Growing DMV Reporting Headache

Since the mid- to late-1980s, state legislatures seeking to track down uninsured motorists have passed laws requiring insurance companies to electronically report automobile insurance information to state departments of motor vehicles (DMVs). More than 20 states have enacted such laws, resulting in a huge compliance burden for the industry. With more states enacting electronic reporting laws, insurers may shoulder an increasing load.

Electronic reporting, through EDI or magnetic tape, theoretically works by matching motor vehicle agency registration data against insurance company data of in-force and terminated policies. If a registered vehicle has no corresponding record of insurance in force, it is presumed that the vehicle is uninsured.

Spirit of Cooperation

While the insurance industry strongly opposes reporting laws—arguing the laws don't keep uninsured motorists off the road—it engages motor vehicle departments in a spirit of cooperation, according to Tony Rocha, Bloomington, IL-based chairman of the Insurance Industry Committee on Motor Vehicle Administration (IICMVA). "We try to work with the jurisdiction to help design a program that everyone can deal with, and at the most efficient cost," he says, "Unfortunately, it doesn't always work that way."

Since the first implentation of an electronic reporting system in Louisiana in 1987, the insurance industry has worked closely with its motor vehicle agency counterparts,according to Bill Hinds, a Washington, DC-based IICMVA member and former chairman. As other states began to follow Louisiana's example, the insurance industry sought to lessen the future burden of reporting by developing a transmission standard in the early 1990s, under the aegis of the American Standards Insurance Group—a subcommittee of the American National Standards Institute (ANSI, New York), Hinds says. "They met and devised what they called the X12 standard record layout format."

The states accepted the standard, in principle, according to Hinds. "Most of them start out saying, 'Yes, we want to make this as easy on the industry as possible.' But then they proceed to tweak it until it's no longer a standard format."

The result is that insurers have to go through the difficulty and expense of tailoring outputs. "It's very costly to start programming from scratch each time for a non-standard system," Hinds says.

Despite all efforts, reporting schemes do more harm than good, according to Dan Kummer, director, automobile insurance, National Association of Independent Insurers (NAII, Des Plaines, IL). The insurance industry is "paying hundreds of millions for these programs to get uninsured motorists off the road, but they're still there," Kummer says. And owing to inconsistencies in the way states and insurance companies treat registration and insurance data, mismatches occur, exposing carriers' insured customers to harrassment and sometime "draconian" penalties such as vehicle empoundment, Kummer says. "We see about 10 percent of mismatches just because databases don't match up."

However, the mismatching problem can be solved, according to vendors seeking to sell or manage reporting systems to DMVs. "From a technology standpoint it's not a problem," says Phil Casey, general manager of Explore (Red Wing, MN), a vendor that installed a system for the Colorado DMV. There, Casey says, "We match 98.4 percent."

Hopeful Outlook

T. N. Prakash, chief, bureau of financial responsibility, State of Florida (Tallahassee), shares Casey's view of the possibility of successful electronic reporting. Prakash says states' failures to use a standard reporting format places an unreasonable and costly burden on insurers, but he is optimistic that conformity to a standard eventually will prevail. States that are beginning to adopt electronic reporting "are willing to work," he says. The existing X12 standard may be altered slightly, he speculates, but through continuing dialogue with the industry, Prakash predicts, "we'll have an agreeable standard format very shortly."

Whether Prakash's optimism is eventually vindicated or not, the industry stands to bear a lot more cost to support reporting schemes in the near future, according to the IICMVA's Hinds. "States see it as a panacea, and every year more are discussing electronic programs," he says. "There's no way to stop it."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio