Insuring Illegal Immigrants Develops Into Auto Niche

It's far from the only service that Fiesta Auto Insurance Co. provides.

Yet John Rost, founder and president of the growing full service agency business, considers the particular practice to be in the best interest of drivers everywhere.

He's referring to writing auto insurance policies for illegal immigrants, despite their inability to legally obtain a state-issued driver's license beforehand.

"People would like to believe that an undocumented individual wouldn't buy a car, or if they had a car and didn't have a driver's license, they wouldn't drive to work," Rost said. "That's clearly not the case."

The issue is framed within a larger ongoing political debate over immigration policy and can generate the same divisiveness. Rost pointed to the concern by some that issuing a driver's license to those without immigration status will result in other benefits following suit.

There is also the social welfare debate about using immigration status as a prerequisite for selling auto insurance, and whether such a limitation might skew one's chances of being hit by an uninsured motorist.

As history continues to show, a lack of insurance doesn't necessarily keep illegal drivers off the road. Bob Hartwig, president of the Insurance Information Institute, said about 15% of drivers in the United States lack automobile insurance. Put simply, Hartwig said society is better served with a higher proportion of insured drivers; and an individual is better off being hit by a driver with a policy. But he said many never get past the initial political debate.

"It's a dicey issue on the national stage, and it's not one that the insurance industry is going to be able to resolve or play a fundamental role in," Hartwig said. "Unless the law of the state forbids an insurer from selling the coverage to someone who is undocumented, then it's likely there will be insurers and agents who are willing to service that market."

In California, there is no state law that would prevent an insurer from selling an auto policy to a non-U.S. resident or an unlicensed driver, according to the state Department of Insurance. Carriers there can also write coverage for someone with a valid driver's license from another country. In 1993, the state passed a law that required licensed drivers to establish proof of legal residency, well in advance of momentum that has built at the federal level.

After the September 11 terrorist attacks there was a shift in driver licensing standards. Spurred along by Congress in 2005 there has been a push for states to require that applicants have established a "lawful presence" in the United States before being issued a license.

As of March 2007, 30 states have adopted the lawful presence standard established under Real ID initiative, according to Janice Kephart, director of national security policy at the Center for Immigration Studies. All but four states -- Illinois, New Mexico, Utah and Washington --require driver license applicants to establish a lawful presence.

Rost said assisting illegal immigrants in obtaining auto coverage is a small component of his franchise-oriented agency. Rost started his auto insurance business in California with four offices in 1999 and his initial target was the under-served Hispanic and Latino market (BestWire, Jan. 22, 2010).

In addition to insurance coverage, as well as standard and nonstandard auto, Fiesta franchises also offer tax preparation services. He said the underwriting process for illegal immigrants without a license wasn't anything unique. In the absence of a foreign driver's license, some use a matricula or form of government identification.

"I don't know if any of us are out there vying for it," Rost said, referring to the market. "It's not something we advertise or market. It's simply due to the fact that these consumers are walking in and insurance companies are able to take that customer and charge them what they think is the appropriate premium. We're simply able to facilitate that."

Rost said the coverage being written through carriers has been available for the past seven years and underwritten by major ones.

"As soon as one carrier allowed it in their underwriting guidelines, other carriers started to add it in," Rost said.

Rost noted that establishing citizenship isn't necessarily a requirement for purchasing or registering a car, something confirmed by the American Association of Motor Vehicle Insurers.

"If somebody can buy a vehicle, register a vehicle and insure a vehicle legally, wouldn't it be in the best interest of the community within that state to see that they actually know how to control their vehicle?" Rost said. "Isn't that the purpose of them going to a driver's license exam and road test?"

(By Al Slavin, senior associate editor, BestWeek)