Many questions remain on low-cost car policies

Published on

Whittier Daily News (California)

Six years after the state Legislature approved state Sen. Martha Escutia’s low-cost auto insurance pilot program, consumer groups and insurance companies now are arguing over whether the program has been a success.

The debate could determine whether the program scheduled to end Jan. 1, 2007 will be extended to Jan. 1, 2011 and expanded to the rest of the state. It now is only available in Los Angeles and San Francisco counties.

Escutia’s SB 20, which would do both, was approved on a 7-1 vote Wednesday by the Assembly Insurance Committee and next must go to the Assembly Appropriations Committee The current annual premium for the liability-only insurance in San Francisco is $314 and $347 in Los Angeles. Only low-income people qualify.

“The low cost automobile insurance program has been a success in proving that it is actuarially sound and economically stable – neither requiring a subsidy from other drivers nor creating a loss for insurance companies,’ said Escutia, D-Norwalk.

The program is needed because California law now makes car insurance mandatory, Escutia said. On Jan. 1, 2006, the state Department of Motor Vehicles will begin requiring electronic proof of insurance from insurers. It also will begin suspending the registrations of vehicles with 45 days of advance notice when coverage lapses and is not replaced.

“If we make insurance mandatory, then we should make it affordable,’ she said.

But some in the insurance industry say it’s too early to say whether the program has been a success.

They point to the numbers. About 19,000 policies, including an existing 12,000 in place, have been written for low-income drivers. But there remain an estimated more than one million uninsured drivers in Los Angeles County alone.

“It doesn’t seem to have made a dramatic impact on the numbers of uninsured drivers,’ said Sam Sorich, president of the Association of California Insurance Companies. “The program is showing signs of growth,’ Sorich said. “The responsible thing to do is step back in 2006 and see what 2005 is like and then make the decision.

Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights, said these numbers actually show that the program is a success.

“When we’ve had 19,000 drivers who are now insured, we are better off as taxpayers, insurance customers and drivers,’ Heller said.

In addition, there have been 800 accidents in Los Angeles in the last couple of years involving people with low-cost auto insurance.

“Those would have been caused by uninsured drivers,’ he said. “Every time an uninsured driver causes an accident, it has a ripple effect on insured customers who have to pay a premium for uninsured drivers, and taxpayers pick up the costs at county hospitals because the insurance isn’t paying for it.’

Insurance Commissioner John Garamendi said waiting for a year to renew the program would be a mistake because the program relies on local brokers to push it.

“If we wait until next year [to decide], there’s a considerable fear that the sales force will dissipate not knowing whether we will continue the program or not,’ Garamendi said.

One insurance broker, Oscar Vega Jr., said he hopes the state extends the program, saying the low numbers are due to the fact that it hasn’t been promoted well enough.

“The consumers should have a chance to be able to hear about it,’ Vega said. “There’s a chance that more people can find about it and hear about it. We then can lower the number of uninsured drives.’

The state Department of Insurance is beginning to do a better job of promoting it, Heller said. Thus, the numbers of people who have signed on have grown by about 3,000, he added.

-In order to qualify, you must be a good driver, and your annual household income must not exceed 250 percent of the federal poverty level. An individual can make no more than $23,275. The limit is $47,125 for a four-person household.

-The current annual premium for the liability-only insurance is $347 in Los Angeles County. The California Automobile Assigned Risk Program has recommended a rate increase to $408.

-In an accident, the policy provides up to $10,000 for injury or death of each person, $20,000 maximum for all persons and $3,000 property damage.

-Call [800] 622-0954 to learn more about it.
Mike Sprague can be reached at [562] 698-0955, Ext. 3022, or by e-mail
at [email protected]

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases