BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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                                 THIRD READING


          Bill No:  AB 1597
          Author:   Jones (D), et al
          Amended:  4/13/10 in Assembly
          Vote:     21

           
           SENATE BANKING, FINANCE, AND INS. COMMITTEE  :  10-0, 6/30/10
          AYES:  Calderon, Cogdill, Correa, Florez, Kehoe, Liu,  
            Lowenthal, Padilla, Price, Runner
          NO VOTE RECORDED:  Cox
           
          SENATE APPROPRIATIONS COMMITTEE  :  9-0, 8/2/10
          AYES:  Kehoe, Alquist, Ashburn, Corbett, Emmerson, Leno,  
            Wolk, Wyland, Yee

          NO VOTE RECORDED:  Price, Walters

           ASSEMBLY FLOOR  :  74-3, 5/13/10 - See last page for vote


           SUBJECT  :    Automobile insurance:  assigned risk plans

           SOURCE  :     Department of Insurance


           DIGEST  :    This bill extends the California low-cost auto  
          program sunset from 2011 to 2016 and makes 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. 

           ANALYSIS  :    
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           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  
             cannot 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 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, 2011.

          This bill:

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

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          2. Makes various procedural changes that support technology  
             and other operational improvements to make  
             administration of the California Low-Cost Automobile  
             Insurance program faster and more convenient for  
             producers and public alike and makes other technical  
             changes. 

          3. Extends the sunset from January 1, 2011 to January 1,  
             2016.

           Background  

          The California Low-Cost Automobile (CLCA) Insurance program  
          has expanded  from its inception in 1999.  Starting as a  
          pilot program in Los Angeles and San Francisco counties  
          pursuant to SB 171 (Escutia), Chapter 794, Statutes of  
          1999, and SB 527 (Speier), Chapter 807, Statutes of 1999.   
          In 2005, 
          SB 20 (Escutia), Chapter 435, Statutes of 2005, authorized  
          its eventual expansion to all counties in California at the  
          discretion of the Insurance Commissioner.  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.

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

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

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

          Statistics provided by the program administrator, the  
          California Automobile Assigned Risk Plan, indicate that in  
          2008, 70 percent of new policies went to applicants who  
          were uninsured at the time of application.

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           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  
          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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

          According to the Senate Appropriations Committee:

                         Fiscal Impact (in thousands)

           Major Provisions      2010-11     2011-12     2012-13     Fund  

          CLCA sunset extension         Annual, fee-supported costs  
          of                  Private*
                              $2,700-$5,100

          * Fully supported by subscriber premiums and insurer  
          assessments

           SUPPORT  :   (Verified  8/3/10)

          Department of Insurance (source)
          California Communities United Institute
          Consumer Attorneys of California
          Consumer Federation of California
          Consumer Watchdog


           ARGUMENTS IN SUPPORT  :    This bill is sponsored by the  
          Department of Insurance (DOI) 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.  

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          The DOI notes that 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  
          California Low-Cost Automobile Insurance program 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:

           Better targeted advertising.

           Increased use of an online agent application process to  
            reduce errors and speed processing.

           Immediately providing hotline callers with names of three  
            qualified agents instead of sending a list through the  
            mails.

           Making other various changes, improvements and  
            simplifications.

          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 percent increase in  
          enrollment in 2009, and indicates numbers for 2010 continue  
          to be high. 


           ASSEMBLY FLOOR  :
          AYES:  Adams, Ammiano, Anderson, Arambula, Bass, Beall,  
            Bill Berryhill, Blakeslee, Block, Blumenfield, Bradford,  
            Brownley, Buchanan, Caballero, Charles Calderon, Carter,  
            Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,  
            Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,  
            Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore,  
            Hagman, Hall, Hayashi, Hernandez, Hill, Huber, Huffman,  
            Jeffries, Jones, Knight, Lieu, Logue, Bonnie Lowenthal,  
            Ma, Mendoza, Miller, Monning, Nava, Nestande, Niello,  
            Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas,  

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            Saldana, Silva, Smyth, Solorio, Audra Strickland,  
            Swanson, Torlakson, Torres, Torrico, Tran, Villines,  
            Yamada, John A. Perez
          NOES:  Tom Berryhill, DeVore, Harkey
          NO VOTE RECORDED:  Norby, Skinner, Vacancy


          JJA:mw  8/10/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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