Alliance Explores Marketability of Low Cost Auto Program

August 9, 2004

The American Agents Alliance has just completed a survey of independent insurance producers regarding the Low Cost Auto Insurance program enacted by the Legislature in 2000. The Alliance was approached by Senator Jackie Speier, a co-author of the program, to investigate why expected volume goals were not being reached, and how the program could be made more appealing to producers and consumers alike. Insurance Commissioner John Garamendi also expressed concern over the program’s less than spectacular results thus far.

Through four different vehicles of communication: 34,574 e-mails, 12,011 print periodicals, 500 phone calls, and a two month posting on its Web site, the Alliance obtained 250 completed surveys. In addition to utilizing its own publications and staff resources, the association was also able to secure the support of Insurance Journal, a leading insurance trade publication. The Insurance Journal placed an article about the Low Cost Auto Survey in its May 3rd print publication, as well as its May 2nd subscriber news e-mail.

Some of the questions asked were related to producer and consumer awareness of the Low Cost Auto Insurance program. When asked if they were aware of the program, 85 percent of the respondents
said yes. However, over half (58 percent) never had customers ask them about the program. A large majority (82 percent) do not actively sell the Low Cost Auto program, with 73 percent never having sold a single policy. Nearly half of the respondents (43 percent) report that they have been able to write customers with state mandated minimum liability limits of 15/30/5 for just a few dollars more than the reduced minimums of 10/20/3 offered through the Low Cost Auto program. Those queried believe that 10/20/3 is woefully inadequate coverage.

Based on survey results, the Alliance made the following recommendations to entice more producers to write Low Cost Auto: 1) Make the program available on the FSC Rater or a similar online
program; 2) Make commissions fully earned at the time the policy takes effect; 3) Raise commissions to 15 percent; and 4) Eliminate the requirement that any producer selling Low Cost Auto be CAARP-certified.

The Alliance also offered additional suggestions on how to make the Low Cost Auto program more attractive to consumers: 1) Eliminating the amount of paperwork required of the client. Requiring too much from the customer, especially sensitive personal material, makes the application process too cumbersome, thus pushing the clients away from the purchase; 2) Increasing customer awareness, possibly by sending a bilingual mailing to customers who might qualify for this program. Another solution would be to launch an aggressive advertising campaign (television, radio and print) in the target communities.

“Increasing awareness in the program, streamlining the application process, adjusting commissions to cover the cost of writing the policy, allowing non-CAARP producers to offer the program, and increasing the minimum liability limits to state-mandated levels will ultimately result in more Low Cost Auto policies written, and fewer uninsured motorists on the road,” said Alliance Executive Director Lorelle Kitzmiller. “The Alliance believes in the concept of the Low Cost Auto program, to provide low income drivers access to an affordable minimum limits auto coverage,” said Kitzmiller. “With a few changes, this program can be a success.”

The results have been forwarded to Senator Speier and Insurance Commissioner Garamendi for their review and action. “The Alliance is to be applauded for conducting the survey and I am looking forward to working with them on this issue,” said Speier. “I believe we can implement many of their suggestions administratively, while other changes will need to be made statutorily. Two of the points we are focusing on are increasing the commissions without raising the premium and offering a more comprehensive product for the consumer.”

To view complete survey results, visit the Alliance’s Web site at www.agentsalliance.com.

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