Trade Associations Oppose Continuation of Low Cost Auto in California

By | August 8, 2005

California’s Low Cost Auto program may or may not continue, depending on the passage of SB 20 (Escutia), which would extend the pilot program beyond its Jan. 1, 2007, sunset date. The bill was re-referred to the Assembly Committee on Appropriations July 13.

The bill, which has been subject to several recent amendments, would extend the program beyond existing areas (County of Los Angeles and City and County of San Francisco), making it available in Alameda, Fresno, Orange, Riverside, San Bernardino, and San Diego counties. It would also make expansion to all other counties in California subject to the insurance commissioner’s discretion.

The measure would also stipulate that the commissioner “establish the annual rate offered initially under the program for these counties, and to adopt regulations to extend the program to other counties.”

Other changes include raising the cap on the vehicle value that can be insured under the Low Cost Auto program from $12,000 to $20,000, and a specification that would allow only two policies per person to be purchased under the program.

Despite the recent amendments, many trade associations oppose the bill. The American Agents Alliance stated that the most effective way to provide auto insurance to consumers is solely through the private market.

“The Agents Alliance has serious reservations about the effectiveness of the pilot low-cost automobile insurance program,” said Alliance Executive Director Ken Nigohosian in a press release. “We are concerned with the low retention rate for low-cost auto policies. We are concerned with the percentage of existing policyholders who have opted to take the low-cost policy, possibly creating many more underinsured consumers. And, we are concerned that the pilot program has not significantly reduced the percentage of uninsured motorists in many areas of Los Angeles and San Francisco County.”

The American Agents Alliance “is opposed to any legislation that continues to promote the Low Cost Auto program.” he told Insurance Journal. The original intent of the program, he added, was to reduce the number of uninsured motorists and to make coverage available to underprivileged drivers. However, it “has had no impact whatsoever on reducing the number of uninsured motorists,” he noted.

Nigohosian said that the cost of the sale for the agent ultimately exceeds the compensation, which partly explains the lack of interest in the program for the agent. Additionally, many agents have reported they are able to offer policies with better coverage in the private market at a comparable rate level.

The Association of California Insurance Companies also opposes the bill. “We believe the sunset of Jan. 1, 2007, should be retained,” said Kate Diehl, legislative advocate for the ACIC. “We don’t believe that the program should be expanded at this point.”

Diehl said that the ACIC specifically opposes the expansion to other California counties and the statewide proposal. She also said that the proposed increase to raise the cap on vehicle value from $12,000 to $20,000 was too high.

SB 20 is expected to be heard in the Appropriations Committee when the legislature reconvenes Aug. 15.

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