Performance audit, Department of Transportation, mandatory motor vehicle insurance program

              PERFORMANCE AUDIT
DEPARTMENT OF TRANSPORTATION
MANDATORY MOTOR VEHICLE INSURANCE PROGRAM
Report to the Arizona Legislature
By the Auditor General
September 1987
87- 7
DOUGLAS R NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
LINDA J. BLESSING, CPA
DEPUTY AUDITOR GENERAL
September 16, 1987
Members of the Arizona Legislature
The Honorable Evan Mecham, Governor
Charles L. Miller, Director
Arizona Department of Transportation
Transmitted herewith is a report of the Auditor General, an audit of Arizona's
mandatory automobile insurance program. This report is in response to Chapter
272, Section 3 of the 1983 Session Laws.
The report indicates that the mandatory insurance program has had l i t t l e effect
on the number of uninsured motorists in Arizona due to limited enforcement of
the mandatory insurance laws. As a result, the administrative problems and
court costs associated with the mandatory insurance law have been minimal, and
the law has had l i t t l e apparent effect on automobile liability premiums.
My staff and I will be pleased to discuss or clarify items in the report.
Respectfully submitted,
D b u g s R. Norton
Auditor General
CC: William Thomson
Mark Fleming
Nancy Lovell Moore
Michael Friedman
Kimberly H ildebrand
Dennis Murphy
2700 NORTH CENTRAL AVE. SUITE 700 PHOENIX, ARIZONA 85004 @ ( 602) 255- 4385
SUMMARY
The Office of the Auditor General has conducted a performance audit of Arizona's
mandatory automobile insurance law. This audit was conducted in response to
Chapter 272, Section 3 of the 1983 Session Laws. The Auditor General was directed
to address: 1) the program's effect on the number of uninsured motorists before and
after it was adopted, 2) the administrative problems and costs of enforcing the
program for the courts as well as the Arizona Department of Transportation, Motor
Vehicle Division ( MVD), and 3) the effect of the program on motor vehicle liability
premiums in Arizona.
The mandatory insurance ( MI) law, enacted in 1983, requires motorists to obtain
minimum levels of liability insurance in order to register vehicles in Arizona. The
law was the result of growing concern about the inability of motorists to
compensate accident victims, and was intended to ensure that drivers at fault would
be able to pay for at least a portion of damages. Before 1983, motorists were
required to present evidence of financial responsibility only if involved in accidents
involving damage greater than $ 500, injury or death.
The Mandatory Insurance Program Has Had Little Apparent Effect
On the Number of Uninsured Motorists ( see pages 7- 18)
The mandatory insurance program has had little apparent effect on the number of
uninsured motorists in Arizona. An Auditor General analysis of claims made against
uninsured motorist policies indicates that Arizonans made claims at almost the same
rate in 1986 as in 1982. The MI program had only a limited initial effect. Claims
dropped sharply in 1983 and 1984, but returned to prelaw levels during 1986. Thus,
three years after the MI law was enacted, Arizonans still had to rely on their own
uninsured motorist policies to protect them from damages caused by uninsured
drivers.
The minimal impact of the MI program may be due to weak enforcement. The
Motor Vehicle Division, which is responsible for the program, has not developed an
efficient enforcement program. Early attempts to verify coverage were
unsuccessful in more than 50 percent of the cases, and MVD did not have authority
to take action against violators.
Local law enforcement agencies have not consistently enforced MI laws. A survey
of nearly 1,300 recently cited motorists indicates that police officers did not
request evidence of insurance in almost half of nonaccident traffic stops. Some
local courts also fail to impose statutory penalties for MI violations. Many courts
have not imposed fines established by law for first time violators, and mandatory
sentences for subsequent violations are not imposed because prior violations are not
identified.
To strengthen the MI program, MVD should work with law enforcement agencies and
courts to help ensure that they have sufficient information to properly enforce the
laws. Law enforcement agencies should request evidence of insurance at all traffic
stops, and check for prior convictions of the law when citing motorists for MI
violations. Municipal and justice of the peace courts should assess proper fines
against first time violators.
Minimal Administrative Problems And
Court Costs Are Associated With The
Mandatory Insurance Law ( see pages19- 23)
The mandatory insurance law has not substantially affected court operations in
Arizona. Analysis of caseloads for courts in six representative localities ( Phoenix,
Scottsdale, Pima County, Kingman, Pinal CountyIFlorence and Prescott Valley)
indicates that MI violations account for only a small percentage of cases. These
cases require minimal time to adjudicate and most ( 62 percent) are dismissed. The
remaining cases rarely go to trial and do not require extensive court time. As a
result, costs for adjudicating MI cases are minimal, according to court personnel.
The Mandatory lnsurance Law Has Had L i t t l e Apparent
Effect On Liability Premiums ( see pages 25- 29)
The mandatory insurance law does not appear to have affected the cost of liability
insurance in Arizona. Although MI was expected to increase liability premiums by
forcing previously uninsured, high risk drivers into the insurance pool, premiums
have risen at a moderate rate since 1978, approximately 4 percent annually when
adjusted for inflation. Moreover, the limited enforcement of the MI program
reduces the likelihood that the program would have an impact on premiums. Except
for the first two years after MI was enacted, insurance levels have remained the
same, indicating that the high risk drivers have not continued to purchase
insurance. Thus, low risk policy holders are not required to bear additional costs
because of high risk drivers seeking insurance.
Even i f the MI program were enforced more effectively, its impact on liability
premiums would be difficult to determine. lnsurance experts agree that identifying
the specific influence of mandatory insurance is complicated by a variety of
demographic, economic and legal factors. Legal factors include prohibitions against
cancellation, comparative negligence laws and tort liability. Other factors include
medical fees, repair costs, road conditions and awards for noneconomic losses.
Together or individually these factors can result in high insurance losses which can
affect premiums. Isolating the impact of MI on premiums is, therefore, extremely
difficult.
MVD Should Improve Its Mandatory lnsurance
Compliance Program ( see pages 31- 38)
MVD should improve its program for enforcing mandatory insurance laws. The
Division will not be able to reliably determine the level of compliance using its
recently implemented verification program, because it excludes unregistered
vehicles. Owners of unregistered vehicles are more than twice as likely not to
comply with the MI law. The verification program is further limited in establishing
compliance rates by motorists who do not respond to the request for verification.
Two other mandatory insurance states, Oregon and Minnesota, do not use their
verification programs to determine compliance rates because of the problem with
nonresponses.
MVD could strengthen its enforcement by targeting motorists most likely to violate
MI laws. Sampling motorists recently convicted of unregistered vehicle violations
and MI violations would direct MVD's enforcement program toward those individuals
who have a greater tendency to violate the law.
TABLE OF CONTENTS
Page
INTRODUCTIONANDBACKGROUND. . . . . . . . . . . . . . . . . . . . 1
FINDING I : THE MANDATORY INSURANCE PROGRAM HAS HAD LITTLE
APPARENT EFFECT ON THE NUMBER OF UNINSURED MOTORISTS . . . . . 7
L i t t l e C h a n g e I n l n s u r a n c e L e v e l s . . . . . . . . . . . . . . . 7
Mandatory lnsurance Program's Limited
Effect DueToWeakEnforcement. . . . . . . . . . . . . . . . . 12
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . 18
FINDING I I : MINIMAL ADMINISTRATIVE PROBLEMS AND COURT
COSTS ARE ASSOCIATED WITH THE MANDATORY INSURANCE LAW . . . . . 19
Mandatory lnsurance Has Had
L i t t l e Impact On Courts . . . . . . . . . . . . . . . . . . . . 19
Mandatory lnsurance Court Costs
AppearMinimal . . . . . . . . . . . . . . . . . . . . . . . . 22
S t r i c t e r Enforcement May Increase Court Cases . . . . . . . . . 22
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . 23
FINDING 1 1 1 : THE MANDATORY INSURANCE LAW HAS HAD LITTLE
APPARENT EFFECT ON LIABILITY PREMIUMS
L i a b i l i t y Premiums Have Risen Moderately Since 1980 . . . . . . 25
With Inadequate Enforcement
E f f e c t o n P r e m i u m s W o u l d B e N e g l i g i b l e . . . . . . . . . . . . . 28
Impact On Premiums I s D i f f i c u l t To Determine . . . . . . . . . 29
TABLE OF CONTENTS ( Con t i nued
FINDING I V : MVD SHOULD IMPROVE ITS MANDATORY
INSURANCE COMPLIANCE PROGRAM . . . . . . . . . . . . . .
