An Analysis of Tennessee's Motor Vehicle Liability Insurance Limits (2006)

Offices of Research and Education Accountability

OREA

An Analysis of Tennessee’s Motor Vehicle

Liability Insurance Limits

Briefing Paper

December 2006

Comptroller of the Treasury

JOHN G. MORGAN

OREA Briefing Paper

An Analysis of Tennesee’s Motor Vehicle

Liability Insurance Limits

Author: Susan Mattson

Senior Legislative Research Analyst

Offices of Research and Education Accountability

Ethel R. Detch, Director

Douglas Wright, Assistant Director, Research

Dr. Phillip Doss, Assistant Director, Education Accountability

John G. Morgan

Comptroller of the Treasury

Dec. 2006

Comptroller of the Treasury, Office of Research.

Authorization Number 307342, 400 copies, December 2006.

This public document was promulgated at a cost of $0.86

per copy.

Table of Contents

Issue Overview ..................................................................................................... 1

Background .......................................................................................................... 1

Comparisons to other states ................................................................................ 1

Minimum insurance limits ..................................................................................... 3

Insurance Costs ................................................................................................... 3

Uninsured motorists ............................................................................................. 3

How much insurance is sufficient? ....................................................................... 3

Comparison of insurance requirements to claims ................................................ 4

Cost of insurance at different levels of coverage ................................................. 5

Other potential issues to consider ........................................................................ 5

Monitoring ............................................................................................................ 5

Enforcement of current laws ................................................................................ 7

Endnotes ............................................................................................................. 8

Appendix A: Summary of Tennessee Law ............................................................ 9

Exhibits

Exhibit 1: National and Regional Comparisons of Tennessee’s

Motor Vehicle Insurance Limits ............................................................................ 1

Exhibit 2: Required Minimum Insurance Limits .................................................... 2

Exhibit 3: Average Liability Insurance Expenditures, 2003 ................................... 2

Exhibit 4: Estimated Percentage of Uninsured Motorists, 2004 ........................... 4

Exhibit 5: Motor Vehicle Liability Insurance Rate Comparisons ........................... 6

Motor Vehicle Liability Insurance

Issue Overview

Are Tennessee’s requirements for motor

vehicle insurance coverage sufficient, or

should the minimum requirement be increased

to provide adequate insurance coverage and

financial protection for Tennessee motorists?

Given current circumstances, an increase does

not appear necessary. Tennessee’s limits are

comparable to or greater than most other states’.

Despite increases in the cost of health care and

motor vehicles since the limits were established in

1989, the limited information available indicates

that the vast majority of claims appear to be well

within the minimum limits. Increasing the limits

would increase the cost of insurance especially for

higher risk drivers, who already pay much higher

rates. Increased costs could result in an even

higher uninsured motorist rate in Tennessee (21.2

percent in 2004), which is the sixth highest in the

nation. Although not within the scope of this study,

the high rate of uninsured motorists in Tennessee

indicates that additional action may be needed to

require motorists in Tennessee to be financially

responsible.

Background

This study is in response to Senate Joint Resolution

590 (2006), which directed the Comptroller of the

Treasury to conduct a study determining the

sufficiency of Tennessee’s minimum requirements

for moto vehicle insurance coverage and financial

protection for Tennessee motorists.

Title 55, Chapter 12 of the Tennessee Code

Annotated (T.C.A.) sets out the financial

responsibility requirements of motor vehicle owners

or operators in Tennessee. (See Appendix A for

summary of law.) Tennessee requires all vehicles

subject to the registration and certificate of title

provisions to be in compliance with the financial

responsibility law, which is primarily done through

private liability insurance policies. The purpose of

the law is to ensure that when a driver is at fault in

an auto accident, the other drivers’ and passengers’

medical, car repair, and other related costs are

covered at least up to the state-required levels.

Tennessee’s minimum requirements for motor

vehicle liability insurance for bodily injury or property

damage to another is $25,000 for bodily injury liability

for one person injured in an accident, $50,000 bodily

injury liability for all injuries in one accident, and

$10,000 property damage liability for one accident

(commonly reported as 25/50/10). In addition,

Tennessee allows a motorist to alternatively

purchase a single policy limit to cover $60,000 in

both bodily injury and property damage in an

accident. These minimums were established as of

December 31, 1989, and remain the same in 2006.

