BILL NUMBER: SB 1427 CHAPTERED 09/20/02 CHAPTER 742 FILED WITH SECRETARY OF STATE SEPTEMBER 20, 2002 APPROVED BY GOVERNOR SEPTEMBER 20, 2002 PASSED THE SENATE AUGUST 30, 2002 PASSED THE ASSEMBLY AUGUST 28, 2002 AMENDED IN ASSEMBLY AUGUST 27, 2002 AMENDED IN ASSEMBLY AUGUST 23, 2002 AMENDED IN ASSEMBLY JULY 29, 2002 AMENDED IN ASSEMBLY JUNE 30, 2002 AMENDED IN ASSEMBLY JUNE 24, 2002 AMENDED IN SENATE APRIL 18, 2002 AMENDED IN SENATE MARCH 21, 2002 INTRODUCED BY Senators Escutia and Speier FEBRUARY 14, 2002 An act to amend Sections 11629.71, 11629.72, 11629.73, 11629.76, 11629.84, 11629.91, 11629.92, 11629.93, 11629.96, and 11629.995 of, and to add Sections 11629.745, 11629.85, 11629.945, and 11629.999 to, the Insurance Code, and to amend Section 16056.1 of the Vehicle Code, relating to insurance. LEGISLATIVE COUNSEL'S DIGEST SB 1427, Escutia. Low-cost automobile insurance. Existing law establishes, until January 1, 2004, low-cost automobile insurance pilot programs for the County of Los Angeles and the City and County of San Francisco within the California Automobile Assigned Risk Plan. Existing law establishes the initial annual rate for low-cost automobile insurance in Los Angeles at $450 and in San Francisco at $410. Existing law requires a person to meet certain requirements to be eligible for a low-cost automobile insurance policy under the pilot programs, including being in a household with a gross annual income that does not exceed 150% of the federal poverty level. Existing law provides for minimum automobile liability insurance requirements, as specified. Existing law requires these low-cost automobile insurance policies to include certain attributes, including offering coverage in specified amounts for bodily injury and property damage that results from an accident. Existing law provides until January 1, 2004, that these amounts, which are lower than those generally required for automobile liability insurance, satisfy applicable financial responsibility requirements, as specified. Existing law authorizes the California Automobile Assigned Risk Plan to make available to an insured under the pilot programs a premium installment option that requires the insured to pay $100 upon issuance of a low-cost policy followed by 6 other payments. Existing law provides that producers certified by the California Automobile Assigned Risk Plan that issue a low-cost automobile insurance policy pursuant to the pilot programs are entitled to the same commission rate as is paid by the plan. This bill would delete the January 1, 2004, repeal date for the provisions establishing the low-cost automobile insurance pilot programs for the County of Los Angeles and the City and County of San Francisco and for certain provisions declaring that low-cost policies satisfy financial responsibility requirements, and would instead provide for the repeal of those provisions on January 1, 2007. The bill would require a low-cost automobile insurance policy to offer medical payments and uninsured motorist coverage but would authorize the charging of an additional premium for that coverage. The bill would increase the gross annual household income limit to be eligible for a low-cost automobile insurance policy from 150% of the federal poverty level to 250% of the federal poverty level. The bill would authorize the Insurance Commissioner to establish a commission for the sale of a low-cost automobile insurance policy issued pursuant to the pilot programs. The bill would require the commissioner to prepare and propose annually a plan to the Senate and Assembly Committees on Insurance setting forth the methods the commissioner intends to implement to inform households eligible for the pilot programs about the availability of low-cost automobile insurance. The bill, effective March 1, 2003, would reduce the initial annual rate for low-cost automobile insurance in the County of Los Angeles to $347 and in the City and County of San Francisco to $314, per covered vehicle, unless the commissioner establishes a rate prior to that time, and would limit the initial premium installment payment authorized under the plan to 15% of the total policy cost. The bill would also require the policy to offer coverage for medical payments and would require an agent or representative of an insurer to inform prospective policyholders that the policy is available to qualifying motorists. The bill would also specify that an additional premium may be charged for medical payments and uninsured motorist insurance coverage. The bill would also provide that it would be operative only if SB 180 of the 2001-02 Regular Session is enacted and becomes effective. