The Immigrant Gamble

Carlos and Maria leave Guatemala to escape dire economic conditions and violence in their home country. They make the long, treacherous journey across the Suchiate River and through Mexico, clinging to “La Bestia,” facing threats at every step of their journey. They hope to find work in the U.S. to support the families they left behind in Guatemala. When they arrive at the U.S. border, Carlos and Maria are met by the U.S. Border Patrol and transported to a Department of Health and Human Services facility, where they are accommodated with food, clothing, medical attention, and assistance locating relatives already living in the U.S.

Both Carlos and Maria soon find jobs in the Texas landscaping business. At first, their need to drive seems justified by their need to get to their jobs. Carlos and Maria may drive a loaned vehicle, a vehicle shared by household members, or, eventually, their own vehicle. As they become more acclimated to their new environment, they drive freely on Texas highways on a daily basis—often with no driver’s license or insurance.

The Reality

In 2012, Stone Ridge Advisors predicted that the Hispanic population in the U.S. would double to more than 100 million by 2050. This prediction was made prior to the well-publicized immigration surge of 2014. If the actual number of immigrants is uncertain, no doubt that the number who are driving unlicensed and uninsured must be a frightening, if undetermined, statistic.

While, as an industry, we may be reluctant to engage in the political football that has become a national debate on immigration, the exponential growth and change in demographics has significant business and ethical implications for the personal auto insurance market. How will the industry embrace this increasingly complex issue? It seems a fair question to ask, “Who will ultimately foot the bill for the inevitable impact on the auto insurance premium dollar?” Will it be the immigrant driver or the U.S. licensed and insured driver?

The irony here is that while states like Texas deny illegal immigrants a driver’s license, some of those same state departments of insurance—Texas included—have approved policy forms to offer unlicensed drivers an auto insurance policy.

In Texas, Carlos and Maria simply have to present a passport or a Matricula Consular that proves their foreign-born status to a local agent who writes nonstandard auto policies in order to purchase an automobile insurance policy. No Texas driver’s license is needed to purchase the policy. In fact, in Texas, an illegal immigrant cannot obtain a Texas driver’s license.

Insured Status

In the event of an accident, the question arises as to the status of Carlos or Maria as an insured under the coverage provided by the applicable auto policy.

If the host family happens to meet eligibility requirements for a standard auto policy, Carlos and Maria may qualify as insureds under the host’s standard auto coverage. However, if the host family does not meet these requirements, then they may be insured under a nonstandard auto policy with unlicensed driver coverages marketed to immigrants. These policies may exclude drivers living in the household who are not listed.

While the availability of “unlicensed driver coverage” may seem to be the answer to the dilemma of making sure this population is insured and U.S. residents are protected, one needs to look behind the curtain to understand the restrictive nature of the coverage offered by these forms. The policy language found in some unlicensed driver coverage forms can be very different from standard policy forms.

A Loss Scenario

Assume Maria is driving a car that belongs to her friend, Jose, with whom she is now living. Maria is involved in an accident in which she is deemed to be at fault. Let’s examine this loss scenario from the perspective of both Part A (liability coverage) and Part D (damage to your covered auto), for Jose’s nonstandard policy.

First, the collision damage to Jose’s vehicle. Unlike the standard auto policy form, Part D may be very restrictive, applying only to losses occurring when the person driving the vehicle at the time of a loss (comprehensive or collision) is a named, listed driver on the policy. In this case, Maria is not a listed driver. That means Jose may not be able to recover his collision damage from his own policy, even though he carried Part D coverage. He also cannot collect for the damage to his vehicle from the other party since Maria was at fault.

From the third-party perspective, under some of these forms, Maria may not qualify as an insured under Part A, either, because Jose’s policy may be a named driver policy and Maria is a resident of the household who is not listed on the policy as a driver.

So while the victim of an accident with an unlicensed immigrant may, at first, breathe a sigh of relief when he learns that there is an insurance policy in effect on the adverse vehicle where the unlicensed driver was at fault, his relief may be short-lived when he learns that the driver involved in the accident is not covered under the policy.

Overall, the bottom line here is that Jose will not recover under his own Part D coverage for his collision damage, and the injured third party won’t recover his bodily injury or property damage from Jose’s unlicensed driver coverage, either.

Contracts and Customers

In defense of the insurer, the commonly accepted legal view has long held that policyholders like Jose certainly have an obligation to read their policies before signing an application and acknowledging all restrictions and exclusions.

