by NATHAN INKS
In April the Michigan Department of Insurance and Financial Services withdrew approval for some seven-day auto insurance policies issued by North Carolina-based Integon National Insurance Company that the Department had previously approved. Although there were multiple reasons why the Department withdrew its approval, the move has spurred a debate about the merits of seven-day auto insurance policies.
While some people purchase these seven-day insurance policies for legitimate reasons like transporting a vehicle to and from a summer or winter home, the vast majority of those purchasing the policies are doing so to skirt the legal requirement of continuous coverage on a vehicle registered with the Secretary of State. In Michigan vehicle registration and license plate renewal requires valid insurance; seven-day insurance policies enable owners to register their vehicle or renew their plates without having to pay for auto insurance for the entire year. Some supporters of the seven-day insurance policies argue that insurance rates in some urban areas of the state are so high that vehicle owners cannot afford continuous coverage and have no choice but to purchase a seven-day policy to renew their license plates.
While it is true that the high cost of insurance is a significant issue in some parts of the state, the seven-day insurance policy “solution” merely exacerbates the problem. When drivers who are uninsured get into accidents, the costs of those accidents are borne by the insured drivers across the state through increased premiums. Law abiding drivers end up footing the bill when insurance companies pass along the cost of these accidents to their customers; as the number of uninsured drivers increases, so does the cost of insurance overall, which raises the incentive for more people to drive while uninsured. The utilization of seven-day policies creates a positive feedback loop that leads to higher insurance premiums and a greater number of uninsured drivers.
In 2015 and 2016 the Secretary of State performed an audit on a random sample of the 90,701 seven-day policies that had been presented as proof of insurance to the Secretary of State over the span of a year. Only 16% of the audited drivers who had presented proof of a seven-day insurance policy were still insured 90 days after the date they submitted the proof of insurance.
So is the solution to ban the sale of seven-day insurance policies? Some opponents of the policies say they should be banned completely, but this would throw the baby out with the bathwater. There are legitimate reasons for purchasing seven-day insurance policies, but one of them is not vehicle registration. Instead of prohibiting the policies entirely, the Secretary of State should require proof of a traditional insurance policy—with a term of six months or a year—for the purpose of vehicle registration and plate renewal.
Even eliminating the use of seven-day policies for registration purposes will not completely fix the problem of uninsured drivers on the road, as individuals can always cancel their policies after registering their vehicles, but that takes additional time and effort. More frequent verification of valid insurance and enforcement of the laws on the books will be crucial to lowering insurance premiums and increasing the percentage of insured drivers on the road, but removing the incentive to use seven-day insurance policies to scam the system would be a significant first step in alleviating the problem of rising insurance costs.