Page
. 31
MVD'S Automated Compliance Program . . . . . . . . . . . . . . 31
Program Unable To E s t a b l i s h R e l i a b l e
Compliance Rates . . . . . . . . . . . . . . . . . . . . . . . 32
An Enhanced Enforcement Program May Be Necessary . . . . . . . 36
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . 38
AGENCY RESPONSE . . . . . . . . . . . . . . . . . . . . . . . . . 39
LIST OF TABLES
TABLE 1 - Cost of Enforcement I n Selected States That
Require C a n c e l l a t i o n N o t i f i c a t i o n . . . . . . . . . . . . 4
TABLE 2 - Cost of Enforcement i n Selected States That
Do Not Require C a n c e l l a t i o n N o t i f i c a t i o n . . . . . . . . . 4
TABLE 4 - MI Convictions w i t h P r i o r Convictions
And License Suspensions . . . . . . . . . . . . . . . . . 16
TABLE 5 - MI V i o l a t i o n s As A
Percentage Of Total T r a f f i c Cases . . . . . . . . . . . . 20
TABLE 6 - L i a b i l i t y Premiums I n Constant D o l l a r s ,
21- Year- Old D r i v e r s 1980 through 1986 . . . . . . . . . . 27
TABLE 7 - L i a b i l i t y Premiums I n Constant D o l l a r s ,
33 and 65- Year- Old D r i v e r s 1980 through 1986 . . . . . . 28
TABLE 8 - MI And Unregistered V e h i c l e C o n v i c t i o n s . . . . . . . . . 34
LIST OF FIGURES
Page
FIGURE 1 - Uninsured M o t o r i s t Claim Frequency
Per Thousand Vehicles, 1981 thrugh 1986 . . . . . . . . 8
FIGURE 2 - Ratio of Uninsured M o t o r i s t to Property Damage
Claim Frequency Per Thousand Vehicles,
1981 through 1986 . . . . . . . . . . . . . . . . . . . 9
FIGURE 3 - Ratio of Uninsured M o t o r i s t to B o d i l y I n j u r y
Claim Frequency Per Thousand Vehicles,
1981 t h r o u g h 1 9 8 6 . . . . . . . . . . . . . . . . . . . 10
FIGURE 4 - Annual Uninsured M o t o r i s t Premium,
1 9 8 0 t h r o u g h 1 9 8 6 . . . . . . . . . . . . . . . . . . . 11
FIGURE 5 - D i s p o s i t i o n of Mandatory lnsurance
V i o l a t i o n s , Case Study Courts . . . . . . . . . . . . . 21
FIGURE 6 - Average Premium, B o d i l y I n j u r y
and Property Damage lnsurance - Arizona
1978 through 1986 . . . . . . . . . . . . . . . . . . . 26
FIGURE 7 - Average Premium, B o d i l y I n j u r y and Property
Damage lnsurance - Selected Western States,
1 9 7 8 t h r o u g h 1 9 8 6 . . . . . . . . . . . . . . . . . . . 26
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance audit of Arizona's
mandatory auto insurance program. This performance audit was conducted in
response to Chapter 272, Section 3 of the 1983 Session Laws.
History Of Mandatory Insurance In Arizona
In January 1983, mandatory insurance became law in Arizona. However, this law has
undergone several major changes since its passage due to legal and administrative
problems.
Prior to the inception of mandatory insurance, Arizona motorists were required to
present evidence of financial responsibility only i f involved in an accident involving
damage greater than $ 500, personal injury or death. However, the increasing number
of vehicle accidents, injuries and fatalities, and the inability of uninsured motorists
to compensate their victims led to the passage of House Bill 2333 in 1982. The
purpose of House Bill 2333 was to require persons owning or operating a vehicle to
obtain minimum liability insurance. ' ) However, within months of the bill's
inception, amendments were made. On April 27, 1983, an emergency bill ( H. B. 2119)
was signed into law that altered legal and administrative aspects of the law.
Even after the changes, implementing the mandatory insurance law proved to be
extremely difficult due to time consuming and cumbersome procedures. Deficiencies
in the program resulted in further changes to the law. House Bill 2143 was initiated
in January 1986 and signed into law on April 18, 1986. The bill simplified the sampling
procedures used to determine compliance and streamlined enforcement efforts. The
changes became effective August 1986.
M i n i m u m l i a b i l i t y a m o u n t s w e r e s e t a t $ 1 5 , 0 0 0 , $ 3 0 , 0 0 0 a n d $ 1 0 , 0 0 0 . T h e r e f o r e , i f a n
uninsured motorist i s a t f a u l t i n an accident, insurance would cover medical expenses
up to $ 15,000 per person ( but not more than $ 30,000 t o t a l ) , and property damage up to
$ 10,000. I n d i v i d u a l s choosing not to obtain insurance may also meet the requi rements
of t h e law by depositing $ 40,000 with the State Treasurer, posting a $ 40,000 surety
bond with NO, or f i l i n g a c e r t i f i c a t e of self- insurance.
Current Mandatory Insurance Program
Arizona's existing mandatory insurance program depends on the involvement of the
Motor Vehicle Division, law enforcement agencies and the courts.
Motor Vehicle Division - MVD is statutorily required to verify compliance with the
mandatory automobile insurance program. To determine compliance, MVD must
randomly sample up to 10 percent of the vehicles currently registered in Arizona.
MVD is in the process of conducting its first compliance check under the most recent
statutory changes. A sample of 1,000 registered vehicles was initiated in June, 1987.
Because the sampling process has just recently been implemented, data on the
percentage of uninsured motorists is not available from MVD.
Law enforcement agencies - Law enforcement officers can request a motorist to
provide evidence of financial responsibility at any traffic stop or when an accident is
involved. Under Arizona Revised Statutes 528- 1253, failure to produce evidence of
financial responsibility at the request of an officer may result in a civil traffic
violation.
Courts - The courts are responsible for adjudicating uninsured motorist violations. If
evidence of financial responsibility is produced, a citation is dismissed. However, i f
no evidence of insurance is presented, the court may impose a civil sanction ranging
from $ 250 for a first offense to $ 750 for a third offense. In addition, the court may
direct MVD to suspend the person's driver's license, and vehicle registration and seize
the license plates.
Programs In Other States
Arizona is one of 35 states that had compulsory automobile insurance laws as of
August 1986. However, compared to some states, the Arizona program has lower
administrative costs per registered vehicle.
Strategies common to most of the mandatory insurance states include:
I. Law enforcement authority to inspect evidence of insurance upon demand,
2. Insurance verification of individuals involved in accidents or cited for major
traffic violations,
3. Self- certification or evidence of insurance at time of vehicle registration and
renewal, and
4. Financial responsibility laws to make it difficult for uninsured motorists at fault
in accidents to continue driving uninsured.
Administrative and enforcement efforts vary among states. For example, a 1985
report states that New York allocated $ 4 million to i t s enforcement program, which
requires insurers to notify the state when policies are canceled mid- term. For fiscal
year 1986- 87, South Carolina's $ 3.4 million program requires notification any time a
policy is canceled. South Carolina has 29 uniformed officers assigned to confiscate
license plates of persons found guilty of violating the compulsory insurance law.
Another method of enforcement is a random sample survey. Oregon randomly
samples its registered vehicle population. Because it is a highly automated program
and requires few personnel, the compliance program cost only $ 241,000 in 1986,
although the registered vehicle population is comparable to South Carolina's. An
Oregon Legislative Research survey identified seven other states, including Arizona,
that also use a random sample survey to enforce and verify compliance.
