By Joel Warner
By Michael Roberts
By Joel Warner
By Michael Roberts
By Alan Prendergast
By Michael Roberts
By Michael Roberts
By Amber Taufen
Insure-Rite doesn't check for pollutants. But the company itself has emitted enough hot air to convince the Colorado Legislature to start a computer-database program supposedly aimed at reducing the number of uninsured motorists in the state. And Insure-Rite is eager to bid on the contract for the program, which the company thought up itself.
Even before the program begins, Coloradans are paying for it: On September 1 of this year, the state started collecting an extra dollar per vehicle registration, or $3.6 million a year. If Insure-Rite wins the Colorado contract--right now few other bidders are on the horizon--and the terms are similar to those in the company's existing contract in Utah, then the company will start putting 67 cents of every one of those dollars in its pocket. That could amount to more than $2 million a year in gross revenue to the company. If the contract terms are like those in Utah, Insure-Rite would also get 75 cents from the state for each warning letter it sends out. Those terms have to be settled in a bidding process. But all told, the contract could be worth more than $3 million annually to the lucky winner.
It was and is illegal in Colorado to be an uninsured motorist. But there's no hard evidence that Insure-Rite's technique--determining from a comparison of insurance-company rolls and state records which drivers are uninsured and then sending them warning letters not backed up by any enforcement powers--actually reduces the number of uninsured motorists on the road. The only other state in the country that has hired a private company to run this type of program is Utah, and the company is Insure-Rite. And in Utah, the company has faced complaints from consumers who say that legally insured motorists are being unfairly hassled by the warning letters, and from insurance companies that say the number of uninsured motorists hasn't dropped by even 1 percent.
Whether Insure-Rite can help solve the problem of uninsured motorists is highly debatable, but the company's political skill is unquestioned.
The company got its Utah contract through the formidable efforts of Utah lawmaker Kelly Atkinson, who not only has gotten money from Insure-Rite but has traveled to Colorado at the company's expense to lobby for it. And Insure-Rite's strategy here has worked. After failed attempts in Colorado during the 1995 and 1996 legislative sessions, Insure-Rite persuaded House Majority Leader Norma Anderson to carry its water in 1997. Anderson acknowledges that all of the research into the proposed program was furnished to her by Insure-Rite and its lobbyists. And lawmakers heard not only emotional testimony from people who were victims of accidents caused by uninsured motorists but also promises from Insure-Rite's lobbyists that the company's letter-writing program would work wonders. Perhaps enticing to some lawmakers is that the program more or less amounts to a tax but still may fall outside Amendment 1 restrictions. In Utah, 33 cents of every dollar per registration goes into that state's general fund. Colorado lawmakers couldn't resist. A bill setting up the program passed on the last day of the 1997 session.
Anderson and Republican cohort Elsie Lacy, who carried the bill in the Senate, insist that the program will be valuable, though they can't back up their claims. In fact, they now say they trumpeted figures that they knew were probably out of whack.
Suspicions confirmed, say critics. To them, the idea cooked up by Insure-Rite sounds like little more than a moneymaking scheme at the expense of vehicle owners.
"Everybody's got a story about getting hit by an uninsured motorist," says state senator Ed Perlmutter, a Golden Democrat who voted against the bill. "But if this doesn't do anything to help and hassles a lot of law-abiding citizens, we are going to look like a bunch of idiots."
Insure-Rite was born one day in 1992, when future company president Richard Kasteler paid a visit to Kelly Atkinson at the Utah statehouse. "When Richard walked into my office and told me about it," Atkinson recalls, "it was like, duh! How stupid are we for not figuring this out before?"
At the time, Atkinson was House Democratic whip in Utah. Kasteler sketched out a plan to compare insurance companies' lists of drivers with the state's list of vehicle owners to identify which drivers had no insurance, and told Atkinson he could set up a company to do just that.
Atkinson became the concept's biggest cheerleader and even made Utah history when he taped a TV commercial for the Insure-Rite bill. It was the first time lobbying on a particular legislative bill had gone out over the airwaves.
The insurance industry fought the measure, claiming that lists of customers need to remain confidential because they are the companies' bread and butter. "I spend a lot of money and time keeping my lists safe, and now I'm just supposed to send them to some other company?" says Kay Browning, an agent for State Farm in Salt Lake City.
