State offers uninsured motorists inexpensive options – but few sign up

Inside Bay Area (California)

California is a land of motorists, but more than 3.4 million people are driving illegally by not carrying auto insurance, despite a state program that offers insurance for under $400 a year.

Only some 26,000 drivers have signed up for the low-cost program, whose roadblocks include minimal publicity, low commissions and a lack of interest or knowledge among some insurance agents.

“The numbers are a little disappointing. We know there is a need there,” said Sandra Chapin, program director for the San Mateo-based Consumer Federation of California, which is working with community groups to help publicize the program in the Bay Area.

The 6-year-old program “is kind of the stepchild that no one wants to deal with,” Chapin said.

But a spokesman for insurance agents attributes the low sign-up numbers to the policy’s low liability limits: $10,000 for bodily injury per person, $20,000 total bodily injury coverage per accident and $3,000 for property damage.

“Consumers aren’t buying it. It’s a crappy product. It does not provide real protection for the people that are buying it,” said Steve Young, general counsel for the Pleasanton-based West Coast office of Independent Brokers & Agents. “The limits are so low, and there have been price reductions” for auto insurance in the private market in recent months.

The upshot is that very few of those who are eligible have signed up for the program since it became available through a pilot program launched in San Francisco and Los Angeles counties in July 2000. The program has spread this year to several other Bay Area counties and other parts of the state, but most
of the enrollments so far have come from Los Angeles County.

Insurance in the private market for basic liability — which has higher coverage than the liability limits of the low-cost program — typically runs hundreds of dollars more a year, according to consumer groups.

The idea behind the low-cost program is to reduce the number of uninsured motorists.

“It gives low-income individuals the opportunity to drive on our highways legally by purchasing low-cost auto insurance,” said Insurance Commissioner John Garamendi.

Legislation authored by state Sen. Jackie Speier, D-San Mateo, that went into effect in 1997 requires motorists to provide proof of insurance when registering a vehicle or stopped by police.

Under separate legislation also authored by Speier, motorists who cancel their insurance after registering a vehicle could end up having their registration suspended.

The low-cost program was expanded to Alameda County and five other counties on April 1 under SB 20 authored by state Sen. Martha Escutia, D-Montebello, and co-authored by Speier. In June, it expanded to Contra Costa, San Mateo, San Joaquin and Santa Clara counties and four other counties. Garamendi determines which counties are included in the program based on their number of uninsured motorists and low-income residents.

So far, less than 100 drivers in Alameda, Contra Costa, San Mateo and San Joaquin counties have signed up for low-cost auto insurance.

To qualify for low-cost insurance, a participant needs to be a licensed driver for at least three years with a good driving record and a vehicle worth under $20,000. A participant also must meet income limits (up to $50,000 a year for a family of four). The program is not available to undocumented immigrants
since current law does not allow them to apply for drivers’ licenses.

The liability insurance provides coverage only for the damage or injuries you cause to someone else in an accident. However, optional medical and uninsured motorist coverage is available through the program.

The price for low-cost insurance, which is not subsidized by other drivers, varies from county to county but remains under $400 a year. While the program targets uninsured motorists, it is also open to low-income motorists who have insurance.

Despite the problems that consumer groups say hinder enrollment, people who find out about the program are enthusiastic and want to sign up.

“First of all, their jaws drop when they realize in Alameda County they can be insured for $322 for an entire year,” Chapin said.

So why isn’t the program more popular?

“(The low-cost program) has been undersubscribed. It’s not being promoted and therefore people aren’t accessing it,” said Speier, who also authored the legislation that started the low-cost auto insurance pilot program.

The low numbers stem in part from small commissions for selling low-cost insurance, she said. A bill signed into law allows Garamendi to increase the commission rate, but he has not done so, Speier said.

While higher commissions could lead to higher rates for consumers, that could also result in more insurance agents promoting the low-cost product, she said.

Garamendi’s office doesn’t think higher commissions would lead to more sales.

One thing that consumer groups and program officials do agree on is that more needs to be done to get the word out about the program.

“I think the biggest problem is that people don’t know about the program,” said Doug Heller, executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

There are indeed challenges in educating both consumers and insurance agents about the low-cost program, Garamendi said.

The Department of Insurance has run a few public service announcements on radio stations about low-cost auto insurance as well as ads in minority newspapers and a spot featuring Alameda County Supervisor Keith Carson on local cable television.

“We have virtually no budget for advertising, and that requires us to be creative,” said Garamendi, adding that the department relies on organizations such as community colleges and social service agencies to help publicize the program.

Consumers are also having a hard time navigating the assigned risk program’s automated phone system, Chapin said. It was rolled out a few weeks ago and is designed to determine whether callers meet program qualifications. If they do, a list of certified agents is mailed out to the caller.

“People call in and have had difficulty getting through the (automated) system and speaking to a live operator. There are some people that are going to fall through the cracks,” Chapin said.

Karen Borawski, administrative manager for the not-for-profit California Automobile Assigned Risk Program, said it’s possible a couple of the question prompts could be dropped to speed up the qualification process.

“We are figuring out how to make it better,” she said. “This is a new system. We are trying to work out the kinks.”

About 85 percent of people who have signed up for low-cost insurance over the years have not previously had auto insurance, according to the Department of Insurance.

“The majority of drivers who are uninsured are uninsured because they can’t afford (private insurance),” said Heller. “We do know there are a lot more than 26,000 uninsured qualified drivers that would qualify for this program and buy it but don’t know about it. Most people don’t want to be looking over their shoulder.”

Still, he said, not all of the state’s uninsured drivers meet the program’s income limits or good driver qualifications, and a small number would choose not to purchase insurance no matter what the price.

“We would like every motorist in California … to purchase the liability insurance required by law,” Garamendi said. “But there is a certain percentage of folks that are just plain scofflaws (who won’t purchase insurance) at any cost.”

Currently, the low-cost policies have a 52 percent renewal rate. But there is no way to determine if those who don’t renew have purchased private insurance or have let their low-cost insurance lapse, according to the Department of Insurance. Of the 26,106 policies sold since the program began six years ago, almost 8,800 are still active, according to state figures.

There indeed have been times where people who buy low-cost insurance later moved into higher-priced policies, although statistics are hard to come by, Heller said.

While enrollment in the low-cost program could be higher, Heller pointed out that it has put more insured drivers on the road. That has led to a reduction in taxpayer funds billed to Medi-Cal to cover hospital care related to auto accidents caused by uninsured drivers.

The Department of Insurance does not have a numeric goal for program enrollments, said Garamendi, the Democratic candidate for lieutenant governor. But higher enrollment levels could lead to lower auto insurance rates in the private marketplace.

“Most of us buy uninsured (motorist) coverage to protect ourselves from uninsured motorists. With this program in place, we will have fewer uninsured motorists and therefore the cost of uninsured motorist coverage should drop,” Garamendi said. “It hasn’t happened yet.”

To sign up for the low-cost auto insurance program, call 866-602-8861. Information about the low-cost program is also available at: http://www.aipso.com/lc.