Insurance Outreach Effort Must be Fixed to Help LA’s Poor

Read FTCR’s Testimony regarding the state of the Low Cost Auto Insurance Program

Los Angeles– A consumer advocate with the Foundation for Taxpayer and Consumer Rights (FTCR) called on Insurance Commissioner Harry Low to develop a community-based awareness campaign around the state’s low cost auto insurance pilot program, which went into effect last summer, at a Department of Insurance hearing today. The program, developed by FTCR and moved through the Legislature by State Senator Martha Escutia in 1999, makes a basic liability insurance policy available for low-income motorists for $450 per year, regardless of where in Los Angeles County the motorist lives.

The program has only attracted 848 participants in its first year. There has been very little community outreach to inform potential consumers of this program, which accounts for the low numbers of enrollees.

“The failure of the program to insure thousands of drivers is a failure in outreach,” said consumer advocate Douglas Heller of FTCR. “Since last summer a $450 auto insurance policy has been available to Los Angeles drivers who are poor, yet virtually no one in Los Angeles knows about the program.”

According to FTCR, changes need to made by the Department of Insurance to involve more local groups in the outreach process. Additionally, FTCR criticized the Department for failing to follow through on a commitment to inform all LA drivers about the program by working with the DMV to insert an informational bulletin in auto registration mailings. Finally, FTCR was critical of insurance companies and insurance agents that, after agreeing to support the original legislation on the condition of a number of restrictions added by amendments, have refused to actively inform consumers about this product. In some cases agents have simply refused to sell the state-sponsored insurance policy.

“Commissioner Low must not let this program languish. Too many low-income drivers are uninsured simply because they don’t know that this program exists,” said Heller. “Like the Healthy Families program before it, the state’s low-cost auto insurance program has gotten off to a slow start, but it cannot be scrapped. Commissioner Low and city leaders should make awareness of this important program a priority. It would be a shame to cut the insurance lifeline because the Department of Insurance did not get behind it.”

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Testimony of Douglas Heller

Consumer Advocate

Foundation for Taxpayer and Consumer Rights

California Department of Insurance

Investigatory Hearing Regarding Low Cost Automobile Insurance

June 28, 2001

Los Angeles, CA

The Foundation for Taxpayer and Consumer Rights (FTCR) appreciates the opportunity to address the Department of Insurance on the Low Cost Automobile Insurance Program (LCA).

The State of the Low Cost Auto Insurance Program

The low cost auto insurance program is one of the most important pieces of consumer policy geared towards protecting the poor to come out of Sacramento in years. But to this point the program has failed to approach its potential because insurance companies do not want this program sold, agents have been loathe to sell it and, in part, due to a lack of sufficient or properly directed attention by the Department of Insurance. If this program is to be a success, and if there is an interest in low-income drivers gaining access to insurance, the Department of Insurance must more aggressively pursue an outreach campaign that will inform Los Angeles drivers of this special insurance policy.

As a stunning example of the implementation problem, the Department of Insurance and Department of Motor Vehicles were asked in October of 1999 to develop and mail information about the “Lifeline” insurance program. Through CAARP, the insurance industry intervened to stop this mailer a year ago, but upon our request, the Department assured us that the DMV mailing would be delivered to hundreds of thousands of potential policyholders. Yet to this day the information has not been dropped in a single driver’s mailbox.

The failure of the program to insure thousands of drivers is a failure in outreach. To be sure the program and the awareness campaign to implement it, must be fixed, but the program is far too important to be scrapped.

The Foundation would like to offer the following testimony on the program’s history, challenges to implementation and suggestions for improving its efficacy.

Background

The Foundation For Taxpayer and Consumer Right is a nonprofit, nonpartisan consumer watchdog organization dedicated to protecting and promoting the interests of consumers and taxpayers. In 1996, FTCR proposed a Lifeline insurance plan to the Department of Insurance. Arguing that the state cannot mandate that all drivers carry liability insurance without making an affordable basic policy available to low-income drivers who cannot otherwise afford insurance, FTCR then proposed the policy to the California Legislature. In 1999, FTCR presented an actuarial analysis demonstrating that a basic liability insurance policy could be sold to low-income drivers with good driving records for $300.

