Are States Shooting Themselves in the Foot as Insurers Turn to Courts to Avoid High DMV Fees?
Are States Shooting Themselves in the Foot as Insurers Turn to Courts to Avoid High DMV Fees?
As states desperately search for much needed revenue by raising the fees for motor vehicle records (MVR), insurers have just as desperately sought ways to reduce their rising MVR costs, which now exceed $1 billion annually. The first tool were models that looked at other data sets for indicators on which records might prove useful and which would not. These have yielded significant savings for carriers in recent years, but they have the drawback of reducing information in the underwriting process, not adding it. The newest solution to high-cost MVRs is coming from the very source of MVR information: court records. Court records are the original data set that drives the MVR, so they’re more complete and more timely than MVRs. And because so many constituencies use court records, the chances are remote that prices will spike.
In the states where court records are available, insurers are finding them to be an excellent tool in reducing the number of MVRs they order. States may find that raising MVR prices in pursuit of higher revenues may produce the opposite result by driving customers away. The primary use of court records is to prescreen customers to identify if it is worth ordering the MVR. If the court records come up clean, for example, an insurer might decide to forgo ordering the MVR. Court records can also be used to replace MVRs whenever and wherever possible. Though the purveyors of court records are not selling this strategy directly, we know of some insurers that have tested the concept and found it effective. With more than 80% of drivers in a standard book of auto insurance customers carrying a clean driving record, prescreening can cut costs.
Drivers History Inc. has been a pioneer in gathering court records for use by auto insurers. The company began a decade ago in New Jersey, gathering records from a central state source and offering them to lawyers and others. As insurers found the power of court records, the company expanded into other states, but the going was much tougher in places where records must be gathered separately from each traffic court. The challenge is in gathering information from a wide array of sources that use vastly different case-management systems and processing it into a consistent data set that insurers can use – all at a lower total cost than buying MVRs. Bigger data vendors also have expanded in this space, with market leaders like LexisNexis leveraging existing infrastructure in courthouses to gather court records on traffic violations. LexisNexis is one of the nation’s leading providers of MVRs, and it also markets a model helping insurers decide which MVRs to order.
In many ways, the states have brought this on themselves. We calculate that the average cost for an MVR was about $6 in 2003, but rose to slightly more than $7 in 2008 and nearly $9 in 2012. Prices have increased about 50% over the past decade. We calculated these changes using historical data from LexisNexis, Drivers History and American Driving Records, another seller of MVRs that was sold by CoreLogic a year ago to Safety Holdings, Inc. There are some states with variable prices depending on the depth of the data set and the type of report. We did our calculations, where possible, on MVRs with three years of data. Highlighting the fact that MVR pricing is disconnected from the underlying cost of providing the service, prices vary dramatically
from state to state. The lowest states are California at $2 (bet you didn’t see that coming) and Nebraska and North Dakota at $3. At the other end of the spectrum, Oklahoma has gone completely off its rocker, charging $27.50 for essentially the same data set California sells for $2. The next highest states are Georgia at $23, Rhode Island at $20 and Vermont
at $17. (Vermont has increased prices five times since 2005, when an MVR cost $8.) No state has increased prices more than Oregon, which went from 50 cents as recently as 2008 to $2 in 2009 and then to $9.68 in 2012. Brian Wolfson, senior vice president of Drivers History, told the 2013 Auto Insurance Report National Conference that the total spent by insurers on MVRs today is between $1 billion and $1.5 billion. There are more reasons to look toward court records than just cost, Wolfson said. Court records include data about violations in real time. The violation information appears when the ticket is issued and as it moves through the court. The data only moves from the court records to the MVR when it is finally resolved – called adjudicated data – and even then there is a lag that can last several weeks between the time when the court records show the resolution of the ticket or violation and when it appears on the MVR.
Drivers History also found that in some cases court records are more complete, as violations sometimes fail to make it into the MVR. It is important to note, however, that court records do not provide all the information in an MVR, and thus using the court record instead of the MVR will leave out some important data. Wolfson told the conference audience that court records do not have administrative actions, such as a failure to renew a registration. They also don’t show license suspensions and accident information. The MVR also indicates some, but far from all, out-of-state violations through the Driver’s License Compact, or DLC. Not all out-of-state violations are reported to the home state. In the future, if insurers find a way to conduct a national search of court records, insurers could pick up valuable additional information. Insurers do not use the non-adjudicated data for setting rates for auto insurance policies, and there is a great deal of discussion in the industry right now about exactly how that data can be used. We have suggested to a few insurers that non-adjudicated data could be useful for prescreening customers. An insurer could decide, for example, not to market a preferred product to someone with multiple tickets, even if the tickets don’t result in guilty verdicts. Expensive lawyering has helped numerous people with multiple charges of drunk driving have at least some of those charges reduced. With no official DUI convictions, insurers certainly would be barred from pricing or even underwriting based on such data, but there might be value in knowing the full picture. Insurance executives shudder at the legal, regulatory and public relations challenges of using non-adjudicated data for any purpose, but data hounds everywhere are studying the possibilities.
One idea suggested to us is the value of seeing a violation, perhaps a DUI, hit the courts, and then flagging that customer for a few weeks or months hence when the matter would be resolved.
In this way, non-adjudicated data could be a useful early-warning system for ordering MVRs on renewal customers. If court records are so useful, why isn’t everyone using them? Because they’re so much harder to get than MVRs, and no vendor can currently assure an insurer that they can provide court records with anything approximating the complete coverage available with MVRs. Few states centralize data on traffic violations, so that means working with numerous courts in different municipalities, all operating with different systems, if they have systems at all. “Court records continue to be devilishly difficult to obtain from the county, the municipality, even cities who are unaccustomed to sharing this data,” Wolfson said. “The process is not only complicated, but it also takes a very long time, especially when you need a three-year history of violations for
new business. Some jurisdictions are unable to provide that history of past violations. Therefore, it would take three full years to get to the point where you have enough history of data in-house.” When the court says that records are publicly available, Wolfson said, that really just means that someone can go into the courthouse, request a hard copy of an individual record and pay an administrative fee to receive the record. “Often, there are no printers, there’s no capacity to do downloads, no bulk availability set up, just the ability to look at the data,” he said. “Because no one has requested this data previously, many jurisdictions simply have no process in place to make the data easily accessible. So, ‘publicly available’ is very misleading.” Once the data is captured, someone has to standardize the information that comes from a wide range of report formats. That’s probably just as hard as getting the data collected in the first place.
There are also numerous jurisdictions where court records are not likely to be available any time soon. Some jurisdictions are too small. Others may be large, but MVR fees are so low that it doesn’t pay to go to the time and effort to collect court records. California is a good example. With a $2 MVR fee, there is not much to be gained by spending a fortune to get court records. Drivers History currently provides insurers with court records in 15 states, with three more coming online by the end of this year. LexisNexis and others are also working to expand their coverage more broadly. Wolfson said in about 10 states, such as California, MVR costs are too low to make the endeavor worthwhile. In another 10 states, where courts are dispersed and MVR pricing is moderately high, the effort to provide statewide coverage will be slow. Everywhere else vendors are hard at work gathering court records. This equation could change if states continue to push up prices or if states, realizing that high prices result in less revenue, lower prices instead. We wouldn’t bet on any state government figuring out that lower MVR prices will result in higher revenues. That kind of math doesn’t seem to compute in many state capitals.
Source: RISK INFORMATION,INC.