BILL ANALYSIS                                                                                                                                                                                                    






                        SENATE COMMITTEE ON BANKING, FINANCE,
                                    AND INSURANCE
                           Senator Ronald Calderon, Chair


          AB 1597 (Jones)                    Hearing Date:  June 30, 2010   


          As Amended:              April 13, 2010   
          Fiscal:             Yes
          Urgency:       No

          VOTES:              Asm. Floor(05/13/10)74-03/Pass
                         Asm. Appr.          (04/28/10)13-02/Pass
                         Asm. Ins.                (04/07/10)11-0/Pass


           SUMMARY    Would extend the California low cost auto program  
          sunset from 2001 to 2016 and to make various statutory changes  
          to conform its operations to standard California administrative  
          practices and facilitate greater efficiency and more  
          customer-friendly operations for the public and producers alike.  


          DIGEST
           
          Existing law
            
           1.  The California Automobile Assigned Risk Plan operates the  
              California Low-Cost Automobile Insurance program which provides  
              an affordable auto insurance option for low-income good drivers  
              in California and since December 2007 the program has been  
              available to qualifying motorists in all 58 counties;

           2.  To qualify for a low-cost policy, household income can't exceed  
              250 percent of the federal poverty level, the driver must be a  
              "good driver" as defined by law, and the applicant must be a  
              state resident 19 years of age or older meeting other criteria  
              too. The program offers policy limits prescribed by law of  
              $10,000 for bodily injury or death per person in an accident,  
              $20,000 for bodily injury or death per accident, and $3,000  
              property damage for each accident with premium that vary by  
              county; installment options are available;

           3.  Requires that access to the plan for an immediate date be  
              provided via a tool-free number and specifies the procedure for  




                                                AB 1597 (Jones), Page 2




              establishing an electronic effective date shall be established  
              by the plan; 

           4.  The Insurance Commissioner is required to adopt a plan for  
              operation of the program, including the apportionment of the  
              costs of this program equitably among admitted liability  
              insurers, following a public hearing conducted as provided under  
              this law, which includes a special requirement for a notice to  
              be published in two newspapers in Northern and Southern  
              California at least 60 days prior to the hearing or close of  
              public comment. 

           5.  This program is due to sunset on January 1, 2001  
           
          This bill

            1.  Would delete the special notice procedural requirement of  
              the current low-cost auto program law and subject it instead  
              to the standardized provisions and procedures of the  
              Administrative Procedures Act. 

           2.  Would make various procedural changes that support  
              technology and other operational improvements to make  
              administration of the CLCA faster and more convenient for  
              producers and public alike and makes other technical  
              changes. 

           3.  Would extend the sunset from January 1, 2011 to January 1,  
              2016.

           COMMENTS

            1.  Purpose of the bill  To extend the California low cost auto  
              program sunset from 2001 to 2016 and to make various  
              statutory changes to conform its operations to standard  
              California administrative practices and facilitate greater  
              efficiency and more customer-friendly operations for the  
              public and producers alike. 

            2.  This measure is sponsored by the California Department of  
              Insurance to extend the low cost auto program sunset from  
              2001 to 2016 The DOI indicates the extension of this program  
              will ensure that low-income, good drivers will continue to  
              have access to affordable auto insurance. The DOI indicates  
              the program has provided over 50,000 policies since its  
              inception, helping thousands comply with California law;




                                                AB 1597 (Jones), Page 3





            3.  The DOI notes last year's bill was vetoed by the Governor  
              who indicated there should be a review of program results  
              for the purpose of identifying changes to help ensure its  
              success.  In response, the DOI and the CLCA have instituted  
              numerous changes to permit electronic transactions where  
              previously only mail-based transactions took place and to  
              facilitate more effective and cost-beneficial public  
              outreach.  More specifically, they report:

               a.     Better targeted advertising;
               b.     Increased use of an online agent application process  
                 to reduce errors and speed processing.
               c.     Immediately providing hotline callers with names of  
                 3 qualified agents instead of sending a list through the  
                 mails.
               d.     Making other various changes, improvements and  
                 simplifications.