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 11629.71 of the Insurance Code is amended to read: 11629.71. A low-cost automobile insurance policy for purposes of the pilot program established under this article shall have all of the following attributes: (a) The policy shall offer coverage in the amount of ten thousand dollars ($10,000) for bodily injury to, or death of, each person as a result of any one accident and, subject to that limit as to one person, the amount of twenty thousand dollars ($20,000) for bodily injury to, or death of all persons as a result of any one accident, and the amount of three thousand dollars ($3,000) for damage to property of others as a result of any one accident. (b) The coverage required by Section 11580.2 shall be made available to the consumer. However, an insurer may charge a premium for that coverage in addition to the premium set forth in Section 11629.72. Notwithstanding the coverage amounts required by Section 11580.2 and Section 16056 of the Vehicle Code, uninsured motorist coverage issued in conjunction with a low-cost automobile policy under the pilot program, with coverage limits at least equal to the limits of liability in the underlying low-cost automobile policy, shall satisfy the requirements of Section 11580.2 and the financial responsibility requirements of Sections 4000.37, 16021, and 16431 of the Vehicle Code. (c) Medical payments coverage shall be made available to the consumer. However, an insurer may charge a premium for that coverage in addition to the premium set forth in Section 11629.72. (d) The policy shall have an initial term of one year, renewable on an annual basis thereafter. (e) The policy shall cover the person named in the policy, and to the same extent that insurance is provided to the named insured, any other person using the automobile, provided the use is with his or her permission, express or implied, and within the scope of that permission, except that the policy shall not cover members of the named insured's household who do not satisfy the requirements of subdivisions (b) to (e), inclusive, of Section 11629.73. (f) The policy shall provide coverage for an automobile with a value, at the time of purchase by the insured, of twelve thousand dollars ($12,000) or less, as evidenced by the value given to the automobile by the Department of Motor Vehicles in assessing vehicle license fees. SEC. 2. Section 11629.72 of the Insurance Code is amended to read: 11629.72. (a) The annual rate offered initially under the pilot program for the low-cost automobile insurance policy, until the time that the rate is adjusted, shall be four hundred fifty dollars ($450) per covered vehicle. Effective March 1, 2003, the annual rate offered under the pilot program for the low-cost automobile policy, unless and until the time that the rate is adjusted, shall be three hundred forty-seven dollars ($347) per covered vehicle, unless the commissioner establishes that rate or a different rate prior to that time. A surcharge, as a percentage of the base rate, shall be added to the base rate and that percentage shall be set at the discretion of the commissioner, if the named insured is an unmarried male between the ages of 19 and 24, inclusive, or if an unmarried male between the ages of 19 and 24, inclusive, resides in the household of the named insured and will be a driver of the automobile covered under the low-cost policy. (b) In addition to existing premium installment options offered by the California Automobile Assigned Risk Plan under Article 4 (commencing with Section 11620), the plan shall also make available to an insured under the pilot program, a premium installment option pursuant to which an insured is required to pay not more than 15 percent of the total policy cost upon issuance of the low-cost policy, followed thereafter by six other payments. No other premium financing arrangement shall be permitted. (c) Rates for policies issued under the pilot program shall be reviewed and revised as follows: (1) Rates shall be sufficient to cover (A) losses incurred under policies issued under the pilot program, and (B) expenses, including, but not limited to, all reasonable and necessary expenses such as the costs of administration, underwriting, taxes, commissions, and claims adjusting, that are incurred due to participation in this pilot program. For purposes of this paragraph, "losses incurred" means claims paid, claims incurred and reported, and claims incurred but not yet reported. In assessing loss reserves, the commissioner shall only allow loss reserves that are estimated from actual losses in the pilot program or comparable data by a licensed statistical agent, as adjusted to reflect coverage provided under this pilot program. (2) Rates shall be set so as to result in no projected subsidy of the pilot program by those policyholders of insurers issuing policies under the pilot program who are not participants in the pilot program. (3) Rates shall be set with respect to this pilot program, and the pilot program established in Article 5.6 (commencing with Section 11629.9), so as to result in no projected subsidy by policyholders in one pilot program of policyholders in the other pilot program. (4) Commencing on January 1, 2001, and annually thereafter, the California Automobile Assigned Risk Plan shall submit the loss and expense data, together with a proposed rate and the surcharge authorized by subdivision (a) for the low-cost automobile