Few taking advantage of new low-cost auto insurance program

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The Associated Press

Five months after California launched its landmark program to provide auto insurance to low-income drivers, hardly anyone is taking advantage of it – and state officials want to know why.

The experimental low-cost policy, the first of its type in the nation, first was offered July 1 in Los Angeles and San Francisco counties. The three-year pilot project was approved by the Legislature and Gov. Gray Davis to reduce the number of uninsured drivers.

Uninsured motorists total about a fifth of California’s 21 million licensed drivers. Not surprisingly, most of them are in Los Angeles County, which has a third of the state’s vehicles.

Estimates varied dramatically as to how many drivers would take advantage of the new program. Supporters of the low-cost plan, while acknowledging they were in uncharted terrain, estimated that as many as 50,000 motorists would sign up the first year.

State Insurance Department regulators were more cautious, issuing no public estimates but expecting perhaps 10,000 to 20,000 signups.

But as of Oct. 31, the most recent period for which figures are available, 434 people have obtained the low-cost policies, almost all of them in Los Angeles, according to figures compiled by the state Insurance Department. In San Francisco, 12 people signed up.

The figures are expected to be publicly released to the Legislature after Jan. 1, a reporting requirement that was included in the original law that set up the issue.

Insurance Commissioner Harry Low has made the program a major priority in his new administration, Low’s spokesman said.

“He has put an emphasis on making every attempt to make this program work,” said spokesman Scott Edelen.

The low numbers are proving puzzling to insurers, consumer groups and state officials.

One reason may be that auto insurers are offering similar or better coverage at lower costs. Another is that people with conventional policies are not “buying down” to the low-cost policies, as expected.

And still another is that some people will not purchase car insurance under any circumstances – even though state law requires it and carries stiff penalties for violators – because they have few assets to protect.

A fourth possible reason is that few people are aware the program exists.

“Some people are not going to buy it, they are spending 40 percent to 50 percent of their income on rent and food. It just stands to reason that a family that is struggling to provide food for their children every day may have no assets to protect,” said State Farm spokesman Bill Sirola.

State officials and insurers estimate that perhaps 4 million motorists statewide, or roughly 20 percent of the total, drive without coverage. Many of the drivers are concentrated in high-risk inner-city areas, where the uninsured rate exceeds 80 percent.

These drivers, often the poorest motorists who live in areas where insurance premiums are highest, are the target of the new program. But they aren’t lining up to buy the policies.

Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, a sponsor of the original legislation, said the state has failed to adequately advertise the program.

“The chief problem is that you’ve got probably 500,000 drivers in Los Angeles and San Francisco counties who would qualify for this low-cost program, but very few of them even know that it exists. There’s been no outreach,” he said.

“They have these billboards in low-income areas that say, ‘Need low-cost auto insurance? Call this number,’ but they never say the program is backed by the state of California. People think it’s some private agent,” he added.

The low-cost program is administered by the California Automobile Assigned Risk Plan, a pool set up by insurers to provide auto insurance to high-risk drivers who can’t get coverage from conventional companies.

An advisory board, which includes a number of insurers, gives broad direction to CAARP and is controlled largely by the Department of Insurance.

For good drivers over 25 years of age, the no-frills policies cost $450 a year in Los Angeles and $410 in San Francisco, with a 25 percent surcharge for single male drivers under 25 years of age. The policies provide $5,000 for personal liability, $10,000 for multiple liability and $3,000 for collision damage.

In conventional policies, the minimum coverage is $15,000, $30,000 and $5,000 respectively.

The new policies are intended to go to low-income families who make 150 percent or less of the federal poverty level, or about $21,000 a year for a family of three.

But insurers note customers can get better coverage for the same amount spent on the low-income plans.

“Sure you can. In certain parts of L.A. or San Francisco, you can spend an equal premium for more coverage, or even less in premium for more coverage. That’s what shopping around is all about,” said Jerry Davies, a spokesman for the Personal Insurance Federation of California, a trade-lobby group that includes State Farm and Farmers.

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