More costly programs do not ensure higher compliance. Tables 1 and 2 outline
enforcement costs in eight states. These tables show that programs with cancellation
requirements cost an average of 30 cents more per vehicle to administer. Oregon,
with an average enforcement cost of 9 cents per vehicle, had a noncompliance rate of
approximately 10 percent. With an enforcement cost of 50 cents per vehicle, South
Carolina estimates a 7 percent noncompliance rate. However, New York's program
costs 47 cents per vehicle to enforce, and a 1983 report estimated its noncompliance
rate at more than 15 percent.
TABLE 1
COST OF ENFORCEMENT IN SELECTED STATES
THAT REQUIRE CANCELLATION NOTIFICATION
STATE NUMBER OF CARS ENFORCEMENT COSTS COST PER CAR
Maryland 3,000,000 $ 1,500,000 .50
New York 8,500,000 4,000,000 .47
South Carol i na 2,600,000 1,300,000 .50
Source: The Uninsured M o t o r i s t ; The World Almanac and Book of Facts, New
York: Newspaper Enterprise Association, i n c . , 1985, p. 197.
4'
TABLE 2
COST OF ENFORCEMENT IN SELECTED STATES THAT
DO NOT REQU 1 RE CANCELLAT l ON NOT l F 1 CAT l ON
STATE NUMBER OF CARS ENFORCEMENT COSTS COST PER CAR
Ar i zona 2,300,000 285,000 .12
Nevada 743,000 225,000 .30
Oregon 2,700,000 241,000 .09
Utah 1,200,000 27 1 ,000 .23
Wyom i ng 430,000 120,000 .28
Source: Western s t a t e survey by L e g i s l a t i v e Research; telephone i n t e r v i e w ( I
on August 4, 1986, w i t h Doug Manthy, Assistant A d m i n i s t r a t o r ,
A d m i n i s t r a t i v e Services Branch, Oregon Motor Vehicle D i v i s i o n .
Methodology
Because no data were available from MVD to evaluate the mandatory insurance law's
impact on uninsured motorists in Arizona, other sources were drawn upon.
lnformation from insurance companies was collected and analyzed to identify possible
trends in the uninsured motorist population. Several courts were selected to collect
data regarding the number of uninsured violations, how uninsured violations are
handled, and the impact of uninsured violations on the courts. In addition, insurance
data was obtained to analyze the mandatory insurance law's impact on liability
premiums.
Insurance company information - lnformation was obtained from eight insurance
companies representing 60 percent of the liability policies written in Arizona in 1984.
Data were collected on the number of liability policies written; uninsured motorist
policies written; and the number of personal injury, property damage and uninsured
motorists claims paid. The figures were analyzed to identify any trends in the
uninsured motorist population in Arizona ( see Finding I, page 7).
Case study selection - Six courts were selected to collect data for case studies. The
case studies include courts with varying case load levels, representing urban and rural
localities with population bases ranging from 5,471 to 881,640 in 1985. The courts
selected include both municipal courts and justice of the peace courts. The following
courts were included in the case studies.
Prescott Valley City Court
King man Municipal Court
Pinal County Justice of the Peace CourtIFlorence
Scottsdale City Court
Pima County Consolidated Courts
Phoenix Municipal Court
Fast Track Monitoring System - This system is operated by the National Association
of Independent Insurers ( N All). N A l l collects quarterly data on the Fast Track system
from a sampling of insurance companies. The data used in our analysis identifies the
state, type of coverage ( bodily injury/ property damage), number of exposures, and
earned premium.
Audit Scope
Our audit of the mandatory automobile insurance program was limited to three
statutorily mandated areas.
r The program's effect on the number of uninsured motorists before and after it
was adopted
r The administrative problems and costs of enforcing the program for the courts
and the Motor Vehicle Division
a The effect of the program on motor vehicle liability insurance premiums in
Arizona
This audit was conducted in accordance with generally accepted governmental
auditing standards.
The Auditor General and staff express appreciation to the Director and staff of the
Motor Vehicle Division and the Department of Insurance, the courts, law enforcement
agencies and insurance companies for their cooperation and assistance during the
course of our audit.
FINDING I
THE MANDATORY INSURANCE PROGRAM HAS HAD LITTLE APPARENT EFFECT
ON THE NUMBER OF UNINSURED MOTORISTS
The Mandatory lnsurance ( MI) program has had little apparent effect on the number
of uninsured motorists in Arizona. Analysis of insurance company data suggests that
the level of financial responsibility among Arizona motorists has changed l i t t l e since
MI became law in 1983. This may be due to weak enforcement of the mandatory
insurance laws by the Arizona Department of Transportation, Motor Vehicle
Division, law enforcement agencies, and the municipal and justice of the peace
courts.
Little Change In
lnsurance Levels
The level of uninsured motorists in Arizona remains basically the same as in 1983,
when mandatory insurance was enacted. Although the actual numbers of uninsured
motorists are not available, insurance company claims and insurance premium
information provide an estimate of the aggregate effect of MI.
Claims data - Analysis of claims data from eight insurance companies ( 1 )
writing automobile insurance in Arizona indicates that the MI program had only a
short- term effect on the number of uninsured motorists.
By tracking the number of uninsured motorist ( UM)( 2' claims from
1981 ( 3 ) through the MI law's inception in 1983 to 1986, it is possible to show
the frequency of UM claims per 1,000 vehicles insured. According to insurance
( ' 1 The eight companies wrote l i a b i l i t y coverages f o r approximately 60 percent of the
insured vehicles i n Arizona i n 1984, and by 1986 provided coverages f o r more than 1
mi 11 ion vehicles i n Arizona. Twelve companies were i n i t i a l 1 y contacted and provided
information; however, four were excluded from the f i n a l analysis because of missing
data. Because most individual companies write a small percentage of the t o t a l
automobi 1 e 1 i a b i 1 i t y coverages, our analysis focused on the 1 argest companies.
( 2) Motorists general1 y make claims against thei r UM coverage when motorists responsible
f o r the accident are unable or unavailable to pay f o r the damage.
( 3 ) Data from 1981 was used because some companies contacted could not provide
information p r i o r t o that date.
industry experts, the number of UM claims would likely decrease as more drivers
obtain liability insurance as required by law. As a result, a successful MI program
would decrease the UM claims frequency per 1,000 insured vehicles. Conversely, i f
the program was not effective, the UM frequency should remain the same or return
to prelaw levels i f initial decreases occurred. ( 1 )
As illustrated in Figure 1, the introduction of the MI law in 1983 appears to have
initially reduced the number of UM claims per 1,000 vehicles. Within three years,
however, these numbers exceeded the prior levels.
FIGURE 1
UNINSURED MOTORIST CLAIM FREQUENCY
PER THOUSAND VEHICLES
1981 THROUGH 1986
1981 1982 1983 1984 1985 1986
YEAR
Source: Auditor General analysis of claims data from eight insurance companies
writing automobile insurance in Arizona.
( ' ) Our method o f analysis was reviewed and accepted by several experts i n the insurance
i n d u s t r y .
The short- term decrease in the frequency of UM claims could be the result of i n i t i a l
attention focused on the MI program at its inception. According to insurance
industry officials, announcements and press coverage of the MI laws in 1983 resulted
in a short- term increase in the number of liability policies written in Arizona.
Further analysis of claims data verifies the short- term effect of the MI program. In
Figures 2 and 3, respectively, the number of property damage and bodily injury
liability claims for each year is used to control for extraneous factors such as miles
driven, accident rates and other factors that might impact the number of claims per
year. Once again, there is a temporary impact on the number of UM claims, but
levels increase a short time after the introduction of the law.
FIGURE 2
RATIO OF UNINSURED MOTORIST TO
PROPERTY DAMAGE CLAIM FREQUENCY
PER THOUSAND VEHICLES
1981 THROUGH 1986
. OU I 4
1981 1982 1983 1984 1985 1986
YEAR
Source: Auditor General analysis of claims data from eight insurance companies
writing automobile insurance in Arizona.
FIGURE 3
RATIO OF UNINSURED MOTORIST TO
BODILY INJURY CLAIM FREQUENCY
PER THOUSAND VEHICLES
1981 THROUGH 1986
. lSJ 8
1981 1982 1983 1984 1985 1986
I YEAR
Source: Auditor General analysis of claims data from eight insurance companies
writing automobile insurance in Arizona.
