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California Low Cost Auto Insurance


California Low Cost Auto Insurance document sample

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									                                                                                    Agenda Item 4a

TO: Legislation Committee                                                  DATE: Feb. 25, 2005

FR: Executive Director

RE: SB 20 (Escutia) — Low-Cost Auto Liability Insurance


SB 20 by Senator Martha Escutia of Norwalk would remove the January 1, 2007 sunset
date on California’s Low-Cost Auto Insurance Program. This pilot program was created
under 1999 legislation (SB 171, Escutia and SB 527, Speier) and extended in 2002
(SB 1427, Escutia) to provide low-income drivers meeting certain criteria in
San Francisco and Los Angeles counties with an affordable automobile liability
insurance option. The measure also:

      Expands eligibility to six new counties deemed to be in greatest need based on
       income or numbers of uninsured motorists (Alameda, Fresno, Orange, Riverside,
       San Bernardino and Orange)
      Eliminates an existing $12,000 cap on vehicle value at the time of purchase (note
       that this program extends liability coverage, not collision coverage)
      Eliminates the cap (currently two per household) on the number of low-cost
       policies per household

Recommendation: Support and seek amendments


Existing law requires every driver to have automobile liability insurance ($15,000 per
person for bodily injury, $30,000 per incident and $5,000 for property damage) or other
proof of financial responsibility to cover damages in the event of an automobile collision,
accident, etc. In order to lower the price of the policy, legislators allowed it to carry lower
standard limits of $10,000, $20,000 and $3,000, respectively. Other qualifying
requirements include:

      Applicants must have gross annual incomes less than 25 percent of the federal
       poverty level (approximately $46,000 for a family of four).
      The driver must be at least 19 years old with least three consecutive years driving
LC Memo/SB 20
Page 2

        Applicants may have no more than one property-damage-only claim in the last
         three years for which they were at fault, or one ―point‖ on their driving record for
         a moving violation within the last three years.
        The insured may not be a college student claimed as a dependent for federal or
         state income-tax purposes.
        The driver may not have an in-force liability insurance policy for another vehicle.
        Unmarried males between the ages of 19 and 24 must pay a 25 percent surcharge
         based on actuarial data showing the higher risk posed by this population segment.

This measure, sponsored by Insurance Commissioner John Garamendi, is an effort to
reduce the rate of uninsured drivers in California and offer low-priced liability insurance
for the poor. The California Automobile Assigned Risk Plan administers the program,
through which insurers must offer a reduced auto liability policy (costing roughly $314
and $347 annually in San Francisco and Los Angeles counties, respectively). Attached is
background information from the California Department of Insurance.

The principal goal of the program — broadening access to automobiles in low-income
communities — is in keeping with MTC’s multimodal approach to the region’s Lifeline
Transportation Program. A number of recent studies demonstrate the benefits of access
to private vehicles in low-income communities in meeting varied, often complex
transportation needs. Access to cars often increases a person’s ability to work more
hours at flexible schedules with the potential for higher wages, while at the same time
making it easier to take children to school or daycare or extracurricular activities.

SB 20 would expand the program in the Bay Area to include Alameda County in
addition to San Francisco. While the author’s office has indicated they would like to
expand the program statewide, they expect stiff resistance from the insurance
industry, which has expressed concerns that the program is not actuarially sound.
MTC’s legislative program supports this concept of increasing automobile access in
low-income communities as part of a range of strategies to improve mobility
throughout the Bay Area. Because we would like to see this program available at least
regionwide, we recommend a support and seek amendments position on SB 20.

Known Positions

    State Insurance Commissioner John Garamendi (sponsor)


                                                      Steve Heminger

                                    SB 20 (Escutia)
                    California Low-Cost Automobile Insurance Program
                                       sponsored by
                          John Garamendi, Insurance Commissioner

                                               Fact Sheet

In California, all vehicle drivers are required to be insured. Some of California’s most underserved
families, however, live in areas where automobile insurance is unaffordable, and therefore, unattainable.
Too many low-income drivers remain uninsured because the costs of standard automobile insurance
premiums are beyond their financial reach.