In addition, T.C.A. 56-7-1201 requires every

automobile liability insurance policy to include

uninsured motorist coverage at the same limits as

the bodily injury limits stated in the policy. However,

an insured motorist may reject the insurance in

writing or reduce the level of uninsured motorist

coverage down to the minimum liability insurance

requirements.

Comparisons to other states

All states have some form of financial

responsibility law that holds motorists accountable

for bodily injury or damages to vehicles.

All states

have laws that set the minimum amounts of

insurance or other financial security that drivers

have to pay for harm caused by their negligence

behind the wheel, if an accident occurs. Most

states require drivers to have auto liability

insurance before they can legally drive a car.

Tennessee is one of only three states (New

Hampshire and Wisconsin) that does not have

compulsory auto insurance liability laws.

Tennessee, drivers may meet the requirements for

financial responsibility through cash or bonds

deposited with the Department of Safety in

addition to proof of insurance at the required

levels. According to the Director of Financial

Responsibility within the Department of Safety, few

persons (two or three) have filed cash or a bond to

meet the financial responsibility requirements. In

effect, almost all Tennesseans who follow the

financial responsibility law do so through

insurance, at least at the minimum required levels.

Bodily Injury,

1 person

Bodily Injury,

accident

Property

Liability

Nationwide

< Tennessee 20 20 5

= Tennessee 25 25 23

> Tennessee 4 4 21

Southern States

< Tennessee 6 6 0

= Tennessee 6 6 7

> Tennessee 1 1 6

Exhibit 1: National and Regional Comparisons

of Tennessee’s Motor Vehicle Insurance Limits

OREA Briefing Paper

Exhibit 2: Required Minimum Liability

Insurance Limits, 2006 (in thousands)

Bodily Injury,

1 person

Bodily Injury,

accident

Property

Liability

Alabama

20 40 10

Alaska 50 100 25

Arizona 15 30 10

Arkansas 25 50 25

California 15 30 5

Colorado 25 50 15

Connecticut 20 40 10

Delaware 15 30 10

Florida

10 20 10

Georgia 25 50 25

Hawaii 20 40 10

Idaho 25 50 15

Illinois 20 40 15

Indiana 25 50 10

Iowa 20 40 15

Kansas 25 50 10

Kentucky

25 50 10

Louisiana

10 20 10

Maine 50 100 25

Maryland 20 40 15

Massachusetts 20 40 5

Michigan 20 40 10

Minnesota 30 60 10

Mississippi

25 50 25

Missouri

25 50 10

Montana 25 50 10

Nebraska 25 50 25

Nevada 15 30 10

New Hampshire 25 50 25

New Jersey 15 30 5

New Mexico 25 50 10

New York 25 50 10

North Carolina

30 60 25

North Dakota 25 50 25

Ohio 12.5 25 7.5

Oklahoma 25 50 25

Oregon 25 50 10

Pennsylvania 15 30 5

Rhode Island 25 50 25

South Carolina

15 30 10

South Dakota 25 50 25

Tennessee

25 50 10

Texas

20 40 15

Utah 25 50 15

Vermont 25 50 10

Virginia 25 50 20

Washington 25 50 10

West Virginia 20 40 10

Wisconsin 25 50 10

Wyoming 25 50 20

(a) South Carolina’s limits will increase to 25/50/25 on 1/1/2007.

Source: Property Casualty Insurers Association, state departments of insurance and

motor vehicles, as reported in “Compulsory Auto Insurance,” Insurance Information

Institute, 2006.