Thus, the MI program has not produced its intended effect. Arizona motorists must
still protect themselves by purchasing UM coverages, and appear to be using these
coverages at a rate nearly 9 percent higher than before the enactment of the MI
laws.
Premium data - Data on insurance premiums from the three largest companies
offering automobile insurance in Arizona also indicate the MI program's minimal
effect. As illustrated in Figure 4, in constant dollars premiums for U M coverage for
21, 33 and 65- year old age groups has been steadily increasing since 1980.
According to industry experts, premiums for UM coverage are based on the total
amount of UM losses paid for by the company. In contrast, other liability coverages
( i. e., bodily injury and property damage) are based not only on total losses paid but
also the driving characteristics of the individual insured. If the program is effective,
fewer UM losses would be paid and premiums should stabilize or decrease.
Conversely, i f premiums increase, the program may not be effective because UM
losses are increasing. As a result, the effectiveness of the Mi program can impact
UM premiums. However, the steady rise in UM premiums indicates that the MI
program may not have been effective in Arizona. ( 1 )
FIGURE 4
ANNUAL UNINSURED MOTORIST PREMIUM ( a)
1980 THROUGH 1986
I 4 4
1980 1981 1982 1983 1984 1985 1986
YEAR
( a) The l e v e l of coverage f o r the three age groups presented accounts f o r the primary
d i f f e r e n c e i n the o v e r a l l premium l e v e l s f o r t h e t h r e e groups. Uninsured and
underi nsured coverages f o r 21- year- old male and female d r i v e r s are $ 15,000/ 30,000
while these coverages f o r 33- year olds and 65- year- olds are $ 100,000/ 300,000.
Source: Auditor General analysis of averaged uninsured motorist liability premiums
data provided by three major insurance carriers.
(' I Increasing uninsured m o t o r i s t premiums also may be a t t r i b u t e d to, o r influenced by,
other f a c t o r s such as c l a i m s e v e r i t y .
Mandatory Insurance Program's Limited
Effect Due to Weak Enforcement
The MI program's minimal long- term effect on the number of uninsured vehicles
may be due to weak enforcement of the mandatory insurance laws. The Arizona
Department of Transportation, Motor Vehicles Division ( MVD) has not had an
enforcement program sufficient to ensure compliance with the MI laws. In addition,
State and local law enforcement agencies are not consistently enforcing the MI
laws. Further, municipal and justice of the peace courts are not imposing proper
penalties for violations of the MI laws.
MVD's enforcement program - MVD has lacked an effective enforcement program
to ensure a consistent level of compliance with the MI laws. The initial MI
verification program was inefficient, and MVD lacked sufficient authority to
enforce sanctions for violations.
MVDts initial MI verification program was inefficient. Between December
1984 and January 1986, MVD sampled more than 46,000 insurance certifications and
attempted to verify this information with the designated insurance companies.
More than 50 percent of the initial verifications were returned by the insurance
companies unconfirmed. According to MVD officials, this occurred because of
errors in the original information provided by vehicle owners.
The initial verification program did not grant MVD sufficient authority to enforce
penalties against violators. Until 1986, MVD had no statutory authority to take
administrative action against vehicle owners whose insurance information was
unconfirmed by insurance companies. MVD's only option was to turn these cases
over to the appropriate County Attorney for prosecution. However, Maricopa,
Navajo and Graham County Attorney's Offices issued blanket rejections on the
prosecution of MI cases, citing the inability to establish the degree of proof required
to win a conviction.
Under t h i s program, f i n a n c i a l r e s p o n s i b i l i t y information ( i . e. insurance p o l i c y
number, company name, e t c . ) was submitted by the owner when a v e h i c l e was
r e g i s t e r e d . At l e a s t 10 percent o f m o t o r i s t s w i t h a c i v i l t r a f f i c or moving
v i o l a t i o n c o n v i c t i o n w i t h i n the preceding year were sampled and a v e r i f i c a t i o n of
t h e i r f i n a n c i a l r e s p o n s i b i l i t y i n f o r m a t i o n was conducted.
Inconsistent enforcement by law enforcement - Arizona law enforcement agencies
do not consistently enforce the MI laws. Although law enforcement's involvement in
the MI laws is essential, enforcement efforts by police agencies vary greatly
statewide.
The involvement of State, county and municipal law enforcement agencies to ensure
compliance with the MI laws is essential to the program's success. Because MVD has
lacked an effective MI compliance program, enforcement of the MI laws by police
agencies has been the only means of enforcement to date. Future enforcement
efforts by police agencies would provide a constant check of compliance with the MI
laws. Law enforcement officers annually stop more motorists than MVD contacts in
its automated compliance program. ( 1 )
Although their involvement is essential, most law enforcement officers do not fully
enforce the MI laws. An Auditor General survey of approximately 1,300 motorists
recently cited for a t r a f f i c violation and attending a defensive driving course, ( 2 )
shows that police officers requested evidence of insurance in nonaccident cases
slightly more than 50 percent of the time statewide. As illustrated in Table 3, this
percentage varied greatly among agencies.
However, p o l i c e o f f i c e r s are unable t o v e r i f y the v a l i d i t y o f the insurance evidence
submitted t o them by m o t o r i s t s . An A u d i t o r General review o f 161 accident compliant
cases f i l e d w i t h MVD showed t h a t nearly 34 percent o f the m o t o r i s t s provided
evidence o f insurance t o pol i ce o f f i cers a t accident scenes which l a t e r proved
i n v a l i d .
( 2 ) Most courts a l l o w m o t o r i s t s c i t e d f o r c i v i l t r a f f i c v i o l a t i o n s w i t h no p r i o r
convictions w i t h i n the l a s t three years t o attend a defensive d r i v i n g course i n l i e u
of appearing i n court.
TABLE 3
SURVEY OF Cl TED MOTORISTS
PERCENTAGE OF NONACCIDENT
LAW ENFORCEMENT TRAFFIC STOPS IN WHICH EVIDENCE
AGENCY OF INSURANCE WAS REQUESTED
Phoenix Police Department
Department of Publ i c Safety
Kingman Police Department
Pima County S h e r i f f ' s Office
Mesa Police Department
Scottsdale Police Department
Statewide
35 percent
37 percent
50 percent
52 percent
60 percent
75 percent
52 percent
Source: Analysis of Auditor General survey of approximately 1,300 motorists
attending defensive driving courses.
Court enforcement - Arizona municipal courts and county justice of the peace
courts are not properly imposing penalties for violations of the MI laws. Statutorily
defined minimum penalties for first offenses are not being assessed. In addition,
mandatory sentencing provisions for second and subsequent convictions of the MI
law are not being imposed.
City courts and county justice of the peace courts are assessing incorrect penalties
for first offenses of the MI law. A. R. S. 928- 1253. G clearly establishes the minimum
fines for failure to provide evidence of financial responsibility. An April 1987
Legislative Council opinion concluded that:
For a first time violation of A. R. S. 528- 1253, a court has the discretion of
imposing a civil sanction, but i f a court exercises this discretion the court is
required to impose a civil sanction of at least two hundred f i f t y dollars
( emphasis added).
However, a review of MI cases in the six case study courts ( ' I as well as 40
courts contacted in telephone surveys indicate that penalties for first time offenses
differ depending on the court. Many courts impose fines considerably less than the
minimum $ 250 while some courts suspend the entire fine. Fine amounts for first
offenses ranged from $ 50 to $ 343. '*' Furthermore, in many courts i f a person
cited for A. R. S. 528- 1253 obtained insurance before an arraignment, the court
greatly reduced or dismissed the fine.
In addition, review of MI conviction data from MVD indicates that the mandatory
sentencing provisions of A. R. S. 528- 1253 for subsequent offenses are not being
enforced. A. R. S. 528- 1253. G requires the courts to impose minimum fines and
license and registration suspensions for second, third and subsequent convictions of
the MI law within a three year period. As illustrated in Table 4, several drivers
convicted of an MI offense also had a prior offense, but few had their licenses
suspended.
