Auto Experiment Impacted by Healthy Insurance Market, Household Priorities

June 29, 2001

According to the Insurance Information Network of California, when California unveiled an experimental, fixed-rate auto insurance policy for the poor last year, there was hope that it might encourage motorists who drive without insurance to comply with financial responsibility laws.

But lack of financial incentives and a competitive auto insurance market may have instead driven motorists away from the program.

Facing its one-year anniversary July 1st, California’s low cost auto insurance experiment has insured less than 900 drivers.

The explanation may hinge on two critical factors: Household economic priorities and a healthy auto insurance market.

IINC Executive Director Candysse Miller called liability insurance “the heart and soul of the low cost pilot program” and noted that it is designed to protect a driver’s assets in the event of a collision. However, she noted that the low income drivers the program targets have few assets to protect and may ultimately be making a choice between buying auto insurance and feeding their families.

Drivers who sought insurance through the special program ultimately may have gotten a better deal through the standard auto insurance market, Miller added.

According to a recent study by the Insurance Research Council, about 22 percent of California’s 21 million motorists drive without insurance. In San Francisco and Los Angeles, that percentage is believed to be even higher.

California law currently requires that drivers carry a minimum of $15,000 in coverage for bodily injury per person, $30,000 per incident and $5,000 for property damage.

In order to provide the low-cost policy, these standard limits were reduced to $10,000, $20,000 and $3,000, respectively. Residents of San Francisco pay $410 annually for this policy and drivers in Los Angeles pay $450. Young male drivers age 19 to 24, who pose an increased risk for claims, pay a 25 percent surcharge.

Eligibility for the program is based on several criteria, including:

— An applicant’s household gross annual income must be 150 percent or less of the federal poverty level. For example, a four-person household must make less than $25,050 a year.

— Drivers must be at least 19 years old and have had a license for three years.

— The driver’s personal automobile must be worth no more than $12,000.

— All applicants must have a clean driving record for the past three years.

The California Automobile Assigned Risk Plan administers the program.

The Insurance Information Network of California is a non-profit, non-lobbying media relations organization supporting the property/casualty insurance industry. IINC has spokespeople in both Northern and Southern California to discuss this and other insurance issues.

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