The legislation was opposed by the insurance industry until the price was increased to the current $450 in Los Angeles or $562.50 for young unmarried male drivers. The insurance industry refused to drop its opposition to the proposal until a series of additional amendments were accepted, which further restricted the programs potency. Nevertheless, upon passage, low-income drivers in Los Angeles and San Francisco were set to become the first drivers in the nation to be offered the opportunity to buy a low-cost policy.

On October 18, 1999, FTCR and other consumer, community and labor representatives, as well as agents, insurers and governmental agency representatives, testified before the California Assembly Committee on Insurance at an informational hearing in Los Angeles about the importance of outreach efforts to ensure the effective implementation of LCA.

Chiefly, FTCR addressed the need for a grassroots campaign geared toward informing individuals about the availability of LCA. We also advocated the distribution of information about LCA through a DMV mailing. Bill Cather, representing the DMV indicated an interest in pursuing such a role for the DMV and provided a mock-up of a mailing insert that the DMV had already devised for the purposes of publicizing LCA in this manner. To date the DMV has not sent this or any information about the availability of LCA to registered drivers.

In February 2001, FTCR organized an educational meeting with approximately 40 community groups, labor groups and state and local agencies. The meeting, with the assistance of the Department of Insurance, the California Automobile Assigned Risk Plan (CAARP) and Senator Martha Escutia, provided the attending organizations with information about the program and outreach tools for their groups.

Additionally, FTCR has written a number of columns for organizational newsletters and continues to supply groups with informational handouts and the magnet cards developed by the Department of Insurance.

LCA provides important protections to low-income drivers and all insured drivers

Without the lifeline provided by LCA, low-income Angelenos have been drowning under the mandatory insurance law, because, historically, insurers have charged the highest rates to the poorest people, effectively denying the poor insurance coverage. According to a 1999 study by Lyn Hunstad of the California Department of Insurance, 73% of uninsured drivers say that “auto insurance costs more than I have,” and 63% say that the “high cost of insurance” is the primary reason that they remain uninsured.

Through LCA, many Los Angeles residents are given their first realistic opportunity to purchase the protection. For the first time we are attempting to solve the uninsured motorist crisis by providing opportunities rather than simply imposing penalties. And in reducing the number of motorists who drive uninsured everyone can expect lower insurance rates.

The Legislature’s previous strategy to address the uninsured crisis was to impose stiff fines on people for driving without insurance. Five hundred dollar fines and car impoundment did not help poor people find the money to buy overpriced insurance. Next, Proposition 213 (1996) restricted the rights of the uninsured but did not fix the problem, it just made the pain more acute.

The real world tells us that most of the uninsured are not criminals trying to beat the system, but people with no means to comply with the law. The data shows that 87% of the uninsured are good drivers, about 75% of the uninsured are low-income ($20,000 per year for a family of three) and most know that they need insurance and would buy it if it was affordable. But for them it is illegal to drive It is not delinquency or misinformation that leaves over three million Californians driving illegally; it is poverty and price gouging. People who cannot afford insurance have to choose to forego other basic living expenses, stop driving altogether or most commonly drive illegally. Each one of these scenarios is a serious problem for the driver and leaves the public picking up the tab somewhere.

The California automobile insurance system is a liability system geared toward ensuring that a driver is held responsible for any accident he or she may cause. Policymakers have chosen this type of insurance system time and again because, unlike the no-fault systems around the country, the liability system holds drivers responsible for accidents they cause, it is cheaper and it provides more benefits to injured accident victims. The LCA is the most effective way to afford low-income drivers with the opportunity to comply with the personal responsibility laws that govern auto accidents. Additionally, with Proposition 213 (which was funded by the insurance industry), in which uninsured motorists are not allowed to recover non-economic damages, it is essential that low-income drivers are insured so that they have an equal opportunity to fully recover a claim when they are the victims of an accident.

LCA should be more expansive, less expensive and less restrictive

When FTCR originally proposed the Lifeline insurance program, our actuary determined that a $300 price was reasonable if the program were to cover good drivers only. During the legislative process the qualifications became even more restrictive and the price increased dramatically, at the behest of the insurance industry. The law provides the Department of Insurance with the responsibility of adjusting the price as necessary and for people on exceedingly tight budgets every dollar counts. An actuarial review of the program should be conducted and the price should be lowered as quickly and as drastically as possible.