( ' 1 The six courts are: Phoenix Municipal Court, Scottsdale C i t y Court, Pima
Consolidated Justice Courts, Kingman Municipal Court, Pinal Justice of the Peace
Court/ Florence, and Prescott Val l e y C i t y Court.
( 2 ) The $ 343 f i g u r e represents the $ 250 minimum s t a t u t o r y f i n e plus surcharges.
TABLE 4
U I CONV l CT l ONS W l TH PR l OR CONV l CT l ONS AND L l CENSE SUSPENS l ONS
A . Total MI Convictions
0. With Prior Convictions
C. License Suspensions
Resulting From MI
Conv i c t ion ( a)
D. Percentage of Motorists
with Prior Convictions
Suspended for Subsequent
Offense 32.6%
( C + 8)
( a) These l i c e n s e suspensions i n c l u d e o n l y those directed by the courts.
Source: Auditor General s t a f f analysis of MI conviction data obtained
from MVD.
The mandatory sentencing provisions of the MI law are not being imposed because
courts are usually not made aware of prior MI convictions. Interviews with judges in
six case study jurisdictions indicate that very few MI cases appear before their
courts with documentation of prior convictions. As a result, nearly all cases are
handled as a first offense.
Responsibility for identifying prior convictions is not clearly assigned. Some court
officials feel that it is not the responsibility of the courts to allege prior
convictions. "' According to Arizona Legislative Cwncil, the allegation of
prior convictions by the courts could possibly affect the courts neutrality. As a
result, it is generally the responsibility of prosecutors to allege prior convictions.
However, because violation of A. R. S. 528- 1253 is a civil rather than criminal
traffic offense, city and county prosecutors are not routinely involved. Because of
the minimal involvement of prosecutors, the law enforcement officer writing the
citation is expected to present the case to the courts for prosecution.
Although expected to provide evidence of prior MI convictions, police officers are
not doing so. According to police administrators and patrol officers, allegations of
prior A. R. S. 528- 1253 convictions are not being made by police officers for two
reasons. First, most officers are not aware of the mandatory sentencing provisions
of A. R. S. 528- 1253 and, therefore, are unaware of the necessity to identify prior
convictions. Second, most officers are not aware that an easily accessible
computerized record of prior MI convictions is available from MVD through the
Arizona Criminal Justice Information System ( A C JIS). ( 2)
Administrative suspensions by MVD could alleviate the courts' failure to enforce
mandatory sentencing provisions. According to MVD officials, with proper statutory
authority, it is possible for MVD to administratively suspend the operator's license
of any driver receiving two or more MI convictions within a specified time period.
Currently, A. R. S. $ 28- 445 grants MVD the authority to suspend the license of any
driver convicted of two or more DWI charges within a 60 month period. This
administrative authority serves as a means to catch any DWI cases with prior
convictions that may have escaped the courts. Similar authority for MI convictions
could increase the effectiveness of the MI program.
Some judges i n the case study j u r i s d i c t i o n s f e l t the a l l e g a t i o n o f p r i o r M I
convi c t i ons was not necessary because they i n c o r r e c t 1 y be1 ieved MVD automati c a l l y
suspends the operators l i c e n s e and r e g i s t r a t i o n of m o t o r i s t s w i t h two o r more
convictions w i t h i n a three year period.
( 2) ACJIS i s the s t a t e r e p o s i t o r y f o r criminal h i s t o r y i n f o r m a t i o n , and as a p a r t o f
t h a t f u n c t i o n provides MVD d r i v e r s ' 1 icense h i s t o r y i n f o r m a t i o n t o i t s law
enforcement users.
RECOMMENDATIONS
1. MVD should monitor MI cases periodically to ensure that the mandatory
sentencing provisions for second, third and subsequent violations are being
applied to individuals with prior convictions.
2. MVD should work with law enforcement agencies to ensure proper enforcement
of the MI laws. It should request law enforcement agencies to enforce the
provisions of A. R. S. 328- 1253 at all traffic stops and accident scenes and
inform them that prior conviction information can be obtained from the ACJlS
system.
3. MVD should request the Supreme Court to direct municipal and justice of the
peace courts to assess the proper penalties for violations of A. R. S. 528- 1253.
4. The Legislature should consider granting MVD the statutory authority to
administratively suspend the operators' licenses, vehicle registration and
license plates of second, third and subsequent violators of A. R. S. 928- 1253
within a three year period.
FINDING II
MINIMAL ADMINISTRATIVE PROBLEMS AND COURT COSTS
ARE ASSOCIATED WITH THE MANDATORY INSURANCE LAW
Administrative problems and costs associated with the mandatory insurance ( MI) law
are minimal. The law has had l i t t l e impact on the courts. Although costs cannot be
determined, it appears these costs are mini mal. However, stringent enforcement
may significantly increase mandatory insurance court cases.
Mandatory Insurance Has Had
L i t t l e Impact on Courts
Courts have not been burdened by the mandatory insurance law. MI violations are a
small portion of a court's total case load, and generally require minimal court time.
Minimal impact on court case load - The mandatory insurance law has not
substantially affected court operations in Arizona. MI violations do not represent a
large percentage of the courts' total case load. The number of uninsured violations
handlgcl between 1985 and 1986 was determined for six representative courts. ( 1 )
This was compared to the total number of traffic violations handled by each court for
the same time period. In 1986 mandatory insurance violations averaged 8 percent of
total traffic violations. Table 5 illustrates the percentage of uninsured violations
compared to total case load for the six courts represented in the case studies.
TABLE 5
MI VIOLATIONS AS A
PERCENTAGE OF TOTAL TRAFFIC CASES
Number Percentage Number Percentage
0 f 0 f 0 f 0 f
Court Case Load M& case l oad
Phoenix Municipal 15,027 4.83 23,484 6.84
Scot tsdale City 8,689 16.42 9,801 20.16
Pima Consolidated 1 ,898 5.03 2,447 5.59
Kingman Municipal 29 1 8.76 137 4.88
Prescott Valley 5 8 6.12 6 0 6.42
Pinal Justice/ Florence 10 .9 5 .48
Average ca) 6.38 8.16
( a) This i s a weighted average f o r the s i x c o u r t s .
Source: Compiled by Auditor General s t a f f from case study court records
and Sup reme Court data.
The percentage of uninsured motorist violations is fairly consistent among the case
study courts with two exceptions: Pinal Justice of the Peace CourtIFlorence and 0
Scottsdale City Court. In 1986, less than 1 percent ( five of 1,048 cases) of Pinal
Justice of the Peace Court's traffic case load were mandatory insurance violations.
However, in the Scottsdale City Court, mandatory insurance violations accounted for
20 percent of the court's 1986 case load. •
Minimal court time - Judges and administrative personnel at the six courts
involved in our case study said that mandatory insurance cases take l i t t l e time to
resolve when acceptable evidence is presented. Most uninsured violations are •
dismissed. In 1986, 62 percent of uninsured violations were dismissed, up from 52
percent in 1985. Figure 5 breaks out the percentage of guilty and dismissed A. R. S.
528- 1253 violations for 1985 and 1986.
FIGURE 5
DISMISSED
DISPOSITION OF MANDATORY INSURANCE VIOLATIONS
CASE STUDY COURTS
DISMISSED
( a ) This category consists p r i m a r i l y of cases i n which persons do not
appear f o r arraignment or pay the f i n e .
Source: Compiled by Auditor General staff from court records.
In addition, mandatory insurance violations are easily disposed of for various reasons.
The facts of the case are very straightforward: the person cited either has insurance
or has none. If evidence of insurance is presented, the case is dismissed. Many
times the person cited was insured but simply failed to produce the required evidence
for the officer. In addition, some judges dismiss violations if insurance was purchased
after the violation was cited.
Also, various procedures involving mandatory insurance violations minimize court
time. Some courts allow clerks to accept evidence of insurance and dismiss the case
without the judge becoming involved. Others allow evidence to be mailed to the
courts. Judges can review and dismiss such cases without seeing the person cited.
Failure to produce evidence of insurance results in an automatic fine in most courts.