Kasteler says he was surprised the insurance companies didn't support his efforts in the legislature. He says he thought the industry would love a plan whose entire purpose was to persuade people without insurance to get some. But big insurers are against his idea, he says, because they don't like to insure higher-risk clients, as those who avoid buying insurance often are. "State Farm just doesn't want them," Kasteler says.
State Farm officials say it's true that they don't particularly want such clients. They also say they would love to stop paying so many claims when State Farm customers get in accidents with uninsured cars and trucks. "There is so much hassle and so little profit in uninsured-motorist coverage," Browning says, "that I would love it if every driver in the state was insured." But the insurance industry has been dubious of the Insure-Rite scheme from the beginning.
The Atkinson bill passed the Utah House but got hung up in the Senate on the last day of the 1994 session. That's when Atkinson really went to work. He broke an unwritten rule for House members by lobbying senators at their desks on the Senate floor.
"That was unusual, seeing him move from desk to desk," says Miles "Cap" Ferry, a senator who didn't like the idea Atkinson was pushing then and likes it even less now that he is a lobbyist for State Farm. Atkinson's cajoling worked, though, and the bill became law.
These days Richard Kasteler sounds cocky about his company. He claims that Insure-Rite has helped reduce the percentage of Utah residents driving without insurance from 23 percent to 11 percent in only two years.
"Either the numbers went down, or I'm lying to you," Kasteler says. But it's impossible to tell. Kasteler refuses to release the documentation that he insists proves his case. In fact, the company erased many of its records after its first year of operations.
But that doesn't mean Kasteler is reticent about claiming results. He first tried to sell his concept to Colorado in 1995, shortly after starting his Utah contract. He hired lobbyist Joan Green and began paying her $10,000 a year. She went to state senator Dick Mutzebaugh, a Republican from Highlands Ranch and chairman of the Transportation Committee.
Mutzebaugh agreed to sponsor a bill, and the one that Insure-Rite had passed in Utah was sent to Colorado bill-drafters.
Mutzebaugh says he didn't know how many uninsured motorists there were in Colorado. "That's the question," he says, "nobody knows the answer to." But he says he's gotten lots of calls from constituents upset about being hit by uninsured drivers. "I figured if we could identify the ones that don't have it, we could eventually catch up with them," Mutzebaugh says.
The insurance industry's lobbyists worked hard against the bill in both the 1995 and 1996 sessions and stifled it both times. Insurance lobbyists argued that letting a private company scroll through insurance-company rolls would be an unfair release of "proprietary" information. Mutzebaugh says he told Green that Insure-Rite could do better with different sponsors for the 1997 session, lawmakers who would carry more weight around the Capitol. "They picked two good people," Mutzebaugh says.
They picked two heavy hitters. The first was Anderson, the Lakewood Republican who was just starting her term as House majority leader. As the person who controlled the flow of bills through the House, she would have a good chance of shepherding the bill through.
The other was Lacy, a senator from Aurora who was chair of the powerful Joint Budget Committee.
Insure-Rite gave a jumpstart to the process by hiring a second lobbyist, Bill Artist, who has represented such big clients as the Denver Broncos.
It was Artist's idea to go to Anderson and ask her to be the lead sponsor. Anderson agreed and later met with Utah's Atkinson, who was flown to Colorado at Insure-Rite's expense. Atkinson says that he filled Anderson in on strategy--cite statistics and use sob stories from people who've had accidents with uninsured drivers--and that she was an apt pupil. "Representative Anderson is so bright," says Atkinson. "She picked up on all this stuff right away."
Anderson says one thing she learned was that the program conceived by Insure-Rite may not actually reduce the number of uninsured drivers but that at least it's "a start" to identify them. "Now I can tell the people who call my office that we are doing something," Anderson says. To get the rest of the legislature to agree, she says, she turned again to Green and Artist for some facts and figures. "We never do our own research," says Anderson. "We're too busy."
What she and Lacy got from the lobbyists was a 1992 study by the National Association of Independent Insurers (NAII) showing that Colorado was highest in the nation in its percentage of uninsured motorists, with a whopping 34 percent of drivers out of compliance. A good selling point, but Lacy and Anderson didn't mention that the NAII itself is leery of those figures, which were based on random phone surveys of motorists. Dan Kummer of the NAII says a more reliable calculation is the percentage of people without insurance who are involved in accidents. According to the state Division of Motor Vehicles, that number is about 10 or 11 percent in Colorado and has been for years. "That's the only number we rely on," says John Duncan of the Colorado DMV. Duncan says there are about 90,000 vehicles involved in accidents in Colorado each year, and of those, about 10,000 involve drivers who have no insurance. That works out to 11 percent.
