February 25, 2000
Hon. Gray Davis
Office of the Governor
Sacramento, CA 95814
Fax: (916) 445-4633
RE: Proposed emergency regulations implementing the “Lifeline” Low Cost Auto Insurance Program
Dear Governor Davis:
We are writing to inform you why your Office of Administrative Law (OAL) must reject regulations proposed on an emergency basis by the California Department of Insurance (CDI) pursuant to the “Lifeline” Low Cost Automobile Insurance Program you signed into law last year. On Friday February 18, 2000, CDI submitted proposed regulations to OAL for review; these regulations are scheduled to be finalized on Monday, February 28.
Certain regulations proposed by CDI go beyond the scope of the 1999 law, in some cases contradicting the public purpose of the law. We have presented CDI and OAL with the following three areas in which the CAARP Board recommendations are either illegal or overly burdensome on the low-income motorists who are eligible for the Lifeline program:
1. The Department of Insurance has overstepped its authority with the recommendations contained in Section 22(A)(3)(d) and Section 33(B)(1)(d). 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 Ã‚Â§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, the proposed regulations, Ã‚Â§22(A)(3)(d) and Ã‚Â§33(B)(1)(d) would be illegal if implemented.
2. In Sections 28(F) and 33(B)(2), the regulations require 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 non-refundable premium payment of $100 should be removed.
3. The proposed regulations regarding one of the payment plan options [Option #2, Ã‚Â§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 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.
The aforementioned emergency regulations proposed by Commissioner Quackenbush do not comport with the intentions of the legislation and therefore should be rewritten. OAL can and, in fact, is statutorily obligated to hold the CDI accountable in these rulemaking proceedings.
There is, additionally, a larger problem related to these regulations that we must bring to your attention.
For the purposes of the Low Cost Auto Insurance Program, Commissioner Quackenbush takes direction from the California Automobile Assigned Risk Plan (CAARP) Advisory Board, which is appointed by the Commissioner. We believe that until the Advisory Board membership is changed — presently eight of the fourteen members are executives from insurance companies across the country — the regulations and ratemaking decisions of the CDI will continue to undermine the viability of the “Lifeline” program. We would be pleased to work with you in an effort to change the composition of Commissioner Quackenbush‘s CAARP Board so it reflects the public interest and not merely the narrow interest of the insurance industry.
Again, we urge you to protect low-income consumers and ensure that the illegal and unfair regulations be corrected by the OAL before the rules for the Low Cost Insurance Program are issued. If you would like further information regarding these regulations and our suggested amendments, including our detailed letters to OAL, please contact me at (310) 392-0522 ext.309.
Cc: Hon. John Burton
Hon. Antonio Villaraigosa
Hon. Martha Escutia
Hon. Jack Scott