Because uninsured violations rarely go to trial, prosecutors are not usually involved.
However, a prosecutor may become involved i f the person was also cited for a more
serious violation such as a D WI or reckless driving.
Mandatory Insurance Court
Costs Appear Minimal
Although the court costs associated with mandatory insurance violations cannot be
accurately determined, these costs appear minimal. There are no data available,
other than general budget figures, to evaluate what it costs the courts to handle
mandatory insurance violations. Budget and expenditure reports are in lump sum
amounts for all court activities. Although an average cost for all court cases could
be determined, this figure may be unrealistic for MI cases."' Consequently, an
accurate cost associated with handling MI cases is not identifiable. None of the six
courts could estimate the costs involved; however, all expressed opinions that
mandatory insurance was not costly to administer. In addition, as stated earlier, MI
violations require l i t t l e court time. Consequently, court costs should also be minimal.
Stricter Enforcement May
Increase Court Cases
Stringent enforcement of the mandatory insurance law could impact courts. The
minimal impact of MI on the courts may be a result of limited enforcement. MI
violations as a percentage of total case load are small; however, stringent law
enforcement efforts may cause this percentage to increase.
Courts handle a wide v a r i e t y o f v i o l a t i o n s . While M I v i o l a t i o n s r e q u i r e minimal
court resources, other v i o l a t i o n s may consume considerably more.
As noted in Finding I, police do not routinely ask for evidence of insurance or cite
motorists for violations. If they did, more mandatory insurance cases might be
identified. For example, the defensive driving course survey ( page 14) revealed that
Scottsdale police routinely request evidence of insurance at 75 percent of all traffic
stops as well as accident scenes. As a result, mandatory insurance violations account
for 20 percent of Scottsdale City Court's total case load ( 15 percent above the
average of the other five case study courts). In contrast, the survey also indicated
that Phoenix police request insurance evidence at only 35 percent of traffic stops.
Consequently, MI'S account for only 7 percent of Phoenix Municipal Court's traffic
case load.
RECOMMENDATION
MVO should informally monitor the courts to determine i f stricter mandatory
insurance enforcement efforts cause administrative problems for the courts. MVD
should relay any problems to the Legislature for appropriate action.
FINDING Ill
THE MANDATORY INSURANCE LAW
HAS HAD LITTLE APPARENT EFFECT ON LIABILITY PREMIUMS
Poor enforcement of the mandatory insurance ( MI) law decreases the likelihood that
it has had an effect on automobile liability premiums. When adjusted for inflation,
liability premiums have risen moderately since 1980. Moreover, the MI law has not
been effectively enforced. Even with adequate enforcement of the law, experts in
the insurance industry agree that the effect on liability premiums could not be
accurately determined.
Liability Premiums Have
Risen Moderately Since 1980
Premium costs have not increased substantially since 1980, as measured by the
average premium or the actual premiums for specific policy holders. When adjusted
for inflation, indicators of premium costs have risen at a moderate rate. The average
premium for Arizona bodily injury and personal damage insurance has risen
approximately 4 percent since 1978. Furthermore, liability insurance costs for
specific consumer categories show small to moderate increases since 1980.
The enactment of the mandatory insurance law was expected to increase consumers'
liability premiums. Some industry officials argued that requiring all Arizona drivers
to obtain liability insurance would force numerous high risk drivers to be insured,
causing all premiums to rise.
Average premiums - When adjusted for inflation, the average premium in Arizona
has risen 4 percent per year from 1978 through 1986. The average premium is the
ratio of earned premium ( ' I dollars to number of car- years of insurance written.
Figure 6 shows the current and constant dollar '*' average premiums for Arizona
from 1978 through 1986. When adjusted for inflation, bodily injury and property
damage average premium rose to approximately 85 dollars in 1986 from 72 dollars in
1978. The average premium in constant dollars decreased from 1978 to 1981 and then
rose steadily until 1985. From 1985 to 1986, i t increased 18 percent.
( ' 1 As coverage f o r a p o l i c y holder i s provided throughout the p o l i c y p e r i o d , t h e premium
t h a t i s ' earned' by the company as the p o l i c y matures i s the earned premium.
( 2) Current d o l l a r s f o r the Average Premium were adjusted t o constant d o l l a r s u s i n g t h e
the U. S. Consumer Price Index s e t t i n g 1978 as the base year.
FIGURE 6 FIGURE 7
AVERAGE PREMIUM AVERAGE PREMIUM
BODILY INJURY AND PROPERTY DAMAGE BODILY INJURY AND PROPERTY DAMAGE
INSURANCE - ARIZONA l NSURANCE - SELECTED WESTERN STATES
1978 THROUGH 1986 1978 THROUGH 1986
CURRENT ,,..---." I
NF VADA
- .. - -. A. R l70NA ,- 1 , L ,
,/
.-. - .. . , COLORADO NEW MFXICo
1 - . .. , - . ,. . - - --'/ / .--- - / UTAH---, , ,.. . _ _ ., ,
1:- . I L0 7. . Ae" - -. 0 .-, .--. 0 1 0, "- 4 -- 4" 5- --- " 8 4
YEN3 WAR
Source: National Association of Independent Insurers, Fast Track Monitoring System.
Arizona's upward trend appears similar to four western states. Figure 7 compares
Arizona's constant dollar average premium to those of Colorado, Nevada, New Mexico
and Utah ") from 1978 through 1986. Each of the five western states have either
tort liability or no- fault compulsory automobile insurance statutes. ( 2 )
Colorado's average premium rose at a 6 percent annual rate while premiums in
Nevada, Utah and New Mexico rose at less than 2.3 percent. Although Arizona's 4
percent annual rate is second highest, its pattern of change in premium cost is
comparable to the other states.
These s t a t e s were selected because o f t h e i r geographical p r o x i m i t y t o Arizona.
( 2) No- fault automobile insurance i s coverage under which accident v i c t i m s are compensated
f o r losses by t h e i r own insurance companies regardless of who i s responsible. Under a
t o r t l i a b i l i t y system, f a u l t o r negligence has t o be proven before an i n j u r e d party can
c o l l e c t from the i n s u r e r .
Typical policy holders - Liability premiums for representative Arizona policy
holders ( ' I show small to moderate increases from 1980 through 1986, when
adjusted for inflation. In Table 6, the average annual premium measured in
constant dollars '*' for a 21- year- old Tucson male increased the least with .4
percent, while a comparable female's coverage rose 1.8 percent. In Table 7, a
33- year- old ( 3 ) Phoenician had the highest average annual increase with 5.8
percent, while a 65- year- old Flagstaff person's premium rose 4.5 percent.
TABLE 6
L l AB l L l TY PREM l UMS I N CONSTANT DOLLARS
21- YEAR OLD DRIVERS
1980 THROUGH 1986
1981
1982
1983
1984
1985
1986
% Average
Male % Difference Fema l e
390.63 252.52
% Difference
L i a b i l i t v Insurance Coveraqe P r i v i n a Characteri s t i c r
El- vear- 01 d ma1 e/ femal P
$ 15,000/ 30,000 bodily i n j u r y
$ 10,000 property damage
$ 5,000 med i cal
$ 15,000/ 30,000 udunderinsured
21 - vear- 01 d ma1 e/ f emal P
drives 15 miles a day t o school
drives 11,000 miles a year
no c i t a t i o n s
Source: Auditor General's analysis of averaged liability premium
data provided by three major insurance carriers.
( ' 1 We contacted three major Arizona insurance companies to obtain premium costs f o r
three age groups ( 21, 33, and 65- year- old male/ female) f o r the period 1980 through
1986.
( 2) Current d o l l a r s f o r the t y p i c a l p o l i c y holder were adjusted t o constant d o l l a r s
using the Phoenix Metropolitan Consumer Price Index with 1978 as the base year.
( 3) There i s no d i f f e r e n c e between male and female premium costs f o r the 33- and
65- year- old age group.
