Do they have the legal right to do this, or is it a scare tactic?
It is not our insurance agency who is threatening, it is an agency trying to get money. They don't have any information besides a phone number and address, none of our insurace information.
No, of course not. But if you cancel a policy on a vehicle without providing evidence of a replacement, their report of no insurance may cause a suspension, depending of the state or province you live in.
No, they can't, but they can suspend your insurance, which often means the same thing, or they can fwd your record to your local DMV, which, depending on your area or residency, may have a point system that you've exceeded.
I have never heard of an insurance company being able to suspend a license. The license is controlled by DMV and the insurance company and DMV are two totally different entities.
The insurance agency hasn't got the authority to suspend you drivers license but they will notify the state that you have your license in if you let it run out or they drop you, and to the best of my knowledge most states require liability insurance to drive a car, some don't require it for motorcycle, "ie" Florida.