One of the chief reasons that the insurance industry pressed for so many restrictions was the concern that a majority of the consumers who purchased LCA would be previously insured drivers who dropped down to LCA coverage. In fact, that has not been the case. According to CAARP statistics, 69.2% of the LCA drivers were previously uninsured motorists and only 9.2% were “drop-downs” from another policy (21.6% gave no answer).

That percentage indicates that the population to whom this is made available could be expanded up to households earning 200% of poverty level or below, as opposed to the current 150% threshold. Additionally, the income threshold for a single-person household should be the same as a two-person household, which is the way most other “Lifeline” programs are structured.

Currently, the law requires a $100 down payment on the policy — this was another requirement of the insurance industry during the legislative process. This is an unnecessary barrier for low-income people who are not able to bring forward that much money at one time, but would be able to afford the entire policy if it were financed differently. The Department of Insurance should consider other payment options, which could make the policy more affordable.

Another problem faced by the LCA program is that agents have expressed an unwillingness to sell the product. The Department should work to encourage all CAARP certified agents in Los Angeles and San Francisco Counties to promote and sell the policy.

The Healthy Families Lesson

As important as this program is, it is equally unknown by the target audience: low-income drivers. To date fewer than 1,000 drivers have purchased LCA. The chief reason for this is that most qualifying drivers do not know that this Lifeline program is available to them.

A lesson can be learned from the Healthy Families program, which the state created to provide health insurance to low-income California children. Healthy Families Outreach is budgeted for $21 M annually and the state receives another $17.9 M for Medi-Cal outreach (families and children). Of the available funding, $6 million is distributed to about 70 community based organization (CBO) contractors. Of the $6 million, $1.7 is specifically targeted to immigrant community outreach. The contractors subcontract with other community based organizations to provide outreach and application assistance. The target population for Healthy Families numbers 350,000. At this point they have enrolled about 200,000 children.

FTCR met with Healthy Families representatives in 1999 to discuss problems they had with signing people up to that very important program. In the first years of the program, Healthy Families had a miserable record of signing low-income children up for health insurance. Healthy Families struggled early on to enroll poor Californians despite a budget much larger than that of the DOI’s LCA budget, and was languishing with millions of dollars of available insurance coverage going unused. Fortunately, that program was not scrapped, as it is now a bedrock of our health insurance reform efforts in the state.

Healthy Families found that it was not that the program was insufficient but the outreach was missing the mark. They learned that it took a grassroots approach to effectively serve the low-income communities targeted by the program. The state has begun the process of implementing the Lifeline program without learning from their mistakes. The Department of Insurance should work with Healthy Families and its outreach organizations to develop a grassroots campaign to market the policy.

Interestingly, in the data provided by CAARP regarding the LCA sales to this point, the most common referral source for the policy has been friends and family. From a marketing perspective this confirms that the direct contact from a trusted source is important.

The state has not made $20 million per year available for outreach, so the DOI and other agencies must redouble their efforts to inform low-income motorists of this program. So long as the state pays police to ticket motorists for driving uninsured and requires the DMV to deny auto registrations to uninsured drivers, the state has an obligation to implement this program effectively.

For this program to work:

• The Department of Insurance must step up its grassroots outreach efforts and work with community groups to increase direct contact with low-income drivers.
  

• The Department of Motor Vehicles should send an insert about the low-cost program with registration notices to Los Angeles drivers. The DMV should also make informational literature available and prominently displayed at all DMV locations.
  

• Agents, brokers and insurers should be required to inform potential clients that this program exists.
  

• The price of the policy should be lowered to the original $300 actuarial estimate and the policy should be available to drivers up to 200% of poverty level.
  

• The down payment should be reduced by 50%.

Conclusion

Today’s hearing should be a wake-up call for the Department of Insurance, the Department of Motor Vehicles and City and County leaders to actively and aggressively publicize this program. We urge Commissioner Low to work with new Mayor Jim Hahn, who as City Attorney was an advocate for low income and urban insurance consumers, to generate a massive, community by community and neighbor to neighbor campaign to broaden awareness of the Low Cost Auto Insurance program.

We cannot afford to let this program fail. And with a sound outreach campaign the Low Cost Auto Insurance policy will be a national standard-bearer for citizens and public officials looking to solve the real problem of uninsured motorists and the very real problems that face low-income drivers.