Office of Administrative Law To Deliver Formal Rejection of Quackenbush Regulations Today
The Foundation for Taxpayer and Consumer Rights (FTCR) and Los Angeles area legislators sent letters today to Insurance Commissioner Chuck Quackenbush urging him to consider the needs of low-income consumers before he resubmits proposed regulations implementing the nation’s first “Lifeline” Low Cost Auto Insurance Program. The 1999 law, sponsored by the non-profit, non-partisan Foundation for Taxpayer and Consumer, requires insurance companies to underwrite a $450 basic liability auto insurance policy in Los Angeles County ($410 in San Francisco) for qualifying low-income motorists. The policy will be sold through the California Automobile Assigned Risk Plan (CAARP), which is overseen by the Department of Insurance (CDI).
On February 18, Commissioner Quackenbush submitted proposed regulations to the Office of Administrative Law (OAL) on an emergency basis. OAL will deliver a detailed disapproval letter to CDI today. FTCR urged OAL last week to reject the regulations because the proposed rules did not comply with the law and established unnecessary barriers for low-income consumers. In a previous communication, announcing the disapproval of the Quackenbush proposals, OAL pointed to inconsistencies between the regulations and the legislation that created the new insurance program.
“Lifeline auto insurance was established as an experimental effort to solve the uninsured motorist crisis in poor communities in California,” said Doug Heller of FTCR. “Commissioner Quackenbush and his advisors from the insurance industry tried to use the regulatory process to change the variables and undermine the experiment, but they were properly rebuffed. Now the Commissioner must produce regulations that will help make this program a success rather than forcing poor people to run the gauntlet just to purchase auto insurance.”
In the letter sent to Commissioner Quackenbush today, FTCR focused on three changes that should be made to the regulations:
The proposed regulations included rules that would deny insurance to low-income motorists if someone else in the household carries a regular insurance policy and another that would force low-income drivers to pay a non-refundable $100 down-payment on the policy. According to FTCR these proposals were unfair and at least one of them is illegal.
A third suggestion by FTCR, which will be presented to the CDI as they develop the new regulations would allow Lifeline Insurance policyholders to pay on a bi-monthly basis. Since policyholders will be poor, spreading out payments over the course of the year, rather than loading them on the front end of the policy term, will make this policy more accessible to the low-income motorists for whom it is intended.
Legislators Involved in the 1999 Legislation Urge Quackenbush to Fix the Regulations
“As a joint author of the low-cost auto insurance legislation SB 171 and SB 527, I would like to add my voice to those of Senator Escutia and Assemblymember Scott and express my concern about a portion of the proposed regulations to implement the program,” wrote Speaker Villaraigosa.
“The statute stipulates that An insured shall not purchase or maintain any automobile liability insurance coverage other than a low-cost policy for any additional vehicles in the insured’s household,” noted Assembly Insurance Chairman Jack Scott. “On the other hand, the regulations state that applicants are not eligible for the program if additional vehicles in the applicant’s or insured’s household are provided automobile liability coverage on other than a Low Cost Auto Insurance Policy’ Therefore, Section (22)(3)(d) should be stricken from the regulations.”
“This is a landmark pilot program that deserves the chance to benefit all qualified drivers,” wrote State Senator Martha Escutia (Montebello), the author of the 1999 “Lifeline” Insurance law. “Contradictory and unclear emergency regulations are unacceptable.”
FTCR Calls on Quackenbush to Appoint New Advisory Board
The rejected regulations were developed by the Quackenbush-appointed CAARP Advisory Board, which is dominated by insurance industry executives. In addition to criticism about the substance of the regulations, FTCR called on Mr. Quackenbush to appoint a new Advisory Board.
“We believe that many of the problems with the regulations stemmed from the fact that the CAARP Advisory Board, as currently constituted, reflects the narrow self-interest of insurance companies rather than a broader public interest,” FTCR wrote. “It should not be ignored that there is, at a minimum, an appearance of impropriety when a regulator depends upon the advice of the regulated to develop the rules with which they must comply. It is nothing short of the fox guarding the henhouse. We, therefore, urge you to appoint a new Advisory Board.”
Eight of the Board’s fourteen members are insurance company executives, while another two are insurance agents. Four of the industry members are not from California, including the Chair (a State Farm executive from Illinois) and the Vice-Chair (a Safeco executive from Washington state), who headed up the committee that wrote the regulations.
FTCR’s letter to Commissioner Quackenbush follows:
March 6, 2000
California Department of Insurance
300 Capitol Mall #1500
Sacramento, CA 95814
Fax: (916) 445-5280
RE: OAL disapproval of Low-Cost Auto Insurance regulations
Dear Commissioner Quackenbush:
On Monday February 28, the Office of Administrative Law (OAL) announced that the emergency regulations to implement the “Lifeline” Low Cost Auto Insurance Program proposed by the California Department of Insurance had been disapproved. According to OAL, the regulations were rejected because they did not comply with the necessity, clarity and consistency standards required by Government Code §11349.1. In previous communications with the Department of Insurance and OAL, The Foundation for Taxpayer and Consumer Rights (FTCR) has identified, as summarized below, aspects of the proposed regulations that created barriers to the purchase of the Low Cost Policy that were inconsistent with the original legislation.