The California Low-Cost Automobile Insurance Program’s purpose is to provide low-cost automobile
liability insurance to good drivers, who demonstrate financial need. The rates need to be affordable, while
at the same time, are adequate to cover losses and expenses. One of the original goals of this program was
not wanting to criminalize vehicle owners who were unable to afford automobile liability insurance to
meet the financial responsibility requirements of the Department of Motor Vehicles and peace officers.

The California Low-Cost Automobile Insurance Program was created in 1999 to provide low-income,
good drivers with an affordable automobile insurance option so that California’s most underserved
citizens could drive on the roadways legally. The program was originally established for the residents of
the County of Los Angeles and the City and County of San Francisco. The program has statutorily
specified eligibility requirements and the low cost automobile liability policy satisfies financial
responsibility laws.


Expand Program to Additional Counties
The need to expand the California Low-Cost Automobile Insurance Program into additional targeted
counties is quantified by three indicators: number of inquiries to the California Automobile Assigned
Risk Plan (CAARP), uninsured vehicle rate, and income data.

As a result of the data analyzed, the following six counties have shown the greatest need for the California
Low-Cost Automobile Insurance Program as they are underserved communities with a high percentage of
uninsured vehicles and population living below the poverty line.
California Low Cost Automobile Insurance Program
February 1, 2005 Report to the Legislature – Executive Summary

Counties with greatest need for the California Low-Cost Automobile Insurance Program

             *County                  **Number of                Percentage         ***Percentage
                                    Uninsured Vehicles             Rate of          of Population
                                                                 Uninsured          Below Poverty
            Orange                          200,056                 10.29                 10.3
        San Bernardino                      105,482                 10.38                 15.8
           Alameda                          121,434                 12.27                 11.0
           Riverside                         87,097                  9.37                 14.2
          San Diego                         165,016                  8.72                 12.4
            Fresno                           77,933                 17.27                 22.9

    *   Listed in order of highest demand determined by the volume of inquires received by CAARP without
        direct target marketing. Current program does not market to these counties. These calls must be
        attributed to spillover media or word of mouth.
    ** Source: California Department of Insurance – Estimated Rate of Uninsured Motorist Report 2000.
    *** Income eligibility for the program is 250 percent of the Federal Poverty Level. Source: 2000
        Federal Census.

Eliminate Maximum Vehicle Value Eligibility Criteria
Existing law sets the vehicle value threshold for program eligibility at $12,000 at the time the vehicle
was purchased. This requirement was originally included to ease concerns of the insurance industry
in establishing this program. California Low-Cost Automobile is a liability only policy that does not
provide collision coverage for the policyholder, and is not a factor in establishing risk.

Eliminate Maximum Number of California Low-Cost Automobile Policies per Household
Currently, only two California Low-Cost Automobile policies are permitted per household. Many
low-income households are multi-generational, consisting of working parents, and a third generation
assisting with the care of siblings or elder parents. These households may have more than two
vehicles; therefore, they would not be eligible for the program and would be left with unmet insurance
needs. These people live just one traffic stop from losing their vehicles and disruptions to their lives.

Eliminate Program Sunset Date
The California Low-Cost Automobile Insurance Program is currently set to sunset on January 1, 2007.
This change will make this much needed program permanent. The program has proved that it pays for
itself, and does not require subsidy from other policyholders, the government, or insurance companies.
The California Insurance Commissioner has identified the California Low-Cost Automobile Insurance
Program as a vital component in his commitment to make insurance affordable for all Californians.

Existing Law:
    Requires every driver to have automobile liability insurance or other proof of financial
       responsibility (Vehicle Code Section 16020).
    Establishes until January 1, 2007, a low-cost automobile insurance program in the County
       of Los Angeles and the City and County of San Francisco (Insurance Code Sections
       11629.7 and 11629.9).
    Provides that a low-cost automobile liability policy satisfies the financial responsibility
       requirements (Insurance Code Sections 11629.8 and 11629.991).

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