In Texas, motorists looking for inexpensive auto insurance coverage can buy a policy that lasts only 30 days. Drivers can also get liability coverage through what’s commonly called a “named-driver” policy, which have limited coverage that only covers the person who purchased the policy and nobody else.
The consumer-protection organization Texas Watch describes these policies in a word: “junk.” They want regulators to take those junk policies off the market, and they think insurers will see that doing so would be both in their best interest, as well as the public’s.
The Problem with Short-Term and Named-Driver Policies
The short-term policies, which offer coverage for as low as $19 a month, have become popular among drivers with low incomes, according to Texas Watch. The one-month liability policy is often marketed on television and radio toward the state’s estimated 2.5 million uninsured motorists as a quick and cheap way to meet one of the main requirements to renew their license and registration without having to pay the full cost of a legit policy.
Meanwhile, the Texas Department of Insurance (TDI) estimates there are about 1.2 million motorists in the state with a named-driver policy. These types of policies are inexpensive because they only offer coverage for the drivers named on the policy. That’s different from a typical policy, which provides coverage when anyone with permission to drive the car is behind the wheel.
“What that means,” said Texas Watch executive director Alex Winslow, “is these named drivers severely limit the coverage available. The people explicitly not covered are the people that should be—they often live in your home.”
Texas Watch and Winslow want those two auto insurance products to be banned by state regulators in 2015. Because while the policies might be attractive to low-income drivers, they’re little more than junk for consumers, according to Winslow.
“The problem is that people are driving around thinking they’re covered, and they’re not,” Winslow told Online Auto Insurance News (OAIN). “If they don’t have the protection, and you get in an accident when you weren’t at fault with one of these drivers, they’re not covered and you might not be either.”
As for the 30-day policies, Winslow said they are often not renewed by motorists.
“Most people buy the 30-day policy to get insurance to register their vehicle and get their driver license renewed, and then they let their policy lapse,” Winslow said. “They’re effectively not carrying insurance for 11 months out of the year.”
Texas Watch is pushing for a minimum six-month term for all auto insurance policies.
Texas Watch Sees Hope for Proposals
Because these coverage plans compete with and often undercut liability policies offered by mainstream insurance companies, Winslow believes Texas insurers will ultimately support these policy recommendations.
“Traditional insurers should be able to get on board with this,” Winslow said.
OAIN’s requests for comment from three large insurance carriers (Geico, State Farm and Nationwide) went unreturned. Progressive Insurance said they weren’t commenting for the time being.
Insurers may be reluctant to comment now because any change to the policy would most likely take place in 2015, when the Texas Legislature convenes. Taking a position now—with more than a year until a new policy would be introduced—might not make sense as there’s “a lot of time to hash things out,” according to the Texas Department of Insurance’s Jerry Hagins.
Hagins said the TDI has been made aware of the policy recommendations and will consider them as the agency crafts its 2015 legislative agenda.
“Their suggestions and input are taken under serious consideration, and we’ll be looking at input like that as we gear up for our legislative recommendations,” said Hagins. “The [Texas insurance] commissioner will be definitely considering the input from Texas Watch.”