NAII Labels Efforts to Revise Low Cost Calif. Auto Program irresponsible and premature

A legislative effort to save California’s experimental low cost auto insurance program is not based on sound insurance principles and could encourage thousands of California drivers to be chronically underinsured according to the National Association of Independent Insurers (NAII).

“SB 1427 is premature,” Sam Sorich, senior vice president and general counsel for the NAII, said. “There is simply not enough information on the results of the pilot programs in Los Angeles and San Francisco Counties to determine if the state’s low cost auto insurance program should be modified or extended.”

The California legislature established the low-cost auto insurance program in 1999. The program was intended to reduce the state’s uninsured motorist population-estimated at more than 20 percent of all drivers in California-by making basic, no-frills coverage available to low income consumers. The original statute established two “pilot” markets in Lon Angeles and San Francisco Counties and set an annual premium of $450 for such policies in Los Angeles and $410 in San Francisco. The program allows for rates to be adjusted based on data submitted by the California Automobile Assigned Risk Plan (CAARP). To date, less than 2,200 policies have been written. The pilot programs are to remain in effect until January 1, 2004.

SB 1427 would cut the cost of such policies to $319 per year in Los Angeles, extend the pilot programs indefinitely by repealing the Jan. 1, 2004 sunset provision, and dramatically expand the eligibility requirements for consumers to qualify for purchasing the low cost policies. The bill is scheduled for a hearing in the Senate Insurance Committee on Wednesday, April 3.

“SB 1427 abandons the reasonable system for rate adjustments established by the original statute and cuts rates by more than 25 percent without any evidence that such reductions are justified,” Sorich commented. “Moreover, we see no urgent need to repeal the existing sunset provision because there is simply not enough experience to determine whether or not the pilot programs should be made permanent, modified, or abandoned. The wisest course is for the legislature to continue to assess the operation and experience of the pilot programs before making such a decision.”

Of great concern to NAII is the provision in SB 1427 that would change the eligibility criteria for persons purchasing the low cost policies. Currently, qualified purchases must be in a household with a gross annual income that does not exceed 150 percent of the federal poverty level. SB 1427 would change that criterion to 250 percent.

“The expansion of the availability of low cost policies would encourage many drivers to ‘buy down’ from financial responsibility coverages they are now purchasing,” Sorich said. “Such a change would significantly increase the number of drivers who are underinsured. This is poor public policy that would negatively affect all California motorists.”