BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1273| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1273 Author: Lara (D), et al. Amended: 4/22/14 Vote: 21 SENATE INSURANCE COMMITTEE : 9-1, 4/9/14 AYES: Monning, Corbett, Correa, DeSaulnier, Lieu, Mitchell, Roth, Torres, Vidak NOES: Nielsen NO VOTE RECORDED: Gaines SENATE APPROPRIATIONS COMMITTEE : 4-1, 5/5/14 AYES: De León, Hill, Lara, Steinberg NOES: Walters NO VOTE RECORDED: Gaines, Padilla SUBJECT : Insurance: low-cost automobile insurance program SOURCE : Department of Insurance DIGEST : This bill extends, until January 1, 2020, the sunset date on the California Low-Cost Automobile Insurance Program (CLCA); 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 participation. ANALYSIS : Existing law: CONTINUED SB 1273 Page 2 1. Provides that the financial responsibility of the driver or owner of a vehicle is established if the driver or owner carries proof of financial responsibility, and that proof of insurance satisfies that requirement: A. Requires that qualifying insurance cover the owner or driver for liabilities arising from any one accident in amounts of at least $15,000 for bodily injury or death for each person, up to $30,000, and $5,000 for property damage for each accident. B. Requires applicants for renewal of registration of a vehicle to submit evidence of financial responsibility. 2. Establishes the California Automobile Assigned Risk Plan (CAARP) for the purposes of providing automobile bodily injury and property damage liability insurance to applicants who in good faith are entitled to but are unable to procure that insurance through ordinary methods: A. Requires the Insurance Commissioner (Commissioner) to approve or issue a reasonable plan and permits the Commissioner to approve or issue reasonable amendments to the Plan that are approved by the Plan's advisory committee after a public hearing and other procedures; B. Creates a 15-member advisory committee comprised of eight members elected by subscribing insurers and seven appointed by the Commissioner; C. Requires that the cost of the plan, including any personnel and contracting costs, be fairly apportioned among the subscribing insurers; D. Requires the plan to address standards for determining eligibility; apportion eligible applicants among insurers; provide for rules for administering and operating the plan; and explain the basis for premium charges; and describe other procedures; E. Requires that rates not be excessive, inadequate, nor unfairly discriminatory, and actuarially sound so as to result in no subsidy of the plan; CONTINUED SB 1273 Page 3 F. Requires the CAARP to establish a Web site, subject to the Commissioner's approval, www.mylowcostauto.com or other relevant domain name, and sets standards for the Web site. G. Requires the plan to provide an annual status report to the Legislature. 3. Establishes the CLCA within the CAARP, to provide low-cost auto liability policies: A. Requires a CLCA policy to provide 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; B. Provides that notwithstanding Vehicle Code Section 16056, a CLCA policy issued under the program shall satisfy the financial responsibility requirements of Vehicle Code Sections 4000.37, 16021, and 16431; C. Requires the insurer to offer optional uninsured/underinsured motorist coverage and medical payments coverage (covering medical expenses to the insureds and passengers) for an additional charge; D. Provides that the policy cover the named person and any other person permitted to use the automobile, except for members of the insured's household who do not meet the eligibility criteria (not including the income requirement and college student exclusion); E. Limits coverage to automobiles valued at the time of purchase to $20,000 or less; F. Sets specific rates for certain counties, unless otherwise established by the Commissioner; G. 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; CONTINUED SB 1273 Page 4 H. Requires the CLCA to offer a six-month payment option with no more than 15% down and prohibits any other premium financing arrangement; I. Requires that rates must satisfy the following standards: (1) Rates must be sufficient to cover losses under the policies and expenses incurred due to participation in the program, including the costs of administration, underwriting, taxes, commissions, and claims adjusting; (2) Nonparticipating consumers must not subsidize CLCA participants; and (3) Participating consumers in one county must not subsidize the rate in another county. J. Requires the CAARP to annually submit a rate plan to the Commissioner with the loss and expense data for the CLCA program; K. Sets eligibility criteria for applicants; L. Credits drivers who have driving experience obtained in countries other than the U.S. or Canada for the purposes of qualifying with sufficient experience, as specified; M. Provides that the policy may be cancelled or nonrenewed for only specified reasons; N. Requires every producer (agent or broker) to inform prospective applicants of the CLCA program, as specified; and O. Declares that the CLCA program is not intended to amend, nor is subject to, Proposition 103. 4. Provides that an application may be made through a producer certified by the CLCA and requires the applicant to provide a copy of state or federal income tax returns or other reliable CONTINUED SB 1273 Page 5 evidence from a government agency, as specified, for proof of income, and requires a certified producer to provide applicants with coverage disclosures and limitations. 5. Limits constitutional challenges to those commenced on February 1, 2000, or before. 6. Repeals the CLCA program on January 1, 2016, unless extended. 7. Requires the Department of Motor Vehicles to notify residents of the CLCA program when it sends a notice of intent to suspend, cancel, or revoke registration for reason of lack of insurance coverage. 