Agenda Item 4a TO: Legislation Committee DATE: Feb. 25, 2005 FR: Executive Director RE: SB 20 (Escutia) — Low-Cost Auto Liability Insurance Description 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 Discussion 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 experience. 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 Support State Insurance Commissioner John Garamendi (sponsor) Oppose None ____________________________________ Steve Heminger Attachment J:\COMMITTE\Legislation\PcktCurr\SB20Support_EG.doc CALIFORNIA DEPARTMENT OF INSURANCE SB 20 (Escutia) California Low-Cost Automobile Insurance Program sponsored by John Garamendi, Insurance Commissioner Fact Sheet Problem: 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. Background: 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. Solution: 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 Motorists 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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