Exhibit 3: Average Liability Insurance

Expenditures, 2003

Average

Expenditures Rank

Alabama $354.34 39

Alaska 582.22 10

Arizona 502.58 16

Arkansas 378.84 36

California 481.71 18

Colorado 545.05 11

Connecticut 611.45 7

Delaware 662.54 5

Florida 715.59 2

Georgia 394.48 29

Hawaii 513.44 15

Idaho 337.63 43

Illinois 404.78 28

Indiana 373.70 37

Iowa 301.04 46

Kansas 298.57 48

Kentucky 472.40 22

Louisiana 609.93 8

Maine 351.88 40

Maryland 524.39 12

Massachusetts 666.36 4

Michigan 436.51 26

Minnesota 476.37 20

Mississippi 390.44 30

Missouri 382.11 33

Montana 380.55 35

Nebraska 326.89 44

Nevada 585.29 9

New Hampshire 415.13 27

New Jersey 709.08 3

New Mexico 439.70 24

New York 799.26 1

North Carolina 338.03 42

North Dakota 245.31 50

Ohio 388.51 31

Oklahoma 386.93 32

Oregon 477.59 19

Pennsylvania 488.82 17

Rhode Island 650.74 6

South Carolina 451.39 23

South Dakota 291.68 49

Tennessee 347.57 41

Texas 474.99 21

Utah 438.24 25

Vermont 360.94 38

Virginia 381.03 34

Washington 520.98 13

West Virginia 516.34 14

Wisconsin 325.47 45

Wyoming 319.68 46

Nationwide

$485.37

Note: Average expenditures = total premium for liability

coverage/liability written car-years.

Source: “State Average Expenditures and Premiums for Personal

Automobile Insurance in 2003,” National Association of Insurance

Commissioners (NAIC), as reported in “Auto Insurance,”

Insurance Information Institute. Permission to reprint granted by

NAIC.

Motor Vehicle Liability Insurance

Uninsured motorists

Tennessee ranks sixth nationally in estimated

percentage of uninsured motorists. In 2004,

Tennessee had an estimated 21.2 percent of

uninsured drivers compared to 14.6 percent

nationally and 13.9 percent for southern

states. (See Exhibit 4.) Tennessee is above the

national and southern state averages for the

percentage of uninsured motorists. The

percentage of uninsured motorists ranged from

26.5 percent in Mississippi to 4.2 percent in

Maine. In the Insurance Research Council’s

estimates, Tennessee’s uninsured motorist

percentages stayed relatively stable between 1999

and 2004 (between 20.5 percent and 22.2

percent). Nationally, rates increased from 12.7

percent in 1999 to 14.6 percent in 2004.

The latest and most complete figures available are

for 2004 and are published by the Insurance

Research Council.

The percentages are based on

the ratio of claims by individuals injured by

uninsured drivers using uninsured motorist

insurance coverage to bodily injury claims made

by individuals using liability coverage of an at-fault

driver. This estimates the chance, expressed as a

percentage, that if someone is injured in an auto

accident, the at-fault driver was uninsured. The

estimate focuses only on the injury portion of the

coverage, not property damage.

How much insurance is sufficient?

The minimum requirements for motor vehicle

liability insurance should have some

correspondence to the potential for losses

incurred, balanced by the cost of insurance.

Liability insurance covers the personal injury and

property damage an at-fault driver causes in a

motor vehicle accident. If an insured’s policy is not

sufficient to cover the cost of an at-fault accident,

the at-fault driver is personally responsible for the

damages over the policy limits. The victims must

try to collect the difference from the at-fault driver

if he/she has the means to pay for losses incurred

by others.

However, the injured party may rely on

his or her own uninsured motorist coverage to pay

for the injury costs and property damage incurred

and the insurance company may then seek

payment from the at-fault driver.

Higher liability coverage adds to the premium cost

of insurance. A vehicle owner must balance the

risk of liability with the cost of insurance. A person

with greater assets would probably choose greater

coverage to protect personal assets from

Tennessee’s minimum requirements for bodily

injury liability insurance (25/50) are

comparable to or higher than most southern

states’. Only North Carolina has higher limits for

bodily injury liability insurance (30/60). Six

southern states have the same requirements as

Tennessee. Six southern states have lower limits

per person and per accident: two at 10/20, one at

15/30, and three at 20/40. (See Exhibits 1 and 2.)

Tennessee’s requirements for property

damage are the same or lower than most other

states’. No southern states have lower property

damage liability requirements than Tennessee.

Seven southern states have the same $10,000

limit and six states have higher property damage

limits: one at $15,000, one at $20,000, and four at

$25,000. Nationally, Tennessee’s property damage

liability requirement is less than 21 states, the

same as 23 states, and greater than only five

states. (See Exhibits 1 and 2.)

Insurance costs

Motor vehicle liability insurance premium

expenditures are lower in Tennessee

compared to other states’. In 2003, Tennessee

ranked 41

nationally in the average expenditures

for liability insurance premiums, $347.57 per year

compared to $485.37 nationally.

