Autos: The Low-cost Option Finds Few Takers. Some Blame Marketing

The Press Enterprise (Riverside, CA)

SACRAMENTO, CA — California’s low-cost auto insurance program, touted as a key component of the state’s strategy to reduce the number of uninsured drivers, so far is stuck in the slow lane.

Insurance Commissioner Steve Poizner, who has called the high number of uninsured motorists a crisis, expanded the low-cost program last month to six more counties, bringing to 22 counties where the insurance is available.

Yet, if the response elsewhere is any indication, the program will find few takers even though driving without insurance has been illegal for almost 40 years.

Since the low-cost coverage first became available in summer 2000, 31,000 of the bare-bones policies have been issued. According to a 2003 estimate, there were almost 2.4 million uninsured drivers in the eight counties that have offered the program for at least a year.

Moreover, two-thirds of motorists who bought the policies later dropped them, state figures show. As of March 31, about 10,000 low-cost policies were in effect.

Drivers with good driving records and lower incomes are eligible for the low-cost insurance.

The coverage provides $10,000 for injury or death to one person, $20,000 for injury or death to more than one person, and $3,000 for property damage. Those liability limits are about a third lower than the minimum requirements for private insurance.

In the past year, 305 low-cost policies have been sold in Riverside and San Bernardino counties. The counties had an estimated 225,964 uninsured motorists as of 2003.

“I hope it’s making a difference,” said Suzie Chang, a Farmers Insurance agent in Riverside who has sold two of the low-cost policies since they became available in Riverside and San Bernardino counties a year ago.

“But you know, some people, they don’t care about insurance, even if it’s low-cost,” she said.

Kelly Clemensen, a Farmers agent in Loma Linda authorized to sell the low-cost insurance, said interest has been minimal so far. Some people initially interested in the coverage buy normal insurance because the price isn’t much higher, he said.

“Honestly, I haven’t sold a single policy,” he said.

MARKETING

Poizner spokeswoman Lauren Hersh said the commissioner remains committed to the program.

The effort has suffered from a lack of money to promote it, Hersh said. Insurance industry fees will generate $950,000 to market the coverage this year through brochures and advertising. That amount is supposed to increase to $1.1 million next year.

“Even getting a few people who are currently on the roads uninsured to be insured, even if it’s minimal coverage, is still better than not having any coverage at all,” Hersh said.

It has been illegal since 1970 to drive without insurance. A 1997 law required people to provide proof of insurance in order to register their car.

COVERAGE WATCH

Participation in the low-cost program could increase as the state begins identifying drivers who buy insurance right before registering their car and then stop paying the premiums.

In October, the Department of Motor Vehicles began comparing information from insurance companies against its vehicle registration database. Drivers found to have let their coverage lapse have 30 days to buy insurance or could be fined $1,000 if stopped by police.

Compared to the penalties, the state-sponsored insurance is supposed to be the carrot that encourages drivers to get insurance.

A low-cost auto insurance program in Los Angeles and San Francisco counties took effect in summer 2000. A 2005 law expanded the coverage to any other county with a need. The program became available in Riverside, San Bernardino and six other counties in April 2006.

As of last month, 93 percent of the policies had been written in Los Angeles County.

INDUSTRY SKEPTICAL

The insurance industry, which tried to block the 1999 law, remains skeptical of the program.

Kate Diehl, a lobbyist for the Association of California Insurance Companies, said it is difficult to tell if the low-cost coverage has reduced the number of uninsured drivers.

The rapid turnover of the low-cost policies, meanwhile, ends up costing insurance agents. Because the policies are so cheap, and the commissions so low, it takes about two years for agents to recoup the actuarial and other paperwork costs of issuing the policy, she said.

Assemblyman John J. Benoit, R-Bermuda Dunes, voted for the 2005 law that expanded the low-cost program.

Whether the program has been successful “is certainly a matter of dispute,” said Benoit, vice chairman of the Assembly Insurance Committee.

“The bottom line is that the insurance that is made available is a very minimal policy,” Benoit said. “The experience of a lot of folks is that it gets people through the door but when they realize for another $10 or $20 they can get a whole lot more coverage… they buy a regular policy.”

There is no data that show how often that has happened. There is also no way to show how many people who canceled low-cost policies later bought better coverage.

Of the 865 low-cost policy cancellations Jan. 1 through March 31, 429 stemmed from non-payment of premiums, 397 were cancelled at the customer’s request, and 39 were canceled because the buyer lied to get the policy, according to Richard Manning, regional director for the California Automobile Assigned Risk Plan.

Doug Heller, executive director of the Los Angeles-based Foundation for Consumer and Taxpayer Rights, the group that sponsored the bill creating the program, said he is disappointed that the insurance has not been more popular.

Heller complained that the assigned risk plan, which administers the program, and insurance agents should be doing more to market the low-cost coverage.

“The fundamental lesson of the first couple of years of this program is that when people hear about it, they like it. When they don’t hear about it, nothing happens,” he said.
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LOW COST AUTO INSURANCE PROGRAM

WHAT IT COVERS:

$10,000 – Bodily injury or death to one person
$20,000 – Bodily injury or death to more than one person
$3,000 – Property damage

PREMIUMS

(County rates effective Jan.15, 2007)
– Alameda – $318
– Contra Costa – $313
– Fresno – $295
– Imperial – $208
– Kern – $236
– Los Angeles – $350
– Orange – $308
– Riverside – $243
– Sacramento – $378
– San Bernardino – $280
– San Diego – $265
– San Francisco – $336
– San Joaquin – $292
– San Mateo – $303
– Santa Clara – $286
– Stanislaus – $354

TO BE ELIGIBLE:

– Must be 19 or older, with three years of driving experience

– No at-fault accidents or serious traffic offenses in the last three years

– Vehicle cannot cost more than $20,000

– Income must be less than $24,500 for a one-person household; $33,000 for a two-person household; $41,500 for three-person household; and $50,000 for four-person household.

MORE INFORMATION

<>p>CA Department of Insurance: 866-602-8861 or www.insurance.ca.gov

BY THE NUMBERS

NUMBER of licensed drivers in California: 22.93 million

NUMBER of licensed drivers in Riverside County: 1.15 million

NUMBER of licensed drivers in San Bernardino County: 1.15 million

ESTIMATED number of uninsured drivers in California: 3.1 million

ESTIMATED number of uninsured drivers in Riverside County: 99,000

ESTIMATED number of uninsured drivers in San Bernardino County: 126,964

NUMBER of policies sold in California Low-Cost Auto (CLCA) Insurance Program since mid-2000: 31,404

NUMBER of CLCA policies sold in Riverside County: 170

NUMBER of CLCA policies sold in San Bernardino County: 135

AVERAGE state CLCA premium: $283.36

CLCA PREMIUM in Riverside County: $243

CLCA PREMIUM in San Bernardino County: $280
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LICENSED DRIVERS AS OF DECEMBER 2005; ESTIMATED UNINSURED DRIVERS AS OF 2003; CLCA NUMBERS AS OF MARCH 31, 2007.