BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 1273 (Lara) - Low Cost Automobile Insurance
Amended: April 22, 2014 Policy Vote: Ins 9-0
Urgency: No Mandate: No
Hearing Date: May 5, 2014 Consultant: Maureen Ortiz
This bill does not meet the criteria for referral to the
Suspense file.
Bill Summary: SB 1273 extends the sunset date of the California
Low-Cost Automobile Insurance Program from January 1, 2016 to
January 1, 2020; expands eligibility criteria to include drivers
with less than three years of continuous driving experience and
assesses a surcharge on those drivers; and makes other changes
designed to increase program participation.
Fiscal Impact:
Minor administrative costs to the Department of Insurance
(Special Fund)
Background: Existing law requires drivers or owners of a
vehicle to carry proof of financial responsibility in the
minimum amounts of $15,000 for bodily injury or death for one
person up to a maximum of $30,000 per occurrence, and $5,000 for
property damages for each accident.
The California Automobile Assigned Risk Plan (CAARP) administers
the California low-cost automobile (CLCA) insurance program and
provides automobile bodily injury and property damages liability
insurance to good drivers who are unable to procure that
insurance through ordinary methods. There are currently over
11,000 drivers participating in this program. The CLCA policy
provides insurance coverage for a one-year term offering
coverage for liabilities arising from any one accident in
amounts of at least $10,000 for bodily injury or death for each
person, up to $20,000, and $3,000 for property damage for each
accident. These lower limits are deemed to satisfy the state's
minimum insurance requirements. In addition, the CLCA contains
the following requirements:
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a) Limits coverage to automobiles valued at the time of
purchase to $20,000 or less;
b) Sets specific rates for certain counties, unless otherwise
established by the Commissioner;
c) Requires a surcharge for drivers or members of a household
covered by the policy that are unmarried males between the ages
of 19 and 24;
d) Requires the plan to offer a six-month payment option
with no more than 15% down and prohibits any other premium
financing arrangement;
e) Rates must be sufficient to cover losses under the
policies and expenses incurred including costs of
administration, underwriting, taxes, commissions, and
claims adjusting; and,
f) Requires CAARP to annual submit a rate plan to the
Insurance Commissioner.
The following criteria apply to all applicants:
a) Household income may not exceed 250 percent of the federal
poverty level or defined in an equivalent manner by the
Commissioner;
b) Must not be less than 19 years of age or have less than
three years of continuous driving experience;
c) Must not have more than one accident resulting in property
damage or one point for a moving violation within the prior
three years;
d) May not have had on record any at-fault accident involving
bodily injury or death;
e) May not have had a felony or misdemeanor conviction for a
violation of the Vehicle Code on his or her record; and
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f) May not be a college student claimed as a dependent for
another person's federal or state income tax purposes.
In addition, the Department of Motor Vehicles is required to
notify residents about the CLCA program when it sends a notice
of intent to suspend, cancel, or revoke registration for reason
of lack of insurance coverage. Insurers pay an annual special
purpose assessment of up to $0.25 per policy for each vehicle
insured, and the department is authorized to use $0.05 of that
assessment to notify insurers and other members of the public
about the existence of the low-cost automobile insurance
program.
The CLCA is scheduled to be repealed on January 1, 2016, unless
extended.
Proposed Law: SB 1273 extends the California Low-Cost
Automobile Insurance Program until January 1, 2020, and makes
the following changes to the program:
1. Would remove obsolete provisions related to the
county-by-county expansion of the program and the
statutorily rates set for specified counties.
2. Would eliminate the cap on the value of the insured vehicle
set at more than $20,000 valued at the time of purchase.
3. Would require that a surcharge be added to the base rates
of the following:
a. Unmarried males between the ages of 19 and 24 years
of age;
b. Drivers who:
i. Are licensed pursuant to Vehicle Code
Section 12801.9 with fewer than three years of
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driving history;
ii. Have less than three years of driving
history;
iii. Have not been continuously licensed to
drive for the past three years.
4. Would permit the Commissioner to approve or issue
additional installment plan options.
5. Would require CAARP to submit a revised rate plan to the
Commissioner every three years rather than annually.
6. Would permit a person who has not been continually licensed
to drive or has fewer than three years of driving history to
qualify for the program if they qualify for a surcharge as
specified.
7. Would permit a producer not certified by the plan to refer
inquiring consumers to the program's website in lieu of the
program's toll-free number.
8. Would revise the disclosure provided to CLCA policy
purchasers to reflect revisions to the eligibility
requirements.
9. Would entitle certified producers of the CLCA to a
commission rate of a fixed percent (currently as yet
unspecified in the bill) or one set by the Commissioner that
is no less than that paid by CAARP for private passenger,
non-fleet risks.
10. Would require CAARP and the insurer to notify producers of
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any pending policy cancelations and would allow the consumer
to reinstate, in lieu of canceling, policies canceled for
nonpayment of premium.
11. Would require CAARP and insurers to accept payment by check
or money order, and accept down or installment payments by
debit or credit card by telephone or through its website.
12. Would require CAARP to submit the report required by
Insurance Code Section 11629.81 to the Commissioner (instead
of the Legislature) so that the department may combine that
report with the outreach plan required by Insurance Code
Section 11629.85 and submit a consolidated report to the
Legislature (rather than specified legislative committees)
on March 15 of each year, and eliminate the requirement that
funding for the outreach plan be contingent on review by
specified legislative committees.
13. Would revise provisions related to the program's website
located at www.mylowcostauto.com website by eliminating the
alternative contracting provisions related to the website
and permitting an applicant to apply for the program
directly through the website rather than through a certified
producer.
14. Would recognize the validity of electronic signatures for
the purposes of the CLCA program.
15. Would require CAARP and subscribing insurers to establish a
data system that tracks renewed policies, policy
cancellations, and nonrenewals and grants the department
access to that data.
Staff Comments: The California Low-Cost Automobile Insurance
Program was first established in 2000 pursuant to SB 171
(Escutia), Chapter 794, Statutes of 1999. The program was
initially implemented as a pilot in Los Angeles County and then
in San Francisco. Over the years, the program has been extended
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and expanded several times and to date has covered approximately
73,000 individuals. Last year, the CLCA experienced a 22
percent increase in participation from 2012.
SB 1273 will expand eligibility for the program by eliminating
the three-year continuous driving experience requirement which
will permit new classes of eligible drivers to participate in
the program, including:
a) Newly Licensed Drivers under AB 60. Last year, AB 60
(Alejo) authorized the Department of Motor Vehicles (DMV)
to issue a driver's license to an applicant who, meeting
other criteria, is unable to submit satisfactory proof that
his or her presence in the United States is authorized
under federal law. DMV estimated that 1.4 million new
licenses will be issued over three years under AB 60.
b) Novice Drivers. Inexperienced, and particularly young
and inexperienced drivers.
SB 1273 also increases eligibility by eliminating the $20,000
cap on the value of the vehicle insured measured at the time of
purchase (regardless of when purchased or fair market value).