(See Exhibit

3.)These expenditures are affected by the

coverage purchased as well as other factors, such

as age of car, urban population, traffic density,

age, gender, as well as liability coverage

requirements.

Insurance also appears to be available in the

private market to most drivers in Tennessee. The

state operates an assigned risk pool for persons

unable to purchase insurance in the private

market. According to the Director of Actuarial

Services for the Department of Commerce and

Insurance, currently less than 100 personal auto

policies are insured by the Tennessee Automobile

Insurance Plan. The plan ensures availability but

does not provide lower cost insurance for high risk

drivers.

Minimum insurance limits

Nationally, Tennessee’s bodily injury

requirements are greater than or equal to 45

other states’.

Twenty states have lower

requirements and 25 states have the same. Only

four states have higher bodily injury limits. (See

Exhibits 1 and 2.)

OREA Briefing Paper

Exhibit 4: Estimated Percentage of Uninsured Motorists, 2004

Mississippi 26.5%

Rhode Island 14.4%

Pennsylvania 9.7%

Alabama 24.8%

Wisconsin 14.2%

West Virginia 9.7%

California 24.8%

Arkansas 13.9%

Georgia 9.6%

New Mexico 24.3%

Hawaii 13.5%

South Carolina 9.6%

Arizona 22.0%

Kansas 12.7%

New Jersey 9.4%

Tennessee

21.2%

Iowa 12.4%

Utah 9.3%

Florida 19.4%

Montana 12.4%

Idaho 8.8%

Washington 18.5%

Oregon 12.3%

New Hampshire 8.8%

Michigan 17.5%

Connecticut 12.2%

South Dakota 8.8%

Nevada 17.5%

Maryland 12.2%

North Dakota 8.7%

Texas 16.5%

Missouri 12.2%

North Carolina 7.7%

Illinois 16.1%

Kentucky 11.8%

Nebraska 7.5%

Indiana 15.5%

Delaware 11.7%

New York 6.6%

Ohio 15.4%

Wyoming 10.7%

Massachusetts 6.0%

Alaska 15.3%

Minnesota 10.4%

Vermont 5.7%

Colorado 15.0%

Louisiana 10.2%

Maine 4.2%

Oklahoma 14.8%

Virginia 10.0%

Nationwide Average = 14.6% Southern States Average

= 13.9%

(a) Calculated by OREA staff.

Source: “Uninsured Motorists,” Insurance Research Council, June 2006. Press release accessed Oct. 10, 2006,

www.ircweb.org

additional claims above the minimum amount.

State law sets the minimum amount of insurance a

person who buys insurance must have. Insurance

representatives interviewed recommend that the

requirements be as low as possible to avoid losing

insured drivers. If vehicle owners perceive that the

cost of insurance is too high, especially if their

assets are limited, they may forgo the purchase of

insurance (despite the financial responsibility laws)

and take the chance they will not be at fault in an

accident.

The Tennessee Trial Lawyers Association

contends that raising Tennessee’s minimum limits

is needed protection for Tennessee citizens. The

association indicates that Tennesseans involved in

auto accidents are rarely able to recover

completely from the financial burden placed on

them when the negligent driver is covered only by

the minimum state requirement of automobile

insurance. The association is able to provide

specific examples where injured Tennesseans

were left without compensation for injuries

sustained in motor vehicle crashes where

minimum limits were inadequate. To put the

number of serious cases in perspective, more

comprehensive data on the total number and

extent of injury or property damage for all

accidents in a given time period is needed.

However, such data is not available.

Tennesseans who lack sufficient uninsured or

underinsured motorist coverage must sustain

losses in accidents where uninsured motorists are

at fault.

Persons who purchase uninsured

motorist coverage ultimately pay the costs of

uninsured or otherwise financially irresponsible

drivers through higher uninsured motorist

insurance premiums.

Interviews with insurance officials indicated that

insurers do not have standard recommendations

on level of coverage but usually recommend

above the state minimum limits. The larger

“standard” (lower risk) insurers in Tennessee

interviewed (about 40 percent of the market)

indicated that 75 to 90 percent of their policies

are above the limits; non-standard (higher risk)

insurers indicated that almost all (98 percent)

of their policies are at the minimum limits.

