Davis Expands Scope of Low-Cost Auto Insurance for Poor in LA, SF Counties

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Mercury Insurance Bill Would Negate Gains For Low-Income Consumers, Other Drivers If Signed By Davis

Santa Monica, CA — Governor Davis received plaudits from consumer advocates today for signing SB 1427 (Escutia), which would expand access to the state’s innovative low-cost auto insurance program for low-income drivers in Los Angeles and San Francisco counties. The governor also received a warning from the Foundation for Taxpayer and Consumer Rights (FTCR) that the benefits of this bill will be negated if he signs SB 689 (Perata), which would allow insurers to surcharge drivers for temporarily dropping coverage or having been previously uninsured.

"It’s right to help the poor and provide benefits to all other drivers as you have by signing SB 1427. But with SB 689, Mercury Insurance proposes that you let insurers step on the backs of the poor and uninsured in the name of a marketing scheme with illusory benefits for some drivers," FTCR wrote in a letter to Davis today. Read FTCR’s letter top Governor Davis.

SB 1427 (sponsored by FTCR) will decrease the price of a "Low-Cost Auto Insurance" policy from $450 to $347 in Los Angeles and from $410 to $314 in San Francisco. It will also increase the income qualification threshold from 150% of the federal poverty standard to 250%; this will make the program available to tens of thousands of drivers who have been denied access to the program since the law took effect in July of 2000. Additionally, the new law will require insurance agents to inform customers that they may qualify for the special auto insurance program. In the past, consumers have complained that they were not told of the program when they inquired about auto insurance.

Editorial Pages Weigh in Against SB 689 — Policy, Process and Campaign Cash

In their letter to the governor, FTCR noted that the public was becoming aware of the untoward efforts by Mercury to gain passage of their SB 689 proposal, which would have a negative impact on low-income Californians and others who have a lapse in insurance coverage, such as soldiers returning from war. Both the Los Angeles Times and San Francisco Chronicle have highlighted the extreme influence of campaign contributions by Mercury Insurance in support of its effort to pass the surcharge legislation. The Times noted that "The bill appeared to pass only because Mercury has been such a generous contributor to legislators’ campaigns," and the Chronicle pointed out Sunday that Mercury insurance "gave $25,000 to Gov. Gray Davis just last week, as the legislation awaited his signature or veto."

"Governor Davis has offered a hand to low income drivers by signing the low-cost insurance bill. But the governor must not slap poor people in the face with the other hand by signing a law sponsored by Mercury Insurance, a campaign contributor," said FTCR’s senior consumer advocate Doug Heller.


September 23, 2002

Honorable Gray Davis
Governor, State of California
State Capitol
Sacramento, CA 95814

Dear Governor Davis:

We are encouraged to learn that you have enacted SB 1427 (Escutia), which will improve low-income motorists’ access to the state’s low-cost auto insurance program. This is a much-needed refinement of a program that provides auto insurance options to very low-income drivers in Los Angeles and San Francisco.

Moreover, you have signed into law the extension of the mandatory auto insurance law — SB 180 (Speier) — which seeks to protect all drivers from the danger of motorists on the road without liability insurance coverage. Indeed, reducing the problem of uninsured motorists, and the associated costs for insured drivers and taxpayers, underlies both of these bills.

This effort to assist the very poor and protect all insured drivers, however, is endangered by insurance industry sponsored legislation — SB 689 (Perata) — that will raise rates for many drivers throughout the state, including the previously uninsured and drivers who have temporarily dropped their auto coverage as a result of the economic down-turn or the war on terrorism, which has impelled many California reservists to drop coverage while in service. Although the insurance company sponsor suggests that others will receive discounts as part of SB 689’s pricing scheme, those discounts will likely be offset by increased uninsured motorist premiums.

SB 1427 offers a hand to low income drivers in two counties of California, but SB 689 is a smack in the face of poor consumers, and others who drop coverage, throughout the state. Where SB 180 requires people to prove their insurance coverage, SB 689 creates another barrier for people trying to purchase the product and, thus raises rates for other insured drivers.

We have enclosed two editorials, from the Los Angeles Times and this past Sunday’s San Francisco Chronicle, pointing to the improprieties of SB 689 with respect to the policy and process of the proposed law. Both papers discuss the objectionable role of campaign contributions from the bill’s sponsor Mercury Insurance. As the Times points out, the bill would "overturn a decision of the state insurance commissioner" and the Chronicle complained that the "proposal, which had already been killed in a policy committee, was resurrected in the final week of the session."

You have done the right thing by ensuring that California offers a workable program for low-income drivers. But this would be negated by signing Mercury Insurance’s proposal to surcharge people simply because they have dropped coverage or because they are trying to enter the market for the first time. It’s right to help the poor and provide benefits to everyone else in the process as you have by signing SB 1427. But with SB 689, Mercury proposes that you let insurers step on the backs in the name of a marketing scheme with illusory benefits for some.

We urge you to veto this bill.


Douglas Heller
Foundation for Taxpayer and Consumer Rights

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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