TABLE 7
L I AB I L I TY PREM l UMS I N CONSTANT DOLLARS
33 AND 65- YEAR- OLD DRl VERS
1980 THROUGH 1986
1980 174.84
1981 169.26
1982 186.25
1983 200.34
1984 202.02
1985 210.60
1986 242.84
% Average
% Difference 65- Year- Old % Difference
k i a b i l i t v Insurance Coveraae 9 r i v ina C h a r a c t ~ rsi t ic r
3- 33- Year- 01 d 65- Year- 01 d
$ 100,000/ 300,000 b o d i l y i n j u r y drives 20 miles a day drives 5 miles a day
$ 100,000 property damage drives 15,000 a year drives 4,000 a year
$ 5,000 med i cal no c i t a t i o n s no c i t a t i o n s
$ 100,000/ 300,000 un/ underi nsured
Source: Auditor General's analysis of averaged liability premium data provided by
three major insurance carriers.
With Inadequate Enforcement,
Effect On Premiums Would Be Negligible
As discussed in Finding I, the MI law has been weakly enforced, resulting in no
long- term effect on the level of uninsured motorists in Arizona. In addition, prior to
the enactment of MI, insurance industry officials indicated that adding all drivers to
the insurance pool would increase all policy holders' premiums. However, since the
current level of uninsured motorists approximates the pre- MI levels, policy holders are
probably not assuming the cost of insuring all high risk drivers. Therefore as
implemented to date, MI is not likely to have had a measurable effect on liability
premiums.
Impact On Premiums Is
Difficult To Determine
Even i f enforcement is improved, it may not be possible to determine MI'S effect on
liability premiums. Insurance experts agree that identifying the specific influence
on premiums would be difficult due to the number and interaction of legal and
extralegal factors. Consultants and insurance actuary personnel were contacted to
determine the feasibility of identifing Mi's effect on premiums. One industry
official wrote:
It is very difficult to isolate the law's impact on premiums. Other
factors affecting claim cost and frequency in the state are not fixed
nor changing at a constant rate. Factors which affect claim cost
andlor frequency include hospital costs, doctors' fees, auto repair
costs, awards for non- economic losses, gasoline prices, speed limits,
road conditions ( e. g. growth in metropolitan areas without appropriate
road improvement and expansion), and law changes. One cannot
isolate the impact of one factor in a dynamic environment where all
factors interact at varying degrees.
In addition, several legal factors were identified by industry studies and officials as
having possible impact on insurance rates in Arizona. For example, according to
one insurance company official, Arizona's cancellation/ nonrenewal law ( A. R. S.
920- 1631) does not allow companies to " transfer extremely bad drivers to a more
appropriate risk pool," and therefore, may be " partially responsible for maintaining
premiums at levels higher" than would be expected. In addition, one insurance
company official noted that the comparative negligence law ( A. R. S. 912- 2505) can
increase litigation by allowing any amount of responsibility for negligence to be
proportionately assessed against the defendant. Furthermore, several recent studies
contrast states with tort liability, such as Arizona, to those with no- fault
automobile insurance provisions, and found that no- fault regulation may hold down
the cost of insurance in those states. These statutes, either individually or together,
may promote exceptional insurance company losses and, therefore impact
premiums. Consequently, isolating the effects of the MI law on liability premiums
would be difficult.
FINDING IV
MVD SHOULD IMPROVE ITS
MANDATORY INSURANCE COMPLIANCE PROGRAM
The Arizona Department of Transportation, Motor Vehicles Division ( MVD) should
improve its program of enforcing compliance with the Mandatory Insurance ( MI)
laws. MVD has recently implemented an automated MI compliance program.
However, the program's inability to identify those most likely to be in
noncompliance and account for those choosing not to respond to requests for
verification may severely limit its ability to establish reliable compliance rates. In
addition, an enhanced enforcement program may be necessary to target those groups
most likely to be in noncompliance.
MVD's Automated
Compliance Program
MVD is statutorily required to verify compliance with the mandatory automobile
insurance program. To accomplish this task, MVD operates two compliance
programs. The first is a random sampling of registered vehicles. The second is a
verification program of vehicles involved in traffic accidents.
As amended in 1986, A. R. S. § 28- 1256 directs MVD to randomly sample up to 10
percent of the vehicles currently registered. "' If selected for the sample, a
motorist is requested to provide evidence of financial responsibility to MVD within
30 days. (" MVD subsequently forwards any insurance coverage information to
the relevant insurance company for verification. I f evidence is not provided or i f
When a m o t o r i s t r e g i s t e r s a v e h i c l e or renews a r e g i s t r a t i o n , a statement must be
signed t h a t the vehicle i s i n compliance and w i l l remain i n compliance w i t h the
minimum f i nanci a1 responsi b i 1 i t y requi rements.
( 2 ) Under A. R. S. 526- 1253, evidence o f f i n a n c i a l r e s p o n s i b i l i t y includes an o r i g i n a l , a
photocopy o r a copy of a current and v a l i d : 1) automobile l i a b i l i t y insurance
p o l i c y that meets the minimum requirements, 2) a binder o r c e r t i f i c a t e of automobile
l i a b i l i t y insurance t h a t meets the minimum requirements, 3) a c e r t i f i c a t e o f
self- insurance issued by the Department of Transportation, 4 ) a surety bond, 5) a
c e r t i f i c a t e o f deposit f o r a minimum o f $ 40,000, o r 6) a motor vehicle insurance
i d e n t i f i c a t i o n card issued by an authorized i n s u r e r or an authorized agent o f the
insurer.
MVD determines the evidence is false or otherwise invalid, the registered owner's
driver's license and vehicle registration are suspended until valid evidence of
financial responsibility is provided. ( 1)
This random verification program was created to serve two purposes. First, by
randomly sampling the registered vehicle population, it is supposed to generate a
statewide rate of compliance with the MI laws. Second, by taking administrative
action against those found by the random sample to be in violation, i t is intended to
serve as an enforcement tool.
A. R. S. 528- 1256 also directs MVD to verify the financial responsibility of any
operator or the owner of a vehicle involved in an accident within the State and
found in violation of the MI laws. Currently, MVD has developed a program of
addressing those cases reported by motorists involved in an accident who suspect
that the other motorists involved were not in compliance with the financial
responsibility requirements.
Program Unable To Establish
Reliable Comoliance Rates
MVD's automated compliance program will not be able to establish reliable rates of
compliance with the MI laws. The program's design of sampling from the registered
vehicle population does not include unregistered vehicles, which evidence shows
have a greater tendency to be in noncompliance with MI laws. In addition, MVD will
not be capable of determining the compliance status of those motorists who do not
respond to requests for verification.
WD i s i n the process of conducting the f i r s t random sample compliance check under
the most recent changes i n the MI law, e f f e c t i v e August 13, 1986. An i n i t i a l sample
o f 250 r e g i s t e r e d vehicles was selected i n May 1987. However, due to a programming
e r r o r t h i s sample was discarded. Another sample of 1,000 r e g i s t e r e d v e h i c l e s was
i n i t i a t e d i n June 1987. However, a t t h i s time incomplete data preclude any analysis
o f t h i s sample.
Unregistered vehicle population - MVD's automated compliance program samples
from the population of registered vehicles. A. R. S. 328- 1256 directs MVD to sample
throughout the year up to 10 percent of the currently registered vehicles. However,
the registered vehicle population does not represent 100 percent of the vehicles
operating on the Arizona roadways. Compliance rates established by the program
will not reflect the unregistered vehicles.
Unregistered vehicles are more likely to be in noncompliance with MI laws.
Conviction data from MVD indicate a relationship between MI and unregistered
vehicle convictions. As illustrated in Table 6, while M I convictions represented
approximately 4.5 percent of the total traffic convictions in 1985 and 1986,
approximately 10.5 percent of the motorists convicted of an unregistered vehicle
violation were also convicted of an MI violation as the result of a single traffic
stop. This indicates that motorists convicted of an unregistered vehicle violation
are more than twice as likely to receive an MI violation than the general traffic
conviction population.