Comparison of insurance requirements to

claims

Although detailed insurance claims data are

not readily available, limited information on a

national level indicates the insurance

Motor Vehicle Liability Insurance

requirements in Tennessee are well above the

average for claims. The Insurance Information

Institute reports the average claims for auto

liability losses, as compiled by the Insurance

Services Office (ISO Properties, Inc.).

For 2005,

private passenger auto liability losses averaged

$11,271 for bodily injury claims and $2,690 in

property damage claims. The bodily injury claims

average increased 17 percent from 1996 to 2005

(despite a 42 percent increase in the Consumer

Price Index for medical care

). The property

damage claims average increased 27 percent.

However, the average may not necessarily reflect

the range of claims.

In a 2003 study by the Insurance Research

Council on a sample of bodily injury claims, only

one percent of claims were over $50,000 and

three percent were over $25,000. However, these

claims represent 26 percent of total insurance

payments.

Information provided by one of the

larger insurance companies in Tennessee for 2005

indicated that the vast majority of claims were

within the state’s minimum insurance limits.

Eighty-six percent of bodily injury claims were less

than $25,000; 95 percent were less than $50,000.

Ninety-six percent of property damage claims

were less than $10,000.

State and insurance officials interviewed

indicated that the $10,000 property damage

liability insurance may no longer be sufficient

to cover many accidents because most cars

are worth more than $10,000. In 2006, the

average price of a new car was about $27,800 and

the average sales price of a used car was

estimated at $13,900.

However, motor vehicles

lose value over time and insurance pays only the

vehicle’s current value if the car cannot

economically be repaired. The average property

damage claim in 2005 of $2,690 was significantly

lower than the $10,000 minimum limit.

Cost of insurance at different levels of

coverage

Increasing the property damage limit from

$10,000 to $25,000 would require a six percent

increase in the base rate for auto liability

insurance. An increase in bodily injury limits

from 25/50 to 50/100 would increase the base

rate by 18 percent. Insurance companies start

with a “base rate” for different kinds and dollar

amounts of auto insurance and then apply

different factors to calculate a rate. The

Department of Commerce and Insurance provided

a comparison of base rates for personal vehicles

in Tennessee compiled by the Insurance Services

Office (ISO Properties, Inc.) for 2003. The base

rates show the increase resulting from changes in

liability coverage. Actual premium costs vary

significantly based on several factors including

location, gender, age, miles driven, driving record,

and coverage requested.

Increasing minimum limits from 25/50/10 to 50/

100/25 would increase insurance premiums an

estimated 12 to 22 percent and between $15

and $193 per six-months depending on several

factors. To determine the potential dollar impact

on premiums from increased liability limits, several

Tennessee insurers provided rate quotes at the

current limits of 25/50/10 as well as at limits of 50/

100/25 for several examples of drivers. Exhibit 4

shows average rates for different types of drivers.

The data was provided by several Tennessee

insurers that collectively wrote about 42 percent of

the state’s 2005 personal auto insurance

premiums. As shown in Exhibit 5, rates as well as

the increase in rates would be greater for higher

risk drivers including those insured by

nonstandard insurers, those with a poor driving

record, or other higher risk factors such as age.

Insurance company representatives interviewed

also warned of “claims inflation” if the minimum

requirements are increased. In many cases,

parties settle for the current policy limits even

when the actual damages exceed the limits. With

higher limits, average claim costs may increase,

resulting in potentially higher rates. One insurance

company noted that raising the limits in Georgia

made it more economically feasible for injured

parties to collect damages through hiring attorneys

to file lawsuits. Ultimately, claim amounts and

premiums increased.

Other potential issues to consider

Does Tennessee need to increase monitoring

and enforcement of Financial Responsibility

Laws?

The type of monitoring and the type and level of

enforcement of financial responsibility laws were

not within the scope of this study. However, the

high rate of uninsured motorists in Tennessee

indicates that additional action may be needed to

require motorists in Tennessee to be financially

responsible. Information below compares

Tennessee to other states in these areas.

Monitoring

Tennessee primarily uses a passive/reactive

approach to financial responsibility. The state

OREA Briefing Paper

requires proof of financial responsibility when an

accident occurs and when a vehicle is stopped for

a moving violation. State law includes additional

requirements for drivers convicted of failure to

establish financial responsibility after an accident

or for failure to satisfy a judgment resulting from

an accident. (See Appendix A for summary of law.)

