Schwarzenegger Vetoes Bi-Partisan Bill to Extend Low-Cost Auto Insurance Program for Low Income Californians

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Program Has Insured About 50,000 Californians at No Cost to Taxpayers
Santa Monica, CA — Despite unanimous support from the State Assembly, Governor Arnold Schwarzenegger vetoed legislation that would have extended California’s Low Cost Auto Insurance program for low-income families.  AB 725 (Jones) received bipartisan support to continue offering the bare-bones auto liability policy to poor residents throughout the state, which has become especially important in the midst of 12% unemployment and the worst economy in generations.  The program offers insurance to good drivers for about $350 per year and requires no taxpayer money. Since its inception in 2000, when it was just a pilot program, through last month, 48,940 low-cost policies have been purchased by Californians, between 80-96 percent of whom were uninsured prior to enrolling.
The bill, which was co-authored by Assemblywoman Norma Torres (Ontario), would have extended the program through 2015; because of the Schwarzenegger veto, it is scheduled to be shuttered at the end of next year.

“This veto is out of touch with the real economy that many Californians are facing,” said Doug Heller, Executive Director of the nonpartisan Consumer Watchdog.  “Why would a program that has allowed nearly 50,000 Californians to buy auto insurance instead of driving uninsured and doesn’t cost the taxpayers a dime be on the Governor’s chopping block?  It’s not just low-income families who benefit from this program but all the people who have had their claims paid because another driver was carrying this policy.”

The program’s data show that over the past three years, Low Cost Auto Insurance policies have paid more than $8 million in claims to drivers involved in collisions with Low-Cost policyholders, according to Consumer Watchdog, which has reviewed the data.  Since the vast majority of policyholders were uninsured when they signed up for the policy, most of the $8 million would have had to be paid by the insured drivers, their uninsured motorist coverage or by the public health system, were it not for the Low Cost program.
In addition to the thousands of drivers who benefit directly from the program every year, either as policyholders or because an accident claim gets paid, insurance industry testimony over the years has indicated that many more Californians get insured for the first time after inquiring about the Low-Cost program.  Because of the program’s strict rules on participation (must be a good driver with household income of 250% of poverty level or less, and meet other rules related to the value of the car and the number of cars in a household), many people find an auto insurance in the private market that they can afford only after first seeking out the Low-Cost policy.  
Private market policies can be affordable for moderate-income drivers only because California (unlike many states) prohibits insurance companies from surcharging policyholders who were uninsured prior to buying the policy. In California, an insurer must price insurance for a good driver the same whether he or she had consistent insurance coverage in the past or had a lapse at some point for any reason, all else being equal.   That rule, enacted by the voters as a part of Proposition 103 in 1988, is under attack through an initiative sponsored by Mercury Insurance.  Mercury’s proposed measure, which is awaiting a Title and Summary from the Attorney General, would allow insurers to reinstate the old practice of basing auto insurance rates on whether or not a driver had been previously insured.  
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Consumer Watchdog is a nonpartisan, nonprofit organization.

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.

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