When Kasteler came to Colorado to personally lobby lawmakers, he cited figures ranging from 23 percent to 30 percent. Reports that his claims were hyper-inflated never made it to most Colorado legislators. (Even though an audit in Utah last month failed to bear out Kasteler's claims, he stands by his numbers.)
Lacy and Anderson followed Kasteler's lead. They conducted a press conference last January to announce that the percentage in Colorado was 34 percent. Lacy acknowledges that the higher number was used because it would be better for selling the bill. "When I saw those [NAII] numbers," she says, "I was surprised and thought that we should get them out there." Lacy now says she thinks the rate is "somewhere between 10 and 20 percent."
Anderson contended at that fateful press conference that her bill was a "new, effective tool to drive uninsured motorists off the road."
But the NAII's Kummer argues that the Insure-Rite plan is neither new nor effective. "This is not a silver bullet," he says. While Utah is the only state to farm out the work, Kummer notes, a few states have tried to do it themselves and then backed away. Kummer points to Illinois, where the state planned to collect $1.2 million in fines against uninsured motorists after starting a database-style program in 1994 but wound up bringing in only $96,000.
In New Jersey, says Kummer, the state started using the database method several years ago to try to lower insurance premiums. The state still has the highest insurance premiums in the nation, he says.
These stories never came up during debate in the Colorado Legislature. "There was almost no discussion in the House," says Representative Dan Grossman, a Democrat from Denver who was against the bill.
"It was presented as something almost Pollyanna-ish in Utah," adds Representative Penn Pfiffner, a Lakewood Republican who also voted against the bill. Pfiffner says he was reminded of the Envirotest situation, in which a company lobbied hard for a new program and then captured the contract to run it.
"My fear is that this computer solution was really Big-Brotherish," Pfiffner says. "I think that all it will do is transfer the problem and the costs to the law-abiding citizen."
Grossman says he thinks there are much simpler and cheaper solutions, including making it mandatory to show proof of insurance when registering a vehicle rather than just signing a statement that you have insurance. According to the state, Colorado has never prosecuted anyone for lying on that form.
In Colorado, 45,000 people are convicted each year for driving without insurance, according to the DMV's Duncan, but almost all of those come in conjunction with other convictions. That is, a person will get a ticket for speeding, and when police discover the driver has no insurance, that charge is tacked on.
Grossman and Pfiffner were voices crying in the wilderness: Anderson pushed the bill through the House with only four dissenters.
In the Senate, the bill at least hit a speed bump. To get it passed, Anderson and Lacy had to agree to an amendment from Morrison senator Bill Schroeder, a fellow Republican known for fighting "single-source" legislation--bills that benefit only one company. He persuaded the Senate to add a provision that would kill the entire process if there weren't at least two bids on the project. "I just don't want us single-sourcing anything," Schroeder says.
Anderson insists that the bill is neutral toward Insure-Rite and that other companies will bid on the job. "We have a bid process, and it does work," she says. But Anderson, the law's chief sponsor, can't name any other companies that might bid on the work.
She also insists that going with a private company is preferable to having the state do the work. "If you try to expand the state computers," she says, "you just won't get it done."
Atkinson, Insure-Rite's errand boy, has been flown around the country by the company to promote the program. And he says he cautions legislators to write their bills with a bidding process built in to take the wind out of the sails of critics like Schroeder.
As for Schroeder, he wound up supporting the revised bill, mostly because he heard that the program was such a success in Utah.
Despite complaints about Insure-Rite that have been well-publicized in Utah, Anderson says flatly that the insurance industry's lobbyists are lying and that the program has indeed reduced the number of uninsured motorists there. She offers no evidence, other than Insure-Rite's own unsubstantiated claims, to back up that opinion.
In 1995 Utah started collecting $1 for each of the 1.6 million vehicles registered in the state, and Insure-Rite, to no one's surprise, won the contract.
"It was an insider deal all the way," says Doug Foxley, the Utah lobbyist for another bidder, Automated Tracking Systems of Hudson, Ohio. ATS did submit a higher bid than Insure-Rite's, and Atkinson defends the bidding process as proper. It's not known whether ATS is going to bid on the work in Colorado.
Insure-Rite's contract began July 1, 1995, and within six months it started sending out thousands of warning letters. The more letters it sent, the more the company got paid.