Most of the 14 southern states examined use a

more preemptive approach to financial

responsibility and require proof of insurance at

vehicle registration, when an accident occurs, and

at all times in the vehicle. Ten southern states

require proof of insurance at registration of a

vehicle as a means to prevent uninsured vehicles,

Tennessee does not. Proposed legislation

2006 would have required a person to show

evidence of compliance with the Financial

Responsibility Law to register a vehicle but was

put on hold. The estimated potential cost of the

proposal was over $7 million, primarily resulting

from a reduction in state and local registration and

wheel tax revenue because state officials

projected some uninsured motorists would not

renew their vehicle registrations.

Exhibit 5: Motor Vehicle Liability Insurance 6 Month Rate Comparisons

Notes: Rate quotes are calculated for 2003 Ford Taurus LX (4-door sedan), a 6 month rate, in Nashville.

Standard insurers insure clients who meet certain company standards, primarily lower risk drivers. According

to the Insurance Information Institute, the standard insurance market accounts for about 80 percent of the total

private passenger auto insurance market in the United States.

Nonstandard insurers insure higher risk drivers that many standard companies will not insure. According to

the Insurance Information Institute, the nonstandard insurance market accounts for about 20 percent of the total

private passenger auto insurance market in the United States.

Source: Rate quotes provided to OREA by a sample of Tennessee insurance companies, September 2006.

Standard insurers Nonstandard insurers

25/50/10 50/100/25

$ Change

(% Change)

25/50/10 50/100/25

$ Change

(% Change)

Driver A

21 yr. old male, single,

commute ≤10 miles,

No accidents or traffic

convictions in 3 years

$295 $334

$39

(13.2%)

$586 $704

$119

(20.2%)

Driver B

21 yr. old female, single,

commute ≤10 miles,

No accidents or traffic

convictions in 3 years

$233 $263

$30

(13.0%)

$469 $565

$96

(20.4%)

Driver C

35 yr. old male, married,

15 mile commute,

No accidents or traffic

convictions in 3 years

$151 $170

$19

(12.6%)

$319 $382

$63

(19.6%)

Driver D

68 yr. old female, married,

Pleasure use only,

No accidents or traffic

convictions in 3 years

$113 $128

$15

(12.9%)

$312 $380

$68

(21.8%)

Driver E

22 yr. old male, single,

15 mile commute,

Major violation (DUI) in

last year

$480 $539

$59

(12.3%)

$1,007 $1,178

$172

(17.0%)

Driver F

18 yr. old male, single,

15 mile commute,

At fault accident last year

$682 $774

$92

(13.5%)

$1,096 $1,288

$193

(17.6%)

Motor Vehicle Liability Insurance

Many states have programs to verify whether

motorists are insured before an accident or

violation occurs. Six southern states have

computer data laws that compare the data of

insurance companies’ clients to the vehicle

registration rolls. Officials interviewed with both the

Department of Safety and Commerce and

Insurance and insurance companies think the

costs of implementing such programs are

excessive for the results achieved in reducing the

number of uninsured motorists and have a high

error rate. A study sponsored by the American

Association of Motor Vehicle Administrators in

1999

found mixed results for electronic

insurance reporting. Measures of program

effectiveness and costs were generally not

available. Most stakeholders agree that these

programs are expensive to implement and operate

but dispute the degree of their effectiveness in

reducing the number of uninsured motorists or

costs to financially responsible drivers.

Pilot projects have begun in some states to give

approved government employees - such as

drivers’ license and motor vehicle registration

employees and law enforcement - real time, on-

line access to insurance companies’ databases to

determine if drivers or vehicles are insured. This

approach may prove to be more accurate and less

cumbersome to both the government and

insurance companies.

Two southern states verify randomly selected

policies and ten states require insurers to notify

the state of any cancellation or non-renewals.

Tennessee requires notification of cancellations or

non-renewals for persons required to obtain

insurance after license revocation.

Many other states require proof of insurance to

renew driver licenses and vehicle registrations.

The estimated percentage of uninsured motorists

does not appear strongly related to the presence

of compulsory insurance laws. Of the three states

that do not require insurance, Tennessee had a

high rate of uninsured motorists (21.2 percent),

Wisconsin was about average (14.2 percent), and

New Hampshire was below average (8.8

percent).

