Lifeline Insurance Pilot Programs Create Flat-Rate Policies in Los Angeles and San Francisco
Los Angeles’ Governor Davis enacted an historic insurance reform proposal to provide a low-cost auto insurance lifeline to poor Californians. The nonpartisan, nonprofit Foundation for Taxpayer and Consumer Rights developed and sponsored SB 171 (Escutia), on which the pilot programs are based.
SB 171 and SB 527 (Speier) require that all insurers selling auto policies in California participate in the Lifeline program which affords low-income motorists with good driving records the opportunity to purchase basic liability insurance at a flat-rate. The plan will make a $450 per year policy available to low-income, “good” drivers throughout Los Angeles County; in San Francisco the policy will cost $410. At the urging of insurance industry lobbyists, legislators imposed a 25% surcharge on unmarried men ages 19-24. No other state has such a lifeline for insurance consumers, though California and other states use this model to ensure accessibility of power, heat and telephone services.
“This is an historic program which will alter the way we think about insurance. The Lifeline policy will resonate throughout the nation,” said Doug Heller with FTCR. “For the first time, transportation will be treated like a public utility. Insurers will have the same obligations as utilities so that poor families do not have to choose between food and car insurance.”
In Los Angeles, more than one million motorists drive without insurance and are subject to stiff “mandatory insurance” fines. Additionally, due to 1996 Proposition 213, uninsured motorists face severe restrictions on damage recovery when they are injured in an accident. The Lifeline program will provide low-income drivers an opportunity to comply with the law rather than be forced to drive illegally. As a result of high premiums charged in many urban areas ‘ an average premium for basic liability insurance in South Central Los Angeles is over $1800, according to the California Department of Insurance ‘ the number of uninsured drivers on the road is greater than the number of insured drivers in many poor communities throughout Los Angeles County. Over 79,000 vehicles, and an estimated 60,000 drivers, in San Francisco are uninsured, according to data from the California Department of Insurance.
The next step for Lifeline, according to FTCR, is to make sure that eligible driver are aware of the Lifeline program. “In the coming year we will work to make the pilot programs a success and build on this victory so that the flat-rate Lifeline plan can spread nationwide. The challenge will be to make sure that insurance companies live up to their promise to actively support this program by marketing Lifeline in the poor communities that need it most.”
The final plan, which consumer advocates were able to link to the renewal of the mandatory auto insurance law, is far from the original proposal, according to Harvey Rosenfield, president of the non-profit, non-partisan FTCR and author of California’s 1988 insurance reform initiative, Proposition 103. FTCR sponsored the original Lifeline insurance proposal, SB 171 (Escutia) and has worked on the low-cost auto insurance proposal for three years. The pilot programs will expire at the end of 2003 unless the legislature renews the law.
“The Lifeline legislation was designed to address a distinct problem: millions of Californians cannot afford insurance and end up subject to huge penalties for violating the law. The Lifeline plan signed by Governor Davis will begin to solve this problem,” said Harvey Rosenfield. “Still, for hundreds of thousands who live outside LA and San Francisco, the problem of high cost insurance remains. The governor should look to expand this statewide as soon as possible.”
According to FTCR, the pilot programs will result in savings of approximately $100-$200 million to insured drivers by lowering uninsured motorist premiums. “When hundreds of thousands of previously uninsured drivers buy the Lifeline policy, we should all expect to pay less for insurance,” said Heller.
Below is an explanation of the Lifeline plan:
Price of Policy (Los Angeles)
$450 per year
562.50 for unmarried men 19-24 years of age
Price of Policy (San Francisco)
$410 per year
$512.50 for unmarried men 19-24 years of age
10/20/3 liability limits (reduced from standard coverage of 15/30/5)
Household Income at 150% of poverty or below — approximately $20,910 per year for a family of three
Driving Record Qualification
Cannot have more than one violation point in previous three years — approximately 85%-90% of drivers qualify.
Must be at least 19 and licensed for three years
$100 down payment, Six $58.33 payments
$100 -$200 million in insurance savings to other insured motorists through reduced uninsured motorist premiums.
Lifeline Rate Adjustment
The Lifeline rate can be changed annually based on actual losses experienced in the program.
December 31, 2003, unless the Legislature acts to extend the program