Calif. Committee Approves Changes to Low-Cost Auto Program

April 9, 2002

A California insurance committee has approved legislation that would indefinitely extend the state’s experimental low cost auto insurance program and could drive up the number of underinsured motorists.

“No justification exists to radically change this program or to make it a permanent insurance alternative,” Sam Sorich, senior vice president and general counsel of the National Association of Independent Insurers (NAII), commented. “Further experience and study of the pilot programs in Los Angeles and San Francisco counties are needed before making premature and irresponsible changes to the programs’ eligibility criteria.”

Senate Bill 1427 passed the nine-member Senate Insurance Committee in a 5-2 vote, despite testimony from the NAII and other insurer and agent representatives.

In 1999, the California Legislature established the low-cost automobile insurance pilot program in Los Angeles and San Francisco counties. The program is aimed at reducing the state’s uninsured motorist population-estimated at more than 20 percent of all California drivers-by making basic coverage available to low income consumers. Under the program, drivers with a household income of 150 percent or less of the federal poverty level are eligible to purchase a $10,000/$20,000/$3,000 liability policy at an annual premium of $450 in Los Angeles and $410 in San Francisco. The pilot program, in which fewer than 2,200 policies have been written, is set to expire January 1, 2004.

SB 1427 would change the program’s eligibility criteria to 250 percent of the federal poverty level, decrease the annual premium to $319 in both counties and repeal the program’s scheduled expiration.

“NAII member companies are doing their best to comply with the law and make the program work,” Sorich said. “But not enough experience exists yet to determine whether or not the availability of the low cost policies should be expanded. Passing SB 1427 would be a rash decision that would encourage many drivers to ‘buy down’ from financial responsibility coverages they now purchase, and result in an increase in the number of underinsured drivers.”

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