policy for the pilot program, to the commissioner for approval in accordance with this chapter. The commissioner shall act on the recommendation within 90 days. SEC. 3. Section 11629.73 of the Insurance Code is amended to read: 11629.73. A low-cost automobile insurance policy under the pilot program shall only be available for purchase by persons who satisfy the following eligibility requirements: (a) The person shall be in a household with a gross annual household income that does not exceed 250 percent of the federal poverty level, as defined in Part 6.2 (commencing with Section 12693) or as defined in an equivalent manner that is approved by the commissioner. (b) The person shall be no less than 19 years of age and have been continuously licensed to drive an automobile for the previous three years. (c) The person shall have not more than one of either, but not both, of the following within the previous three years: (1) A property damage only accident in which the driver was principally at fault. (2) A point for a moving violation. (d) The person shall not have on record within the previous three years, an at-fault accident involving bodily injury or death. (e) The person shall not have a felony or misdemeanor conviction for a violation of the Vehicle Code on his or her motor vehicle record. (f) The person shall not be a college student claimed as a dependent of another person for federal or state income tax purposes. SEC. 4. Section 11629.745 is added to the Insurance Code, to read: 11629.745. (a) An agent or broker (hereafter referred to as a producer) who conducts business in a county in which a low-cost automobile insurance policy is available pursuant to this article shall inform every new prospective automobile insurance policyholder who requests a minimum limits or basic limits insurance policy, or coverage to meet California's minimum limits automobile insurance requirements, that the low-cost automobile insurance policy may be available for qualifying motorists. The information may be provided verbally if the producer has been contacted by telephone, or in writing, but shall be communicated to the policyholder prior to the application for automobile insurance coverage in the language in which the producer has otherwise communicated with the consumer. (b) If the consumer requests more information about the low-cost program the producer shall do either of the following: (1) If the producer is California Automobile Assigned Risk Plan certified, provide the consumer with an explanation in an information pamphlet produced by the California Automobile Assigned Risk Plan and approved and provided by the Department of Insurance of the qualifications, cost and coverage provided by the policy. If the consumer qualifies for the low-cost policy and wishes to purchase the policy, the California Automobile Assigned Risk Plan certified producer shall provide the application and, upon completion, submit the application, supporting documents, and the applicant's certification to the California Automobile Assigned Risk Plan. The submittal of the California Automobile Assigned Risk Plan application may be in addition to any other coverage offered or applied for through the producer. (2) If the producer is not California Automobile Assigned Risk Plan certified, the producer shall provide the consumer with the toll-free telephone number for the California Automobile Assigned Risk Plan as an option to coverage offered by the producer. SEC. 5. Section 11629.76 of the Insurance Code is amended to read: 11629.76. (a) For a low-cost automobile insurance policy issued pursuant to the pilot program, certified producers shall be entitled to the same commission rate as is paid by the California Automobile Assigned Risk Plan for private passenger, nonfleet risks under Article 4 (commencing with Section 11620). (b) Notwithstanding subdivision (a), the commissioner may at any time establish a commission for a low-cost automobile insurance policy issued pursuant to the pilot program and may make the commission effective on any policy originated within an entire year, or any portion of a year, as is needed to provide an incentive to certified producers to sell low-cost automobile insurance to eligible applicants. The commissioner shall not establish a commission pursuant to this subdivision if the commissioner determines that setting the commission rate will result in a lower commission percentage than would exist pursuant to subdivision (a). (c) No other fees of any kind may be charged or collected pursuant to this section and the sale of a low-cost policy under this article shall not be conditioned on the purchase of any other product or service. SEC. 6. Section 11629.84 of the Insurance Code is amended to read: 11629.84. This article shall remain in effect only until January 1, 2007, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2007, deletes or extends that date. SEC. 7. Section 11629.85 is added to the Insurance Code, to read: 11629.85. (a) On or before February 1 of each year, the commissioner shall prepare and