NY Law Cracks Down on Deliberately Low Auto Insurance Quotes

Auto insurers in New York will soon have to use third-party information to verify driving history when a consumer applies for a policy.

A new law requires insurance companies to use third-party information to verify driving history if the insurer uses a consumer’s driving record as a rating factor for quoting or underwriting an auto insurance policy. Gov. Kathy Hochul signed the bill into law in December 2023.

The law stipulates that insurers can’t finalize — “bind” — a policy or accept a down payment for a policy without first confirming the driver’s record through a third party.

Why lawmakers created the bill

Currently in New York — and other states — insurers can, and do, bind auto insurance policies based on initial quotes provided to consumers. These quotes rely on information provided by the applicants. Often, after binding the quote, the insurer raises the policyholder’s premiums if the information in the driver’s record is different from the information that created the initial quote.

In some cases, agents or insurers intentionally disregard an applicant’s driving history so they can provide a misleadingly low quote to secure the consumer’s business, legislators have said. “Requiring all carriers to run motor vehicle reports prior to binding coverage would guarantee the consumer will receive a fair and accurate quote prior to committing to the expense,” according to NYsenate.gov.

Intended impact for drivers

The bill aims to ensure drivers receive fair and accurate quotes before financially committing to a car insurance policy.

A driver’s motor vehicle record is one of many factors insurers consider when establishing a policyholder’s car insurance rates. When applying for a policy, drivers typically answer a series of questions about their driving history. Insurers or agents who don’t verify those answers before providing a quote may end up underestimating an applicant’s quote.

If the new law works as intended, drivers should receive more accurate quotes before making any down payment on a policy. It should also reduce the possibility of policyholders facing rate increases due to driving record discrepancies after they’ve purchased a policy.

And, since many insurance companies already run reports on driver records before binding a policy, the new law probably won’t slow down the quoting process for consumers, says Betsy Stella, Insurify’s vice president of carrier management and operations.

Potential effect on insurers

The new law may prove expensive for insurance companies, Stella says.

“This will likely increase costs for carriers on a per-application basis because they’ll be running reports even on customers who don’t buy,” she notes. “Previously, it may have been run post-bind, which means the carrier would have probably collected new business fees, as well as some premium.”

However, it won’t be difficult for insurance companies to find credible third-party information. Motor vehicle records in New York cost $7 each and are available to insurers, while CLUE reports — an exchange in which many carriers share loss data — costs about $20 each, Stella says.

“The key may be whether they can find less expensive sources that are indicative, rather than empirical, and reliable enough to allow them to make a ‘good faith effort’” as the new law requires, she adds. “The fact that the legislation doesn’t define the third parties gives insurers some latitude to test other sources, which is probably good from a cost perspective.”

What's next?

The new law goes into effect on June 19, 2024. Insurers processing applications will have to begin making a “good faith effort” to verify driver records before accepting any money toward a policy.