The Insurance Research Council’s 2006 report on

uninsured motorists also found that states with

strict penalties, such as high fines and driver

license suspensions, did not necessarily exhibit

lower levels of uninsured motorists relative to

other states.

However, the effectiveness of

various penalties in reducing the percentage of

uninsured motorists at least partially depends on

the enforcement of penalties and the public’s

perception that the penalties would be enforced.

Enforcement of current laws

In comparison to the 21.2 percent of uninsured

motorists in Tennessee, the percentage of

suspended and revoked licenses relative to

financial responsibility laws appears low. In

fiscal year 2004-05, the Department of Safety

suspended 25,881 drivers’ licenses or driving

privileges for convictions of driving without proof of

financial responsibility. In addition, the department

revoked 8,529 licenses for failure to establish

financial responsibility after an accident and 2,314

licenses for failure to satisfy a judgment resulting

from an accident. According to the department,

the number of licensed drivers in Tennessee is

approximately four million. The number of

suspensions and revocations under the financial

responsibility law was less than one percent of the

licensed drivers in Tennessee.

Interviews with the Department of Safety indicated

that there are some lapses in enforcement of the

current law. The department cannot electronically

put a stop on a vehicle registration for suspended

or revoked drivers’ licenses required by state law

as of 2003. The drivers’ license and the vehicle

registration databases are not connected by a

common identifying number, such as license

number. As a result, vehicles driven by financially

irresponsible operators that have caused an

accident may be able to renew their vehicle

registration despite the prohibition by statute.

The department tries to manually flag the records

based on the driver’s name to prevent renewal

until the license suspension is lifted, but it does

not always succeed.

Data was not readily available to determine if the

current laws in Tennessee are adequately

enforced, leading to these unanswered questions:

Do officers consistently cite drivers for no proof of

insurance when stopped for moving violations and

when involved in an accident? Are all accident

victims adequately compensated for their losses

from at-fault drivers? Do all vehicles and drivers

have the minimum level of financial responsibility

required?

OREA Briefing Paper

Endnotes

1 “The Financial Responsibility and Insurance Committee

Resource Guide,” American Association of Motor Vehicle

Administrators (AAMVA), p.6, accessed Oct. 10, 2006, http://

www.aamva.org.

2 “Compulsory Auto Insurance,” Insurance Information

Institute, February 2006, accessed October 10, 2006,

www.iii.org/media/hottopics/compulsory.

3 Ibid.

4 Property Casualty Insurers Association of America, state

departments of insurance and motor vehicles, as reported in

“Compulsory Auto Insurance,” Insurance Information Institute,

February 2006, accessed October 10, 2006, www.iii.org/

media/hottopics/compulsory.

5 “State Average Expenditures and Premiums for Personal

Automobile Insurance in 2003,” National Association of

Insurance Commissioners (NAIC), as reported in “Auto

Insurance,” Insurance Information Institute, accessed Oct.

10, 2006, www.iii.org/media/facts/statsbyissue/auto.

Permission to reprint granted from NAIC.

6 “IRC estimates more than 14 percent of drivers are

uninsured,” Insurance Research Council press release, June

28, 2006, accessed Oct. 10, 2006, www.ircweb.org.

7”Consumer Guide to Auto Insurance,” National Association

of Insurance Commissioners, 2006, accessed Oct. 10, 2006,

http://www.naic.org/documents/consumer_guide_auto.pdf.

8 Ibid.

9 Insurance Services Office (ISO Properties, Inc.) as reported

in “Auto Insurance,” Insurance Information Institute,

accessed Oct. 10, 2006, www. iii. org/media/facts/

statsbyissue/auto.

10 Bureau of Labor Statistics, Consumer Price Index,

calculated at www.bls.gov on Sept. 11, 2006.

11 “Auto Injury Insurance Claims: Countrywide Patterns in

Treatment, Cost, and Compensation,” Insurance Research

Council, December 2003, fax to the author, May 12, 2006.

This information excludes permanent total disabilities,

fatalities, and claimants with zero or missing economic loss.

12 Philip Reed and John DiPietro, “Part One: Identifying Your

Target Cars & Arranging Financing,” accessed Aug. 23, 2006,

www.Edmunds.com.