propose a plan to the Senate and Assembly Committees on Insurance setting forth the methods the commissioner intends to implement to inform households eligible for the pilot program about the availability of low-cost automobile insurance. To be eligible for funding through the budget process, the plan shall be reviewed by the Senate and Assembly Committees on Insurance. The plan shall include, at a minimum, a brief description of methods proposed to be used, anticipated costs, sources of revenue, goals, targets, objectives, and a justification of the proposed methods. The plan shall also explain how the department proposes to work in cooperation with the California Automobile Assigned Risk Plan, the social service departments of the Counties of Los Angeles and San Francisco, the Department of Motor Vehicles, and community-based organizations in order to inform eligible households of the existence of the pilot program. (b) Any written or oral advertisements, including, but not limited to, paid or unpaid commercial or noncommercial advertising, by the department with reference to the low-cost automobile insurance pilot program shall reference the department and shall not reference the commissioner by name or office, or include the commissioner's voice, image, or likeness. The department shall not participate with any nongovernmental entity that produces or intends to produce advertisements or educational material that include the name of the commissioner or his or her voice, image or likeness, and that are intended to make eligible households aware of the existence of low-cost automobile insurance. SEC. 8. Section 11629.91 of the Insurance Code is amended to read: 11629.91. A low-cost automobile insurance policy for purposes of the pilot program established under this article shall have all of the following attributes: (a) The policy shall offer coverage in the amount of ten thousand dollars ($10,000) for bodily injury to, or death of, each person as a result of any one accident and, subject to that limit as to one person, the amount of twenty thousand dollars ($20,000) for bodily injury to, or death of all persons as a result of any one accident, and the amount of three thousand dollars ($3,000) for damage to property of others as a result of any one accident. (b) The coverage required by Section 11580.2 shall be made available to the consumer. However, an insurer may charge a premium for that coverage in addition to the premium set forth in Section 11629.92. Notwithstanding the coverage amounts required by Section 11580.2 and Section 16056 of the Vehicle Code, uninsured motorist coverage issued in conjunction with a low-cost automobile policy under the pilot program, with coverage limits at least equal to the limits of liability in the underlying low-cost automobile policy, shall satisfy the requirements of Section 11580.2 and the financial responsibility requirements of Sections 4000.37, 16021, and 16431 of the Vehicle Code. (c) Medical payments coverage shall be made available to the consumer. However, an insurer may charge a premium for that coverage in addition to the premium set forth in Section 11629.92. (d) The policy shall have an initial term of one year, renewable on an annual basis thereafter. (e) The policy shall cover the person named in the policy, and to the same extent that insurance is provided to the named insured, any other person using the automobile, provided the use is with his or her permission, express or implied, and within the scope of that permission, except that the policy shall not cover members of the named insured's household who do not satisfy the requirements of subdivisions (b) to (e), inclusive, of Section 11629.93. (f) The policy shall provide coverage for an automobile with a value, at the time of purchase by the insured, of twelve thousand dollars ($12,000) or less, as evidenced by the value given to the automobile by the Department of Motor Vehicles in assessing vehicle license fees. SEC. 9. Section 11629.92 of the Insurance Code is amended to read: 11629.92. (a) The annual rate offered initially under the pilot program for the low-cost automobile insurance policy, until the time that the rate is adjusted, shall be four hundred ten dollars ($410) per covered vehicle. Effective March 1, 2003, the annual rate offered under the pilot program for the low-cost automobile policy, unless and until the time that the rate is adjusted, shall be three hundred fourteen dollars ($314) per covered vehicle, unless the commissioner establishes that rate or a different rate prior to that time. A surcharge, as a percentage of the base rate shall be added to the base rate and that percentage shall be set at the discretion of the commissioner, if the named insured is an unmarried male between the ages of 19 and 24, inclusive, or if an unmarried male between the ages 19 and 24, inclusive, resides in the household of the named insured and will be a driver of the automobile covered under the low-cost policy. (b) In addition to existing premium installment options offered by the