The Wall Street Journal
PAGE ONE
Illegal Residents Get Legal Route To Car Coverage
Insurers Find a Market As States Crack Down On Driver's Licenses
By MIRIAM JORDAN
May 1, 2007; Page A1
Many states are cracking down on illegal immigrants by denying them
driver's licenses. But auto insurers are increasingly targeting those
unlicensed drivers as a lucrative market.
For decades, many states with big immigrant populations, like
California, routinely issued driver's licenses to foreign citizens,
regardless of their immigration status. But when those states and
others began tightening up their requirements amid a backlash against
illegal immigration, many illegal immigrants couldn't renew their
licenses -- and their car insurance was automatically canceled.
Some auto insurers, however, were quick to see a golden opportunity.
California law, for example, doesn't bar companies from selling
insurance to unlicensed motorists. So, insurers, including some major
ones like Progressive Corp., are covering illegal-immigrant drivers,
often charging them premiums above the normal market rate.
"When we figured out it was legal, and we weren't going to get
punished, we went into the market within a short while," says Brian
Duffy, chief executive of Alliance United, a closely held auto insurer
based in Ventura, Calif. "We are exploding with growth."
The situation is another example of how illegal immigration and the
purchasing power of the nation's estimated 12 million illegal
immigrants are influencing public and private policy in sometimes
contradictory ways. While some politicians and others complain that
illegal immigrants place a burden on state and local resources,
businesses ranging from banks to retailers are lining up to cater to
them.
Earlier this year, for example, Bank of America Corp. began offering a
credit card for people who lack a Social Security number and a credit
history, a category that mainly includes undocumented immigrants.
Smaller businesses have sprung up to help illegal immigrants file tax
returns.
In tapping this new market, auto insurers are addressing a big concern
for residents in many states: the potentially costly prospect of
getting into an accident with an uninsured driver. Undocumented
immigrants without insurance have been known to flee the scene of an
accident, even abandoning their vehicles. They also sometimes plead
with the other driver to let them pay for any damages in cash, to
avoid being exposed as uninsured. In New Mexico, which passed
legislation allowing illegal immigrants to obtain driver's licenses in
2003, police say that the state's roads are now safer.
Though critics say that insurance companies are legitimizing the
presence of illegal immigrants by offering them insurance, some law-
enforcement officials and immigrant advocates argue that many
undocumented workers will drive to reach their jobs anyway, and that
having insured motorists protects the public at large. Though driving
without a valid license is illegal, it often goes unpunished if the
driver's car registration and insurance papers are in order.
Amid the national debate over immigration and security in the wake of
the Sept. 11, 2001, attacks, a growing number of states started
requiring applicants for driver's licenses to show proof of lawful
residence. States with large illegal-immigrant populations like Texas,
California and Arizona don't issue driver's licenses to illegal
immigrants. In 2005, California Gov. Arnold Schwarzenegger, citing
security concerns, vetoed for the second time a measure passed by the
state's lawmakers to explicitly allow undocumented immigrants to
obtain a driver's license.
In Illinois, legislators are considering allowing people without
Social Security numbers to obtain a driver's certificate, a proposal
that has polarized the state.
With the states getting more restrictive, some auto insurers have
adopted new strategies. Realizing that many workers without licenses
drive anyway, several auto insurers began allowing undocumented
immigrants to acquire a policy on the strength of a foreign driver's
license -- or even a foreign identification card.
Jeff Dailey, chief executive of publicly held insurer Bristol West
Holdings Inc., which specializes in nonstandard, high-risk insurance,
says that the "foreign driver" segment has proved to be "good business
for us," and has attracted multiple competitors. Mr. Dailey says sales
agents for his company, which agreed last month to be acquired by
Farmers Group Inc., accept a Mexican matricula consular card -- an
I=2ED. issued by the Mexican Consulate -- from immigrants who don't have
a foreign driver's license.
Of the drivers, Mr. Dailey says, "They aren't licensed to operate a
vehicle, but care enough to want to present proof of financial
responsibility in the event they're in an accident." Because their
driving records can't be verified, he adds, "they end up being
surcharged for a policy, as if they had a lot of violations."
Nationally, 15% of all motorists are believed to be uninsured,
according to Insurance Research Council, but it isn't known what
proportion of them are illegal immigrants. In inner cities, the
percentage of uninsured individuals behind the wheel is believed to be
substantially higher.
Auto insurance is regulated by individual states, and most don't
require insurers to limit coverage to people with driver's licenses.
"We want everyone driving to have liability," says a spokesman for the
Texas Department of Insurance.
The practice of writing auto insurance for unlicensed drivers started
with insurers like Alliance United, a small company focused mainly on
nonstandard markets, like drivers with bad driving records. But larger
insurers, such as Progressive and Infinity Property & Casualty Corp.,
which also write policies for high-risk drivers, are active in the
business. Large mainstream insurance companies like State Farm
Insurance Co., Nationwide Mutual Insurance Co. and AAA typically
require a state driver's license.
"We want to insure all drivers who want to be insured; if the
regulations in a state allow us to accept drivers with foreign
driver's licenses, we price those policies accurately and as the
regulation allows and make a policy available to those drivers," says
Russina Sgoureva, product manager for Progressive's agency business in
California.
Calls to senior executives at Infinity, including President James R.
Gober, weren't returned.
Jos=E9 Cata=F1o, an independent agent in Southern California, runs Spanish-
language radio spots to drum up business with illegal immigrants,
using a slogan referring to Gov. Schwarzenegger: "Arnold won't give
you a license, but Cata=F1o will give you insurance."
What makes illegal immigrants a particularly profitable market, he
says, is that they rarely report small accidents -- to avoid contact
with U.S. authorities. "It's very lucrative," he adds. "We have good
retention." Earlier this month, Mr. Cata=F1o received approval to
operate in Nevada and Arizona, both of which deny licenses to illegal
immigrants.
One of Mr. Cata=F1o's clients is Jos=E9 Rodriguez, a 32-year-old illegal
immigrant from Mexico who drives a 2007 Honda Civic and pays $127 a
month for insurance. "I feel much safer driving, knowing that I have
insurance," he says. "All my friends without papers are getting it."
In his car, Mr. Rodriguez carries his auto registration and proof of
insurance. On him, he carries a matricula consular card instead of a
driver's license.
"We are the DMV; we're not ICE [Immigration and Customs Enforcement],"
says a spokesman for the Nevada Department of Motor Vehicles. "It's
not our issue if you are in the country illegally. By law, you have to
have insurance if you have a car."
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