the uninsured motorist rate was 12.6%. So one in eight drivers by this measure in the US in 2019 were driving without the required insurance.

Scott Stanford:

Now, do you see this when you do the research? Is this like a regional phenomenon? Is it more prevalent in some states than others or it's kind of just fairly equal across the country?

Vickie Kilgore:

Oh, absolutely. The percentage of UM varies significantly across states. In our 2019 study, we saw that the UM rate ranged from a high of 29.4%, all the way down to a low of 3.1%. Some states can show variation over time, but we will see some consistent states at the top of the range. Mississippi, Michigan, although Michigan has been coming down a bit, Tennessee, New Mexico, Florida are all states where we have seen high rates. New Jersey, Massachusetts, New York, Maine, in 2019, those states all had UM rates below 5%.

Scott Stanford:

This might be a silly question, but are there some states that mandate auto insurance more highly than others where it is a little less strict in some states throughout the country?

Vickie Kilgore:

Well, nearly every state in the US requires some form of auto insurance, the exception being New Hampshire, which I believe is the only state where you are not required to carry the insurance, but that you are required to prove that you are financially responsible if you do cause a loss. And of course, one of the easiest ways to do that is to obtain insurance. States do vary with the amount of insurance that they require. Nearly every state will require you to carry bodily injury insurance so that you could pay for injuries that you caused to someone else or property damage liability insurance, so you could pay for the physical damages that you might cause to someone's vehicle or property. But as I said, the amount of insurance required is widely variable, some as low as say $10,000 in bodily injury insurance, all the way up.

Scott Stanford:

Dale, let me ask you this. When it comes to determining insurance rates, you could look at six different companies and have six different rates offered for the same driver. How are those rates determined?

Dale Porfilio:

That is a great question and it probably could deserve a podcast entirely to its itself because it's complex enough.

Scott Stanford:

Yeah.

Dale Porfilio:

But I'll try to give you a short answer to it. Every company goes out and comes up with their best estimate of what future losses are going to be, meaning you're trying to predict for the policy you're going to buy today, what do you think the loss experience on that will be for the year ahead or the six month ahead, however long the policy is. So, that future insurance price reflects expectation of future losses, plus expenses to run the policies, and some profit margin. The complexity comes from looking at historical losses, which every company has their own historical loss database, to then predict future losses. And then it gets one step more complex and we then have to say, "This is what you might need for the book of business in total, but how should that differ for you, Scott, for myself, for Vickie, any other drivers?" How do you compare an 18-year-old driver to a 65-year- old driver? Different cars, different streets, different driving behaviors.

That's the complexity when you then try to distill it down to each and individual risk. And we're always trying to align the relative risk of that policy to every other risk that's out there on the street.‍

Scott Stanford:

And when you talk about people who are on the roads without car automotive insurance, does that affect the rates that I might get based on the number of folks that are out there without insurance altogether?

Dale Porfilio:

It definitely does because the reality is policy holders are required to purchase uninsured motorist or underinsured motorist in most states because we want to make sure that we can make somebody whole when an accident happens. And so, if you are purchasing insurance and there are people on the road that are uninsured, insurance companies must make sure they're charging something for those future losses that will be uninsured.

To link that back to what Vickie shared earlier about the greatly differing rates of uninsured motorists in each and every state, if you're in a high UM state, like Mississippi that you quoted at the top of the chart, insurance companies are going to have to charge more because close to 30% of the time somebody involved called the claim and they don't have any insurance to pay for it. Where if you go to a state that's on the low end like New Jersey, you don't have to charge as much there because most times when an accident happens, insurance is there to pay for it.

Scott Stanford:

Gotcha. Listen, it's a straight numbers game. Vickie, when it comes to enforcing insurance status, how is that actually enforced? What kind of technology are we talking about here?

Vickie Kilgore:

In the old days, certainly the only proof of insurance that you had was a physical card that said, yes, I am insured by Acme Insurance Company. You may be required to show that at a traffic stop or perhaps when you're registering or renewing the registration on your vehicle. There have been advances in data technology so that in some cases computer databases are maintained where an insurer is required to submit to the state when a policy has been canceled before time, so we get around the problem of someone saying, taking out insurance, getting their card, and then subsequently canceling it.

Certainly, data technology has advanced with more sophisticated online verification systems. States can monitor who has insurance compared to who was driving on the road.

Scott Stanford:

Listen, they make it very easy for you for insurance and car registration and license now. Everything is done online so they have records. Right? Here's the thing that strikes me, Vicki, if somebody gets into an accident, even a fender bender, and they don't have car insurance, or even if it's a major accident, but they're able to take off from that accident, if you don't have car insurance, are you more likely to be like, "Okay, I have to get out of here because I don't have insurance to pay for this"?

Vickie Kilgore:

Well, certainly we don't have any data that might be able to speak to that decision that someone might make. And personally, it just seems like, well, you're only compounding your issues if you then flee from the scene of an accident. But certainly, there can be serious consequences if you were found at the scene of an accident without having the mandated insurance.

Scott Stanford:

Yeah. What are those? I was going to ask you that. What are the actual consequences these days?

Vickie Kilgore:

Well, obviously there are financial consequences to yourself by not being properly protected against losses that you may cause or experience. But there are some serious legal consequences as well, and those, as a common refrain here, can vary by state. But certainly the penalties could include fines, suspension of your license, having your car taken away from you, in some cases even jail time. And in some states you may have financial consequences under what's called “no pay, no play” laws where in compensation for injuries that were caused to you may be limited if you in fact don't carry the required amount of insurance.