California Automobile Assigned Risk Plan under Article 4 (commencing with Section 11620), the plan shall also make available to insureds under the pilot program, a premium installment option pursuant to which an insured is required to pay not more than 15 percent of the total policy cost upon issuance of the low-cost policy, followed thereafter by six other payments. No other premium financing arrangement shall be permitted. (c) Rates for policies issued under the pilot program shall be reviewed and revised as follows: (1) Rates shall be sufficient to cover (A) losses incurred under policies issued under the pilot program, and (B) expenses, including, but not limited to, all reasonable and necessary expenses such as the costs of administration, underwriting, taxes, commissions, and claims adjusting, that are incurred due to participation in this pilot program. For purposes of this paragraph, "losses incurred" means claims paid, claims incurred and reported, and claims incurred but not yet reported. In assessing loss reserves, the commissioner shall only allow loss reserves that are estimated from actual losses in the pilot program or comparable data by a licensed statistical agent, as adjusted to reflect coverage provided in this pilot program. (2) Rates shall be set so as to result in no projected subsidy of the pilot program by those policyholders of insurers issuing policies under the pilot program who are not participants in the pilot program. (3) Rates shall be set with respect to this pilot program, and the pilot program established in Article 5.5 (commencing with Section 11629.7), so as to result in no projected subsidy by policyholders in one pilot program of policyholders in the other pilot program. (4) Commencing on January 1, 2001, and annually thereafter, the California Automobile Assigned Risk Plan shall submit the loss and expense data, together with a proposed rate and the surcharge authorized by subdivision (a) for the low-cost automobile policy for the pilot program, to the commissioner for approval in accordance with this chapter. The commissioner shall act on the recommendation within 90 days. SEC. 10. Section 11629.93 of the Insurance Code is amended to read: 11629.93. A low-cost automobile insurance policy under the pilot program shall only be available for purchase by persons who satisfy the following eligibility requirements: (a) The person shall be in a household with a gross annual household income that does not exceed 250 percent of the federal poverty level, as defined in Part 6.2 (commencing with Section 12693) or as defined in an equivalent manner that is approved by the commissioner. (b) The person shall be no less than 19 years of age and have been continuously licensed to drive an automobile for the previous three years. (c) The person shall have not more than one of either, but not both, of the following within the previous three years: (1) A property damage only accident in which the driver was principally at fault. (2) A point for a moving violation. (d) The person shall not have on record within the previous three years, an at-fault accident involving bodily injury or death. (e) The person shall not have a felony or misdemeanor conviction for a violation of the Vehicle Code on his or her motor vehicle record. (f) The person shall not be a college student claimed as a dependent of another person for federal or state income tax purposes. SEC. 11. Section 11629.945 is added to the Insurance Code, to read: 11629.945. (a) An agent or broker (hereafter referred to as a producer) conducting business in a county in which a low-cost automobile insurance policy is available pursuant to this article shall inform every new prospective automobile insurance policyholder who requests a minimum limits or basic limits insurance policy, or coverage to meet California's minimum limits automobile insurance requirements, that the low-cost automobile insurance policy may be available for qualifying motorists. The information may be provided verbally if the producer has been contacted by phone, or in writing, but shall be communicated to the policyholder prior to the application for automobile insurance coverage in the language in which the producer has otherwise communicated with the consumer. (b) If the consumer requests more information about the low-cost program the producer shall do either of the following: (1) If the producer is California Automobile Assigned Risk Plan certified, provide the consumer with an explanation in an information pamphlet produced by the California Automobile Assigned Risk Plan and approved and provided by the Department of Insurance, of the qualifications, cost and coverage provided by the policy. If the consumer qualifies for the low-cost policy and wishes to purchase the policy, the California Automobile Assigned Risk Plan certified producer shall provide the application and, upon completion, submit the application, supporting documents, and the applicant's certification to the California Automobile Assigned Risk Plan. The submittal of the California