NAII Presents Insurers’ Views at Hearing on Improving Calif. Low Cost Auto Program

Efforts to reduce the number of uninsured drivers in California should not center on the price of automobile insurance. Instead, California insurance officials and lawmakers should allow insurers to provide the type of coverage needed by low income citizens, the National Association of Independent Insurers (NAII) testified at a hearing this week regarding the viability of the state’s low-cost auto insurance program.

Sam Sorich, NAII vice president and western regional manager, speaking at Tuesday’s hearing in San Francisco, stated the organization’s belief that it is not fair to criminalize drivers in California who are either unable to afford car insurance or who have little incentive to purchase liability insurance which protects non-existent financial assets. He added the auto coverage would have greater value to low-income drivers if it directly provided them with medical and wage loss benefits, such as under a first-party, no-fault auto insurance coverage system.

NAII was the leadoff insurance industry witness during public hearings held by the California Department of Insurance (CDI) on Tuesday and Thursday to investigate why the state’s low cost auto insurance pilot program has fallen short of expectations and to determine how to improve the program. More than 100 NAII member companies provide private passenger auto coverage in California, writing approximately 40 percent of private passenger auto insurance premiums in the state.

California established its low cost auto insurance program by state law in 1999, with the goals of providing a more feasible option for compliance with California’s mandatory auto insurance law, and reducing the number of insured drivers on California’s roads, according to the CDI.

The state began implementing the pilot program on July 1, 2000, in Los Angeles and San Francisco counties, offering the program to motorists who are at least 19-years-old, good drivers, report household incomes not exceeding 150 percent of the federal poverty level and own vehicles that do not exceed $12,000 in value.

A basic liability-only policy costs $450 in Los Angeles County and $410 in San Francisco. However, few motorists have taken advantage of the program. As he first year of the five-year pilot program came to a close, only about 850 policies were sold in the two pilot counties combined — with only 25 policies purchased in San Francisco, according to the CDI.

The Department of Insurance decided to hold two public information hearings in San Francisco and Los Angeles neighborhoods to seek input from low-income community members, consumer organizations, insurance companies, agents and brokers, and the general public to decide how to make the program more effective. Specifically, the CDI is seeking information about how to best communicate with the program’s target consumer population, determine what marketing messages are most persuasive and identify motivating factors and barriers to purchasing a low-cost auto policy.

Rather than employing an auto accident compensation system based on liability, California insurance officials and lawmakers should consider moving toward a first-party, no-fault system auto insurance coverage, Sorich recommended to state insurance officials. In addition, compulsory auto insurance law should be abandoned, Sorich said.

The current compulsory insurance law should be replaced with an enforcement program that targets drivers who pose the greatest risk, such as drivers who have had their licenses suspended or revoked, drivers with a record of repeated accidents and drivers who have been convicted of driving without financial responsibility coverage.

Sorich cited a 1999 report on uninsured drivers issued by the CDI, which showed that only 30 percent of the respondents said they were uninsured because auto insurance costs were too steep. The study is consistent with research conducted by the Insurance Research Council, which found that only 16 percent of uninsured drivers did not buy insurance because it was too costly.