13 House Bill 2817 and Senate Bill 2868 (2006).

14 Booz-Allen & Hamilton, “Electronic Insurance Reporting: A

Lessons Learned Study,” prepared for the American

Association of Motor Vehicle Administrators (AAMVA),

October 1999, accessed Oct. 10, 2006, http://

www.aamva.org/.

15 “Uninsured Motorists 2006,” Insurance Research Council.

June 2006. Press release accessed on Oct. 10, 2006 at

www.ircweb.org.

16 Ibid, p.14.

Motor Vehicle Liability Insurance

Appendix A

Summary of Tennessee Law

Specific financial responsibility requirements of the

Tennessee law (T.C.A. 55-12-102(12) (C))

effective after December 31, 1989, include the

following:

- written proof of liability insurance provided by

a single limit policy of not less than $60,000

applicable to one accident;

- a split-limit policy with a limit of not less than

$25,000 for bodily injury or death of one

person, not less than $50,000 for bodily injury

or death of two or more persons in any one

accident, and not less than $10,000 for

property damage in any one accident;

- a deposit of cash with the Commissioner of

Safety of $60,000; or

- execution and filing of a bond with the

commissioner in the amount of $60,000.

The Department of Safety administers the

Financial Responsibility Law in Tennessee.

Effective January 1, 2002, T.C.A. 55-12-139

requires the driver of every vehicle that is subject

to the registration and certificate of title provisions

and is charged with a moving violation or involved

in an accident to show evidence of financial

responsibility. Failure to produce evidence is a

Class C misdemeanor punishable by a fine of not

more than $100 and suspension of the driver’s

license. Effective July 1, 2003, the department is

required by T.C.A. 55-12-140 to suspend a vehicle

registration until any person convicted of 55-12-

139 provides evidence of financial responsibility.

Reinstatement of the license requires evidence of

financial responsibility, payment of a $65 fee, and

passing a driver license examination.

Additional provisions of the law deal with owners

or operators unable or unwilling to make restitution

after an accident. T.C.A. 55-12-104 requires the

operator of a motor vehicle that is involved in an

accident in Tennessee that results in bodily injury

or property damage in excess of $400 to file an

accident report with the department. If a report is

not received after an operator is given notice from

the department, the department is required to

suspend the license and registration or

nonresident operating privileges of the operator

and owner of the vehicle until the report is

received. Upon receiving notice of a claim, the

department determines if there is reasonable

possibility of a judgment against the owner,

operator, or both. If so, the department is required

to revoke the license and all registrations of the

owner, operator, or both, or the driving privileges

of an out-of-state driver, unless there is proof of

acceptable financial security including:

- written proof of insurance;

- a cash deposit or bond for the total amount of

damages suffered with a minimum of $500

and a maximum of $60,000; or

- a release executed by all parties who filed

claims as a result of the accident.

A driver’s license cannot be renewed or reinstated

after any departmental suspension or revocation

until

- a court has rendered a judgment which

relieves the person with a revoked license of

any liability for the accident;

- a claimant has not filed court action as a

result of the accident within one year of the

accident;

- a court has rendered a judgment and such

judgment is paid;

- claimants release the revoked person from

liability as a result of an accident;

- claims are dismissed in a bankruptcy order;

- the person with a revoked license has

reached an agreed upon settlement of the

damages to the satisfaction of the claimant.

In addition, to restore privileges the person with a

revoked license must maintain proof of financial

responsibility for three years, pay a $65 restoration

fee, and pass the driver license examination. After

five years, the department may release the

requirement for proof of financial responsibility if

the person with a revoked license has satisfied all

motor vehicle accident judgments and not been

convicted of any offense that would result in

suspension or revocation of driving privileges.

Driving with a revoked or suspended license, or

loss of driving privilege for a nonresident, is a

Class B misdemeanor, which is punishable by a

sentence not greater than six months, a fine not

greater than $50, or both, and revocation/

suspension of driving privileges.

The Offices of Research and Education Accountability provide non-partisan, objective

analysis of policy issues for the Comptroller of the Treasury, the General Assembly,

other state agencies, and the public.

The Office of Research provides the legislature with an independent means to evaluate

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of fiscal note support forms for the Fiscal Review Committee, monitors legislation, and

analyzes the budget.

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pendent means to evaluate the impact of state policy on the public education system.

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