Insure-Rite charged the state 67 cents per registered vehicle and also charged the state 75 cents for each of the letters it sent. When the program started, Insure-Rite announced that it figured that 23 percent of the motorists in Utah had no insurance.
Recipients were told that a computer search showed that they had no insurance and that state law mandated that they get it. The letter went on to say that if they did have insurance, they had to provide proof in person or writing or face possible criminal prosecution.
Insure-Rite won't say what the exact number was, but insurance agents guess that 100,000 insured motorists mistakenly received letters. The state legislature's auditor general estimates that 300,000 letters went out between July 1995 and March 1997, but he says it is unclear how many of them went to the same people or how many were sent erroneously.
Brian Allen, an independent insurance agent with about 17,000 clients signed up through four different insurers, says he had to hire a full-time clerk just to help his clients prove that they did, indeed, have insurance.
If another Utah insurance agent's experience is a guide, however, an unexpected benefit to the industry has arisen: a chance to try to talk already-insured motorists into buying other types of insurance. Autumn Hoescher, an agent who sells insurance from six different companies through the Beehive agency of Salt Lake City, says that when her clients call her to establish proof of insurance, she takes the chance to "give them more service."
But to the insurance industry, the program's problems far outweigh that unintended benefit. Allen, a former cop, points to one flaw: Police can use the Insure-Rite database to see whether drivers have insurance, but Allen says cops mistrust the new system because of the adverse publicity it's received. "Given a choice between the [insurance] card they have in front of them and what some computer says, they are going to believe the card," Allen says.
In fact, when word got around in the state that Insure-Rite's warning letters were so often wrong, people began to just ignore them. Utah's new law doesn't provide for special enforcement powers to back up the letters' threat. (Neither does Colorado's version.) "There wasn't much, if anything, that was going to happen," says Allen, "so people threw them in the trash."
One of those who paid attention to the letter he got was state senator John Holmgren of Bear River City, who had valid insurance. It turns out that Holmgren was a foe of the Insure-Rite program from the very start, and he was irked to have mistakenly received a letter.
"For as much money as they are getting, you'd think the thing would be more than perfect, and it is far, far less than that," Holmgren says. "And the worst part is that I don't think it's going to make a hill of beans' difference in the number of drivers out there without insurance."
Agents say that's true: Uninsured motorists don't seem to be flocking to buy insurance. Allen says he's gotten only a call or two per month from people asking for new insurance because they got an Insure-Rite letter. He says his business has climbed at the same rate as growth in the state, or exactly what he would have predicted with no Insure-Rite.
Other insurers agree. The law has been in place for more than two years now, and they say they have seen no increase in people signed up for insurance beyond the rate of population growth.
Insure-Rite is talking a good game, issuing statements about how its work is reducing the number of uninsured motorists. But the insurance industry isn't buying it. Chris Purcell, a claims attorney for State Farm, points out that even if thousands signed up for insurance and State Farm didn't sign up one of them, the company could still tell if new people were getting insurance. That's because State Farm pays out millions each year to the people it does insure when they have accidents with the uninsured. If the number of uninsured dropped by half, there would be fewer State Farm customers turning in claims against their uninsured-motorist coverage. Purcell says that hasn't happened. "We haven't seen even a blip," he adds.
A number of Utah agents contacted by Westword say there's no proof that the number of uninsured motorists has dropped by even 1 percent.
But not according to Insure-Rite. "I sat there and watched those numbers go down every month," Kasteler says. "I was not seeing things." When asked for copies of the numbers, Kasteler refers questions to Colorado lobbyist Green, who in turn says that Kasteler has them. (Kasteler did not return several follow-up calls asking for documentation.)
Utah legislators looking for more proof asked the state's legislative auditor general to look into the numbers. When Wayne Welsh did, he found that Insure-Rite hadn't kept the computer tapes that would have allowed his office to compare actual data.
So Welsh issued a report last month that said he was unable to tell whether the number of uninsured motorists had changed at all.
"While our tests documented that the currently reported rate appears to be accurate, a lack of data prevented us from confirming or denying that the rate reported in 1995 was actually 23 percent. Data from the first year of the program's operation was not maintained by Insure-Rite," wrote Welsh. "Consequently, we are unable to determine what impact the program has had on reducing the state's insured-motorist population."
Insure-Rite's biggest booster, Kelly Atkinson, says the only reason the report doesn't confirm the Insure-Rite results is that "we have the most conservative auditor in the world."