We believe that many of the problems with the regulations stemmed from the fact that the CAARP Advisory Board, as currently constituted, reflects the narrow self-interest of insurance companies rather than a broader public interest. It is unfortunate that you have relied solely on the advice of insurance companies, including company representatives who are not even residents of California, to develop regulations on such a pressing issue as the affordability and availability of auto insurance to low-income motorists. It should not be ignored that there is, at a minimum, an appearance of impropriety when a regulator depends upon the advice of the regulated to develop the rules with which they must comply. It is nothing short of the fox guarding the henhouse. We, therefore, urge you to appoint a new Advisory Board.
The “Lifeline” Low Cost Auto Insurance Program was established as an experimental pilot program to address the extraordinary uninsured motorist crisis in California’s low income communities. The regulations developed by the CAARP Advisory Board and formally proposed by CDI attempted to change the variables of the experiment in a manner inconsistent with the law. The OAL disapproval of the CAARP Board’s recommendations provides your department with a second opportunity to develop regulations that will implement the legislatively mandated experiment appropriately.
In rewriting the regulations, we urge you to take heed of the concerns expressed in our previous letters. Within the regulations rejected by OAL are certain rules which go beyond the scope of the 1999 law, in some cases contradicting the public purpose of the law. In particular, we have identified two areas in which the CAARP Board recommendations were either illegal or overly burdensome on the low-income motorists who are eligible for the Lifeline program and a third section that could be adapted to more effectively serve the needs of low income motorists.
1.Section 22(A)(3)(d) and Section 33(B)(1)(d) of the proposed regulations are inconsistent with the 1999 legislation (SB 171 and SB 527) that created this program. Those sections, addressing eligibility for and cancellation of the low-cost policy, disallow the purchase or maintenance of a low-cost policy if another vehicle in the household is concurrently insured in the private passenger or assigned risk markets.
During hearings on the legislation in August and September of 1999, Members of the Conference Committee discussed the eligibility of low-income households which have previously insured vehicles. One of the restrictions placed on consumers states:
(b) An insured under the pilot program shall not purchase or maintain any automobile liability insurance coverage other than a low-cost policy for any additional vehicles in the insured’s household. (Ins. Code §11629.78.)
Legislators contemplated, extensively, the eligibility requirements for this program and, on this matter, determined that an individual should be barred from purchasing the policy if that individual maintained a non-“Lifeline” policy on another automobile. However, the law does not extend that barrier when a non-“Lifeline” policy is maintained by someone other than the applicant/insured in the house. Therefore, as the proposed sections would be illegal if implemented, we urge you to strike Sections 22(A)(3)(d) and Section 33(B)(1)(d).
2. Sections 28(F) and 33(B)(2) of the proposed regulations would have required Lifeline policyholders to pay a non-refundable $100 downpayment on their policy. This does not conform with the intent of the Low Cost Plan, which was written to provide poor motorists with an insurance product as similar to the private passenger market as possible, with deviations from a standard policy only where expressly indicated. Neither standard voluntary market policies, nor the assigned risk policies presently issued through CAARP, require insureds to pay a non-refundable deposit on their prospective policy. The legislation does not set forth or authorize such an arbitrary barrier to purchasing the policy, nor was it ever discussed during Conference Committee.
Because the $100 deposit is non-refundable, it imposes an undue and unnecessary burden on low-income motorists who wish to be insured. The sheer possibility of losing all of the downpayment due to unforeseen circumstances or cancellation may serve as a deterrent from purchasing the coverage. The regulation already allows insurers to retain 10% of unearned premium (insurance coverage is prorated) and 100% of earned premium. It is unreasonable to allow insurers to retain an additional $100 if the consumer is cancelled or cannot or does not need to retain the insurance. In the spirit of the law’s objective — to provide insurance opportunities to motorists with low incomes — the $100 initial deposit by policyholders should be refundable.
3. Finally, one of the payment plan options [Option #2, §26(f) of the proposed regulations] would be improved by allowing policyholders to pay on a bi-monthly basis. During the Committee proceedings, Legislators discussed mechanisms to ensure that this policy would be affordable to low-income motorists. While they added one payment option with a slightly reduced downpayment, they were silent on the issue of payment schedules for the CAARP methods of payment which already exist. Since policyholders will be poor, spreading out the five payments over the course of the year, rather than loading them on the front end of the policy term, will make this policy more accessible to the low-income motorists for whom it is intended.
In addition to other changes required by OAL, we urge you to correct the regulations as described above. These corrections will go a long way to ensuring the viability of this historic program. Furthermore, we would be pleased to discuss with you changes to your CAARP Advisory Board such that it provides you with more sound regulatory guidance.
Thank you for the consideration of our views on this important matter.