Plan to Offer Low-Cost Car Insurance in S.F.

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San Francisco Chronicle

Sacramento– In a break for low-income drivers, San Francisco will be part of a pilot program offering inexpensive auto insurance under an agreement reached by legislators this week.

A bill authorizing the pilot program was approved yesterday by the state Assembly and is expected to be approved and sent to the governor by the Senate today.

Under the plan, good drivers will be able to purchase no-frills auto insurance for as little as $410 a year in San Francisco. In Los Angeles, the only other city chosen for the program, applicants will pay $450.

To qualify, drivers must have an annual income of 150 percent of the federal poverty level or less. For a family of three, that is about $20,000 annually.

The trial program was part of an agreement that continues the state law requiring a driver to show proof of insurance at the time of a traffic stop or when registering a vehicle. That law was scheduled to expire this year.

A conference committee agreed to the measure only after years of debate between consumer groups and the insurance industry. Despite California’s proof-of-insurance law, there are about 3 million — one out of five — drivers in the state who are uninsured. The rate reaches 80 percent in parts of Los Angeles.

Hillsborough Democrat Jackie Speier, chair of the Senate Insurance Committee, said she would have prefered to have the low-cost insurance program offered statewide. However, the insurance industry beat back] plans for such a program.

“This is a base hit, not a home run,” she said. “For 30 years we’ve had a law on the books that says if you drive, you have to carry auto insurance. That makes it incumbent on us to create low-cost insurance for low-income people who can’t afford it.”

Speier said the pilot program, combined with the renewal of the proof-of-insurance law, will help reduce the number of uninsured drivers.

The program could have secondary benefits for other Californians. Medi-Cal paid out $250 million in hospital charges to cover uninsured motorists in 1995, according to the latest available data from Speier’s office.

Consumer groups have been pushing for low-cost insurance for years, but are concerned that the price is still too high, said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights.

“The only reason $400 seems reasonable is because the industry has been gouging poor people for years,” Heller said.

The plan also contains a surcharge of 25 percent for single men between the ages of 19 and 24 because this group is more prone to accidents and so is more costly to insure. Moreover, the insurance coverage is extremely limited.

Current law specifies minimum coverage of $15,000 for injury of one person; $30,000 for injury of two people; and $5,000 for property damage. The low-cost plan would reduce this to $10,000, $20,000 and $3,000, respectively.

Still, the pilot rates are considerably less than the market rate for insurance in both cities. According to the California Department of Insurance, minimum coverage in San Francisco’s Sunset District for a midsize car averages more than $1,000. In the South Central District of Los Angeles, minimum coverage averages more than $2,000.

Heller said that even with the pilot program, there are still many people who will have no choice but to illegally drive without insurance.

“If you live in Alameda, you still have a problem,” he said. “We hope to show that the solution is to make people consumers, not criminals.”

But drivers in other parts of the state could end up subsidizing those in the pilot program, said Jerry Davies, a spokesman for the Personal Insurance Federation of California, which represents insurance companies.

“We have agreed to participate and are cautiously looking at the cost,” Davies said. “If the cost is appropriate we are glad to support it.” However, he added, “There is the potential of millions of drivers taking this, and therefore millions in claims. Those costs have to be met.”

Insurance companies are also worried that thousands of current customers may drop their more expensive policies to buy the low-cost insurance.

Under the pilot program, drivers will apply next year to an agent of the California Automobile Assigned Risk Plan and will be assigned to various private insurers. Policy prices could be adjusted annually, and the entire program would expire in 2003.

A “good” driver under the plan is defined as having no more than one moving-violation point or one property-damage-only accident, but not both, in the past three years.

State law now requires all drivers to have proof of insurance at the time of registration or at a traffic stop. The fine will be reduced from a current minimum fine of $500 to $200 per ticket.

Chronicle staff writer Kenneth Howe contributed to this report.

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