            4.  Notwithstanding last year's veto, the DOI has advised the  
              Legislature that it considers California's Low-Cost  
              Automobile Insurance program to be successful in meeting its  
              statutory objectives and a vital program in the current  
              economic downturn.  It reports an 18.9% increase in  
              enrollment in 2009 and indicates numbers for 2010 continue  
              to be high. 

             5.  Background  California's Low-Cost Automobile Insurance  
              program has expanded  from its inception in 1999.  Starting  
              as a pilot in Los Angeles and San Francisco counties  
              pursuant to 1999 legislation by Martha Escutia (SB 171) and  
              Jackie Speier (SB 527), in 2005 SB 20 (Escutia) authorized  
              its eventual expansion to all counties in California at the  
              discretion of the Commissioner of Insurance.  The 2005 bill  
              mandated that as of April 1, 2006 it should be extended to  
              Alameda, Fresno, Orange, Riverside, San Bernardino and San  
              Diego Counties. The program was available in all California  
              counties by December 2007.

            6.  Information provided by the DOI indicates that in 2008,  
              77% of all policies issued went to applicants with a yearly  
              household income of at or below $20,000.

            7.  In 2008, 7,892 applications were received of which 6,306  
              were assigned.





                                                AB 1597 (Jones), Page 4




            8.  While the program specifies an applicant's vehicle can not  
              exceed $20,000 dollars in value at the time of their  
              application for insurance, in 2008 most vehicles insured had  
              a value of less than $5,000 dollars.

            9.  Statistics provided by the program administrator, the  
              California Automobile Assigned Risk Plan, indicate that in  
              2008, 70% of new policies went to applicants who were  
              uninsured at the time of application.  
           
            10.A study of the Insurance Research Council (Uninsured  
              Motorists, 2008 Edition) finds a strong correlation between  
              the percent of uninsured motorists and the unemployment  
              rate. It estimates that a one percentage point increase in  
              the unemployment rate is associated with a three quarters of  
              one percent increase in the uninsured motorist rate.  
              Consequently, based on current unemployment trends, the  
              percentage of uninsured motorists in California and other  
              states is expected to rise.
           
            11.Support  Consumer Attorneys of California (CAOC) supports  
              the bill, stating California motorists have shown a need for  
              the program as it insures over 9,000 low-income motorists a  
              year with annual premiums under $400 per person. CAOC states  
              it "is important to maintain a low-cost policy available for  
              California motorists" and "Affordable insurance will help  
              motorists meet their responsibilities under California's  
              financial responsibility law".
           
            12.Opposition    None
           
            13.Questions   For ongoing monitoring of this program, the  
              issue of market acceptance, both on the consumer side, and  
              among the licensed insurance producers who are the  
              consumer's connection to the program, will weigh heavily on  
              the ongoing increase or decline in this program, as will the  
              current economy.
           
            14.Suggested Amendments  None

             15.Prior Legislation   

               a.     In 2009,  AB 725 (Jones) to extend the sunset and  
                 make various other changes not in this bill was vetoed by  
                 the Governor, as follows: 





                                                AB 1597 (Jones), Page 5







          To the Members of the California State Assembly:

          I am returning Assembly Bill 725 without my signature.

          While I recognize the need to provide low cost automobile  
          insurance
          to low income drivers, the effectiveness of this program is
          questionable given the number of policies in effect and low
          participation rate amongst the uninsured.  Since the law this  
          bill is
          looking to extend does not expire until January 1, 2011, I  
          encourage
          the author and sponsor to take the next year to examine the  
          results
          of the program and determine if any changes are needed to the  
          program
          to ensure its success.

          For this reason I am unable to sign this bill.

          Sincerely,



          Arnold Schwarzenegger

           POSITIONS
          
          Support
           
          California Department of Insurance (Sponsor)
          Consumer Federation of California
          Consumer Attorneys of California
          Consumer Watchdog
          California Communities United Institute
          Hon. Congresswoman Jackie Speier
           
          Oppose
               
          None

          Consultant:   Kenneth Cooley (916) 651-4102