The degrees of the penalties can vary, as I said, state to state, but also depending on the situations in which is this is your first time or a repeat offender or is it a minor traffic stop versus an accident. So that can also have an influence on the severity of the penalty.

Scott Stanford:

Right. Okay. Dale, what do you say to those folks who firmly believe that the enforcement of insurance requirements is going to target people who can least afford an expense, an extra expense like car insurance? What do you say to those folks?

Dale Porfilio:

Well, certainly paying for auto insurance every year can be challenging for some drivers, especially young drivers. It can get very expensive very quickly, but the financial hardship from causing an accident when you don't have insurance can be even greater than the cost of the insurance premium itself. The reality is insurance exists so that people can have peace of mind when they do get in an accident or when they have a loss of some type, but the insurance company is there to make the person whole. And if you're out driving without insurance, you're not able to help make somebody else whole if you do cause an accident. And that's why Vickie just described there are consequences for that because it is important to make sure that we share that social responsibility.

So, is it tougher for people of lower income means? Certainly, it's harder for them to buy gas, to buy food, to pay for insurance or anything else, and those are broader societal issues. But in the insurance industry in total should focus on how the industry can reduce overall losses, because that allows insurance to be more affordable for everyone. You asked me earlier about how do you price, well, it all starts from the expected losses. If we expect fewer losses, then premiums can be lower for everybody and that is a win for society in total.

Scott Stanford:

There's a national conversation going on right now regarding unintended consequences of police stops for minor traffic violations, like driving without insurance. Do you think treating an insurance violation as an administrative matter as opposed to a law enforcement function makes more sense?

Dale Porfilio:

I'll answer this question personally. Neither III nor the IRC has a position when it comes to law enforcement, that sort of thing, but I'll offer you my perspective. Obviously over the last two years, this country has a lot of different perspectives on what law enforcement should and shouldn't do. But when I think about the insurance industry and what are we here for, it is an administrative issue to say that it is a requirement that people have insurance, at least in all states other than New Hampshire, and that's an administrative problem when people don't. There are enough complexities going on when law enforcement has somebody by the side of the road, whether it's after an accident or a public safety concern. I certainly would prefer that they focus on the needs at hand, the public safety that's occurred, the accidents that may have occurred, rather than having to deal with an administrative issue, like do they have insurance or do they not? That to me is not the right place or time to try to enforce a legal requirement around insurance.

Scott Stanford:

Yeah. And Vickie, to that point, technology in Oklahoma is essentially replacing police stops and identifying motorists on the road without insurance, right? So it's just the technology. Do you know of any other state or municipality that's really tried to tackle the problem of driving without insurance? Would you like to see it done more that way with technology?

Vickie Kilgore:

I certainly don't have the expertise to speak at as to what the approaches that other states are taking. I know that technology can make this a clearer issue. Certainly, the insurance companies have accurate records to be able to show who has insurance and who does not. The issue comes down to communication between the insurance companies and the departments of motor vehicles and eventually law enforcement. That communication does occur. It's effective. It's not always the most efficient that it could be. Things such as the risk stream collaborative have been exploring ways to use blockchain technology to be able to facilitate that communication. And certainly, there are other applications such as that that I think could be a bright future for controlling this issue.

Scott Stanford:

Dale, I want to come back around to that UM population you folks are talking about. We must defer methods to regulators and legislators. Is that something that that is an important piece of function for you guys right now?

Dale Porfilio:

It certainly is a priority for both III and IRC that insurance be available broadly and that more people choose to purchase the insurance they ought to. We are here to be financial first responders, and so making sure that people can get access to and purchase in policies that they ought to is certainly very much in our mission and what we're seeking. So whatever we can do societally to make that happen in an efficient and effective means to do so would be a positive change.

Scott Stanford:

Do the auto insurance companies look to you guys for your research and input before they come up with their rates state to state or no?

Dale Porfilio:

In terms of coming up with their pricing, not typically. When it comes to pricing, that's typically done based on the insurance, their own insurance company experience. So, they may come to us to think about how to process claims, how they might want to process them differently, and how to treat different things. But in terms of coming up with price, typically they are starting from their own loss experience.

Scott Stanford:

So basically, you need to live in a state that has a lot of folks who are insured and not too many accidents, like the good folks in New Jersey, is what you're saying.

Dale Porfilio:

It certainly makes a difference. When it comes to affordability, it does vary greatly by state. Just as Vickie described, uninsured motorists and how much that varies by state, affordability does too, and it gets around to when you're starting, you ask, how do you price? You start with losses, and so if you are in a state that has a lot of losses that occur and it costs more to pay for those claims, you can expect premiums are going to be higher. Losses drive premiums. More losses, more premiums.

Scott Stanford:

Beautiful. Dale Porfilio, Vicki Kilgore, Insurance Information Institute in Insurance Research Council. Guys, thank you so much for joining us here on The Infrastructors. It's great information. Taught me a few things and hopefully I'm not paying too much. I'm a New Jersey guy, so I think I have good rates right now. But thank you guys so much for joining us. I really appreciate it.

Vickie Kilgore:

Scott, thank you very much for having us.

Scott Stanford:

All my friends, that's all the time we have today here on The Infrastructors. I want you to join us next time for our conversation with the deputy director of the California Office of Traffic Safety, Timothy Weisberg.