But Utah lawmakers such as Holmgren are upset with Insure-Rite's record-keeping--or lack thereof. "I just have trouble believing that they wouldn't keep everything, especially when they knew they were in a test mode," Holmgren says. He wonders whether the company threw away its records on purpose to hide the nature of its performance from the public.
"That's just blatantly not true," Kasteler says.
The Insure-Rite president contends that it just wasn't practical to save the database tapes, because they amounted to twelve gigabytes of information. "We didn't want to have to build a warehouse to put all of the tapes that we would have to make," Kasteler says. Holmgren doesn't buy it. After all, twelve gigs of information can fit into a file cabinet these days. When confronted with that fact, Kasteler says he just never thought about saving the tapes, because he was working with a "fluid database" and was concerned only with making that accurate.
Besides, says Kasteler, the state didn't ask him to save the tapes, so he didn't. Now that the state has asked him to, he says, he is saving the information.
Insurance agent Allen has another theory: The percentage of people who received warning letters dropped--leading to Insure-Rite's boasts--only because mistakes were weeded out of the Insure-Rite system and insured motorists were no longer receiving the letters. "What we've done," says Allen, "is paid millions of dollars to clean up a database that isn't really doing any good anyway."
Meanwhile, Kelly Atkinson, who is no longer a lawmaker, says he's traveled to California, Nevada and Texas, at the company's expense, to promote Insure-Rite. He paid for one of his visits to Colorado; the company paid for his return trip. Last spring in Philadelphia, says Atkinson, he spent a few days at the National Conference of State Legislators, standing in an Insure-Rite booth talking about the benefits of the program to legislators around the country. "I get pretty juiced about this stuff," he says.
And why shouldn't he? Last year, when Atkinson ran for a congressional seat vacated by scandal-ridden U.S. Representative Enid Waldholtz, Kasteler gave him $1,000 and became his campaign finance director. Several other directors or spouses of directors of Insure-Rite gave him money as well, but Atkinson still lost in the primary. Kasteler says he also supported Atkinson in his bid to be mayor of West Jordan, Utah, an election Atkinson lost on November 4. "We went through a war together, and I guess that kind of brings you closer," Atkinson says.
"It's disgusting," says Claire Geddes, a political watchdog in Salt Lake City. "A lot of times these politicians aren't taking money right now, they're just making friends for the future. Those people looking at running for office in the future know what the costs are going to be, so that's why they make these friends. It's just a conflict of interest run rampant."
If his form of rewarding loyalty holds true, Utah's Richard Kasteler will be a supporter of both Norma Anderson and Elsie Lacy for quite some time: Anderson has filed to run for the U.S. Senate and Lacy for Colorado secretary of state.
Norma Anderson vows that Insure-Rite's controversies in Utah won't seep into Colorado. A state committee will pick Insure-Rite--or some other company--by the end of the year, and letters will start going out sometime early in 1998. As for the Utah stories about thousands of insured drivers erroneously receiving warning letters, Anderson says, "Guess what? Colorado will be testing it all the way through."
Bill Schroeder says that if those horror stories start bubbling up here, he will try to get the program axed. The same goes for Dorothy Gotlieb, a Denver Republican who voted for the bill when it went through the House Transportation Committee but didn't hear the stories about problems from Utah. "None of that came up at all," Gotlieb says.
Killing the program wouldn't be easy, however, because the fee is already being collected. There is a sunset provision that will phase it out automatically if the legislature doesn't vote to re-enact the program after two years. However, the DMV is likely to lobby to keep the program because that department may get to keep all the money collected from the $1 fee that isn't paid to the database contractor. Although that money is in dispute, some officials claim that the leftover funds will not be subject to the taxing and spending limitations of Amendment 1 because the vehicle-registration charge is not a tax but a fee for service.
By this time next year the state will have collected more than $3.6 million, but don't look for an itemized bill on vehicle-registration forms. "It's invisible in your registration," says the DMV's John Duncan.
State bureaucrats and Insure-Rite supporters say that the legislature always has the option of lowering the fee charged to motorists.
"Yeah, right," is the sarcastic response of opponent Stan Matsunaka, a Democratic state senator from Larimer County. Insurance-industry lobbyists in Utah say that bureaucrats and lawmakers dangled a similar carrot there, but they note that the fee remains at a dollar per year for every car and truck owner.
"I think there are a lot better ways for us to spend our money," Matsunaka says, "than to pay some company to tell us who they think doesn't have insurance.
"I don't know if it's going to do any good. All I know is that we're spending the money.