Inside Bay Area (California)
Small commissions paid to insurance agents are slowing the growth of the low-cost auto insurance program.
The program is administered by the not-for-profit California Automobile Assigned Risk Program. That’s where high-risk drivers — those with too many DUIs or accidents on their record — go for insurance when they can’t get covered in the private marketplace.
Legislation that created the low-cost auto insurance program requires agents certified by the assigned risk program who sell high-risk insurance to also offer low-cost insurance to qualified drivers. Certified agents submit a completed application to the assigned risk program, which then randomly assigns a policy to an insurance carrier.
Before the program was expanded this year, the assigned risk program began notifying insurance agents who offer high-risk insurance about the requirement to offer low-cost insurance, according to Karen Borawski, administrative manager for the assigned risk program.
“Every time you get a new product, there is a learning curve that kicks in. We know this is new to (agents),” said Borawski, adding that it is up to agents to help consumers enroll.
Agents who submit an application for a high-risk policy to the assigned risk program can earn a hefty commission since the premiums are higher than policies written for good drivers, said Doug Heller, executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.
“But part of the deal is that they are obligated to provide drivers (with low-cost insurance) who simply cannot afford to buy insurance in the regular private market,” he said.
While the commission works out to 12 percent of the total premium for both low-cost and high-risk policies, the much-higher premiums paid for high-risk insurance translate into a bigger financial incentive for insurance agents, according to Heller.
“There are agents who are essentially saying they don’t want to provide (low-cost insurance) because it doesn’t make them enough money,” Heller said. “Insurance agents make a small commission the first year but have a lifetime customer.”
Michael Gunning is vice president of the Personal Insurance Federation of California, whose members include the state’s largest providers of auto and home insurance.
The commission available for selling low-cost auto insurance is a “challenge” but not an “impediment,” he said.
“We look at it as an opportunity to build business. You can elevate them to a more standard policy after a while. It’s really a business opportunity,” Gunning said.