Effective January 2014, Texas passed legislation that imposed strict, cumbersome requirements on companies offering named driver policies, requiring proof of policyholder acknowledgment of the restrictions and exclusions. While no compliance mechanism was built into the law, some nonstandard companies found it too difficult to continue to offer this type of coverage because of the law’s onerous requirements—a testament to issues confronting insurers. These laws are a start. However, remember the demographic marketed by insurers for these types of insurance policies and that these policies are written in English, not Spanish.

Due to the nature and increasing size of this market, is it time for insurers to reassess their ethical obligations to meet the needs of this “new” customer? This may include creating more culturally consistent forms and policy language to allow for full disclosure to the intended market. Or does the cost of making these changes erode profit to the extent that insurers will resist the burden and expense of these changes until mandated to do so by legislation?

In addition to the language barriers, recall the unusual coverage restrictions that can be so different from the standard policy forms. Jose only knows that his vehicle is important to his livelihood, too, and that he bought insurance coverage on his vehicle in the event that it was damaged. But in reality, it isn’t until a collision or theft loss that a policyholder like Jose fully understands the coverage when his claim is denied by the insurer. His own policy will not pay for his loss.

Ethics or Just Creative Underwriting?

Consider the underwriting implication of the apparent contradiction in public policy. Because there is no driver’s license, there is no retrievable, documented driving history—a most meaningful underwriting predictor of future loss performance. Underwriting is, therefore, blind to any previous at-fault accidents or DUIs since there is no source to verify previous driving history for the immigrant applicant. This allows for higher premium surcharges. Age and marital status can be used as underwriting criteria, neither of which must be proven by the applicant except by an identification card, which can be obtained easily in the immigrant community without supporting documentation, such as a passport or birth certificate.

So, are these issues strictly business decisions, or is there an element of ethics to consider? If the business has the potential to be profitable, why has the standard market been reluctant to embrace this new class of risks, reaping the benefits of this new emerging customer base? 

Another factor that works in favor of insurers is that, in some states like Texas, the legal environment is quick to allow insurers to decline coverage on the basis of noncooperation. This involves a situation in which an immigrant insured driver involved in an accident cannot be located following an accident.

Granted, in the standard market, declination of coverage for noncooperation may be valid. However, the immigrant community is not a standard market, and insurers are well aware of the transient nature of this customer. The effect of this declination of coverage is that it, once again, leaves the victim with no source of recovery, even where a premium was paid and there is a valid insurance policy. Should insurers be allowed to escape the responsibility of responding to claims of innocent victims when being unable to locate the policyholder is so foreseeable? It’s a difficult question to answer.

The seemingly inconsistent treatment of these issues between state insurance departments and other state agencies, such as departments of public safety, also should be examined for better solutions. Confusion and outrage reigns among U.S. resident insurance-buying consumers, law enforcement, and the legal community. Some of the difficult questions include: How do foreign-born drivers like Carlos and Maria, who have no valid driver’s license, obtain auto insurance? If the coverage is so restrictive, is a higher surcharge justified? Is the unsophisticated, uneducated holder of the unlicensed driver coverage being sold a red herring? 

More Hard Questions

Another question to ask ourselves is this: What are the implications on the accountability of the at-fault immigrant driver for damages? Successful subrogation against uninsured drivers is already a challenge for the subrogation professional. Attempting subrogation against an increasing number of unlicensed and uninsured immigrant drivers who may move around to avoid being held accountable presents almost no chance of recovery. If these claims dollars are not successfully recovered from the wrongdoer, what impact will this have on the price of insurance overall for the U.S. insurance consumer?

Is the public truly realizing the benefits purported by these auto coverages offered to the unlicensed immigrant driver? Is it a valuable service offered to the immigrant community to give them a sense of security that they are obeying U.S. law? Or is there a question of fairness to the uninformed, economically disadvantaged customer base that may be driven to purchase these policies primarily out of fear of detection, which, in their minds, means a fear of the possibility of deportation? Being involved in an accident just might bring attention to their illegal status, which they would rather avoid. Most importantly, do these policies really deliver on the promise of insurance to benefit all parties?

Uncertain Future

At press time, there is no question that U.S. immigration policy in general is in a dynamic and unpredictable state. Will the insurance industry take leadership and employ a sense of urgency on this issue by conducting the appropriate analyses of the social, cultural, and economic risks posed by this new market, then suggest appropriate solutions for everyone? At this point, it seems only time will tell.