Automobile Assigned Risk Plan application may be in addition to any other coverage offered or applied for through the producer. (2) If the producer is not California Automobile Assigned Risk Plan certified, the producer shall provide the consumer with the toll-free telephone number for the California Automobile Assigned Risk Plan as an option to coverage offered by the producer. SEC. 12. Section 11629.96 of the Insurance Code is amended to read: 11629.96. (a) For a low-cost automobile insurance policy issued pursuant to the pilot program, certified producers shall be entitled to the same commission rate as is paid by the California Automobile Assigned Risk Plan for private passenger, nonfleet risks under Article 4 (commencing with Section 11620). (b) Notwithstanding subdivision (a), the commissioner may at any time establish a commission for a low-cost automobile insurance policy issued pursuant to the pilot program and may make the commission effective on any policy originated within an entire year, or any portion of a year, as is needed to provide an incentive to certified producers to sell low-cost automobile insurance to eligible applicants. The commissioner shall not establish a commission pursuant to this subdivision if the commissioner determines that setting the commission rate will result in a lower commission percentage than would exist pursuant to subdivision (a). (c) No other fees of any kind may be charged or collected pursuant to this section and the sale of a low-cost policy under this article shall not be conditioned on the purchase of any other product or service. SEC. 13. Section 11629.995 of the Insurance Code is amended to read: 11629.995. This article shall remain in effect only until January 1, 2007, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2007, deletes or extends that date. SEC. 14. Section 11629.999 is added to the Insurance Code, to read: 11629.999. (a) On or before February 1 of each year, the commissioner shall prepare and propose a plan to the Senate and Assembly Committees on Insurance setting forth the methods the commissioner intends to implement to inform households eligible for the pilot programs set forth in Article 5.5 (commencing with Section 11629.7) and Article 5.6 (commencing with Section 11629.9) about the availability of low-cost automobile insurance. To be eligible for funding through the budget process, the plan shall be reviewed by the Senate and Assembly Committees on Insurance. The plan shall include, at a minimum, a brief description of methods proposed to be used, anticipated costs, sources of revenue, goals, targets, objectives, and a justification of the proposed methods. The plan shall also explain how the department proposes to work in cooperation with the California Automobile Assigned Risk Plan, the social service departments of the Counties of Los Angeles and San Francisco, the Department of Motor Vehicles, and community-based organizations in order to inform eligible households of the existence of the pilot program. (b) Any written or oral advertisements, including, but not limited to, paid or unpaid commercial or noncommercial advertising, by the department with reference to the low-cost automobile insurance pilot program shall reference the department and shall not reference the commissioner by name or office, or include the commissioner's voice, image, or likeness. The department shall not participate with any nongovernmental entity that produces or intends to produce advertisements or educational material that include the name of the commissioner or his or her voice, image or likeness, and that are intended to make eligible households aware of the existence of low-cost automobile insurance. SEC. 15. Section 16056.1 of the Vehicle Code is amended to read: 16056.1. (a) Notwithstanding the coverage limits specified in Section 16056, an automobile insurance policy described in Sections 11629.71 and 11629.91 of the Insurance Code shall be effective under Section 16054 when issued by an insurance company admitted to do business in this state by the Insurance Commissioner and the policy is subject, if the accident has resulted in bodily injury or death, to a limit, exclusive of interest and costs, of not less than ten thousand dollars ($10,000) because of bodily injury to or death of one person in any one accident and, subject to that limit for one person, to a limit of not less than twenty thousand dollars ($20,000) because of bodily injury to or death of two or more persons in any one accident, and if the accident has resulted in injury to, or destruction of property, to a limit of not less than three thousand dollars ($3,000) because of injury to or destruction of property of others in any one accident. (b) This section shall remain in effect only until January 1, 2007, and as of that date is repealed, unless a later enacted statute, which is enacted on or before January 1, 2007, deletes or extends that date. SEC. 16. This bill shall become operative only if Senate Bill 180 of the 2001-02 Regular Session is enacted and becomes effective.