TABLE 8
MI AND UNREG l STERED VEH l CLE CONV l CT l ONS
A. Total T r a f f i c Convict ions
B. Total MI Convictions
C. Total Unregistered
Vehicle Convict ions
D. Conviction of Both
From Same T r a f f i c
Stop
E. MI Convictions as a
Percentage of Total
T r a f f i c Convictions
( B t A )
F. Percentage o f Unregistered
Vehicle Convictions
w i t h MI Conviction
( D + C)
Source: Auditor General analysis of t r a f f i c c o n v i c t i o n d a t a s u p p l i e d
by MVD.
NonResponses - Motorists who don't respond to MVD's requests for verification
will render the system incapable of establishing reliable compliance rates. Similar
programs in other states document the impact of nonresponses.
Motorists who do not respond impact MVD's ability to establish compliance rates.
Not all motorists selected in MVD's random verification program will choose to
respond. Therefore, MVD cannot determine whether a motorist is in compliance
with the MI laws. However, according to the MI program administrator, MVD's
current plans call for counting those motorists who do not respond as being in
violation.
Random verification programs in other states have a similar problem with
nonresponses. We were able to identify three other MI states that currently operate
a random verification program: Oregon, Minnesota and Nevada. According to
officials in Oregon and Minnesota, they do not use their program as a means of
establishing compliance rates, but rather as an enforcement tool. These officials
stated that based upon experience, their respective agencies determined that
nonresponses were a significant enough factor to preclude generating compliance
rates from the verification program. According to an Oregon official, as many as
30 percent of those sampled do not respond to the state's verification program. A
Minnesota official stated that nonresponses to Minnesota's verification program
routinely exceed 10 percent of those sampled.
In contrast to Oregon and Minnesota, Nevada uses its random verification system to
generate compliance rates. According to the program administrator, although
nonresponses are counted separately, they have impacted compliance figures quoted
by the agency. According to the administrator, Nevada samples approximately
70,000 registered vehicles per year, or 10 percent of the 700,000 registered vehicles
covered by the program. In 1986, of all vehicle owners sampled approximately 5
percent did not respond. As a result, the 10 percent noncompliance rate established
by the verification program could actually be as high as 15 percent, changing the
estimated number of registered vehicles in violation from 70,000 to 105,000.
An Enhanced Enforcement Program
May Be Necessary
An enhanced enforcement program may be necessary to address weaknesses in the
MI program. MVD could strengthen its enforcement efforts by targeting those
motorists most likely to be in noncompliance with the MI laws. Although MVD
officials feel that such a program would be impractical, systems exist to implement
a program of this type. However, MVD may need statutory authority to conduct
such a sample.
Sample motorists - MVD could sample groups of motorists whose driving records
indicate a greater tendency to be in noncompliance with the MI laws. Evidence
indicates that motorists convicted of unregistered vehicle violations and those with
previous MI convictions may have a greater tendency to be in noncompliance.
MVD should sample motorists with unregistered vehicle and MI convictions. As
noted previously, MVD's verification program does not sample unregistered vehicles
for enforcement purposes. However, motorists convicted of an unregistered vehicle
violation are more than twice as likely to be convicted of an MI violation than is the
general population of motorists convicted of other t r a f f i c violations. In addition, as
noted in Finding 1 ( see page 16), in 1986 less than 17 percent of those motorists with
two or more MI convictions had their drivers' licenses suspended as the law
requires. Without receiving a suspension, these drivers are not being placed on a
program operated by MVD to ensure compliance with the MI laws.") As a
result, motorists convicted of unregistered vehicle and MI violations may have a
greater tendency to be in violation of the MI laws.
MVD may need statutory authority to sample motorists with unregistered vehicle
and MI convictions. MVD officials feel that a change in statute would be necessary
for them to begin such a sample. According to Arizona Legislative Council, MVD
may not need express statutory authority to sample these groups of motorists.
However, Legislative Council indicated that such a statutory change would clarify
and mandate the sampling of those motorists who may have a greater tendency to be
in noncompliance with the MI laws.
( ' ) A. R. S. 528- 1256 r e q u i r e s a l l m o t o r i s t s whose d r i v e r s ' 1 i censes have been suspended
to, upon reinstatement, provide evidence of f i n a n c i a l r e s p o n s i b i l i t y on a continual
basis t o MVD f o r a period of three years.
MVD officials - MVD officials are opposed to such a program because at present
it could not be fully automated and would, therefore, require some manual e f f o r t to
be successful. According to MVD officials, the current random sampling system
operates from MVD's Title and Registration ( T& R) data base, while conviction
information is maintained on the Drivers Query ( DQ) data base. Therefore, to
sample for MI verification purposes those motorists with MI or unregistered vehicle
convictions would require using both the T& R and the DQ systems. However, at this
time the two systems are unable to communicate because they lack a common
identifier for each record. ( 1 )
Although a completely automated system may not be possible at this time, MVD has
the necessary information to implement an enhanced compliance program with some
manual processing. According to A DOT Systems analysts, although the T& R and the
DQ systems cannot communicate at this time, it is possible to sample convicted
motorists based on the DQ system and then verify information on vehicles registered
to them through microfilm copies of the T& R system. Such a system would require
some manual processing and would not be capable of sampling as many motorists as
a fully automated system. Therefore, MVD should consider basing the sample on the
severity and frequency of the convictions, giving a higher priority to motorists with
multiple convictions of one or both violations than those with a single conviction.
According t o ADOT systems analysts, n e i t h e r the T& R n o r t h e DQ system has an
i d e n t i f i e r f o r each v e h i c l e owner or licensed d r i v e r ( i . e . s o c i a l s e c u r i t y or
d r i v e r ' s 1 icense number) t h a t consistent1 y appears on data bases. As a r e s u l t ,
u n t i l a common i d e n t i f i e r i s developed i t w i l l be impossible t o run the two systems
together. However, according t o MVD o f f i c i a l s , f u t u r e plans c a l l f o r the adoption
of a common i d e n t i f i e r f o r both programs.
RECOMMENDATIONS
1. MVD should properly report the compliance rate results of its verification
program.
a. The limitations of the results due to unregistered vehicles and nonresponses
should be clearly noted and accounted for.
b. Those motorists confirmed to be in violation and those who do not respond
should be segregated so policy decisions are based on accurate information.
2. The Legislature should consider granting MVD the authority to establish an
enhanced enforcement program designed to sample motorists with driving
records that indicate a greater tendency to be in noncompliance with the MI
laws.
-
ARIZONA DEPARTMENT OF TRANSPORTATION
206 South Seventeenth Avenue P h o e n i x , Arizona 85007
D
EVAN MECHAM
Governor
September 11, 1987
CHARLES L MILLE9
Dlrector
Douglas R. Norton
Auditor General
2700 North Central Avenue
Suite 700
Phoenix, Arizona 85004
Dear Mr. Norton:
The Department of Transportation, Motor Vehicle Division staff
has reviewed the preliminary report draft of the performance
audit of Arizona's Mandatory Automobile Insurance Program The
report is clear and accurate, indicating necessary actions to be
taken to strengthen the program.
This agency agrees that the Mandatory Automobile Insurance
Program can only be effective if the Motor Vehicle Division, law
enforcement and courts work together in carrying out the
statutes. To effectively communicate within the criminal justice
system, a court liaison officer has been established within the
Drivers Licensing Program. The court officer, supported by
members of the Insurance and Law Enforcement/ Prosecutorial
committee.^ ( chaired by the Motor Vehicle Division), will provide
the channel for Mandatory Insurance communications. This effort
will be further enhanced by timely mailings of insurance related
problems and solutions to all involved parties within the
criminal justice system.
The recommended statutory changes regarding the inclusion of
unregistered vehicles will be considered by the Division. This
request for legislative change will be made only after careful
study to determine the impact upon the existing automated data
system and staffing requirements.
HIGHWAYS . AERONAUTICS MOTORVEHICLE PUBLICTRANSIT ADMINISTRATIVESERVICES TRANSPORTAT~ ONPLANNING
PAGE 2
I appreciate the completeness of your audit report and concise
recommendations for change. Your staff has been cooperative and
understanding during the audit period and are to be commended for
their final document.
cc: Lee A. P r i n s
Wilson Conover
Sincerely,
6,\
CHARLES L. MILLER
Director
Department of Transportation