8. Requires insurers to pay an annual special purpose assessment of up to $0.25, until January 1, 2016, for each vehicle insured under an insurance policy it issues in this state: A. Permits up to $0.05 of that assessment to be used to notify insurers and other members of the public about the existence of any low-cost automobile insurance program; and B. Requires the Commissioner to prepare and propose an outreach plan for the CLCA program by March 1 of each year to the Assembly Insurance Committee and the Senate Banking Finance and Insurance Committee that address issues as specified and makes funding for the Plan contingent on review by those committees and specifies requirements for the outreach plan. This bill: 1. Removes obsolete provisions related to the county-by-county expansion of the program and the statutorily rates set for specified counties. 2. Eliminates the cap on the value of the insured vehicle set at more than $20,000 valued at the time of purchase. 3. Requires that surcharges be added to the base rates of the following: CONTINUED SB 1273 Page 6 A. Unmarried males between the ages of 19 and 24 years of age; and B. Drivers who: (1) Are licensed pursuant to Vehicle Code Section 12801.9 with fewer than three years of driving history; (2) Have less than three years of driving history; or (3) Have not been continuously licensed to drive for the past three years. 4. Permits the Commissioner to approve or issue additional installment plan options. 5. Requires the CLCA to submit a revised rate plan to the Commissioner every three years rather than annually. 6. Permits a person who has not been continually licensed to drive or has fewer than three years of driving history to qualify for the CLCA if they qualify for a surcharge as specified. 7. Permits a producer not certified by the CLCA to refer inquiring consumers to its Web site in lieu of the program's toll-free number. 8. Revises the disclosure provided to CLCA policy purchasers to reflect revisions to the eligibility requirements. 9. Entitles certified producers of the CLCA to a commission rate of a fixed percent (currently set with a blank) or one set by the Commissioner that is no less than that paid by the Plan for private passenger, nonfleet risks. 10.Requires the CLCA and the insurer to notify producers of any pending policy cancelations and allows the consumer to reinstate, in lieu of canceling, policies canceled for nonpayment of premium. 11.Requires the CLCA and insurers to accept payment by check or CONTINUED SB 1273 Page 7 money order, and accept down or installment payments by debit or credit card by telephone or through its Web site. 12.Requires the CLCA to submit the report required by Insurance Code Section 11629.81 to the Commissioner (instead of the Legislature) so that the Department of Insurance (DOI) 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 eliminates the requirement that funding for the outreach plan be contingent on review by specified legislative committees. 13.Extends the January 1, 2016, sunset date to January 1, 2020. 14.Revises provisions related to the CLCA's Web site located at www.mylowcostauto.com, eliminating the alternative contracting provisions related to the Web site and permitting an applicant to apply for the program directly through the Web site rather than through a certified producer. 15.Recognizes the validity of electronic signatures for the purposes of the CLCA program. 16.Requires the CLCA and subscribing insurers to establish a data system that tracks renewed policies, policy cancellations, and nonrenewals and grant the DOI access to that data. Background Private passenger automobile insurance protects the owner of the vehicle, the driver, passengers, and any person potentially injured by an accident involving the insured vehicle or person. It basically provides some resources in making an injured party "whole"; without auto liability coverage, injured parties may receive nothing to assist in the payment of medical costs, lost wages, etc., and may be stuck paying the bills themselves. Since 1974, existing law has required drivers to carry liability coverage for bodily injury or death of at least $15,000 for each person up to $30,000 as well as coverage for property damage of least $5,000 per accident. The problem of uninsurance plagues the entire nation and a lack CONTINUED SB 1273 Page 8 of affordable liability coverage hits low-income drivers the hardest. The DOI estimates that there are approximately 3 million cars on the road that are uninsured, or roughly one in ten. A March 2014 study by the Consumer Federation of America, Uninsured Drivers: A Societal Dilemma in Need of a Solution, explains that the data available "conclusively show that lower-income drivers are far more likely, than higher income motorists, to drive without liability coverage." The Plan was originally created in 1947 to provide insurance to those who could not otherwise acquire it due to a poor driving record. Applicants for the Plan coverage are assigned randomly to auto insurers based on each insurer's portion of the voluntary market. Its primary impact has evolved over the years, eventually becoming a primary source of low-cost insurance. (See the Senate Floor Analysis to SB 429 (Lewis), 1993-94 Legislative Session) In 2000, two CLCA pilot programs were established within the Plan in Los Angeles and San Francisco Counties. Since then the CLCA has been expanded to all counties, and according to the DOI, more than 73,000 people have been covered by affordable auto insurance through the program. Last year the CLCA experienced a 22% increase from 2012. At the end of 2013, 11,521 CLCA policies were in force. Comments According to the author's office, this bill reforms and enhances the CLCA program to provide income eligible drivers with affordable automobile liability insurance. Insurance industry estimates state that approximately 15% of the cars on the road do not have insurance for various reasons, with cost being one of them. Although the numbers of applications are up, it is estimated that only 10% of low income individuals currently qualify for the low cost program. The limit on the value of an automobile that can be insured through the program excludes Californians who are just over the threshold but still have lower annual incomes. The CLCA program will face a sunset provision that terminates the program as of January 1, 2016. Also, the eligibility criteria that requires at least three years of previous driving experience excludes many new low-income drivers as well as the CONTINUED SB 1273 Page 9 estimated 1.4 million newly licensed drivers now eligible under AB 60. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee, minor administrative costs to the DOI (Special Fund). SUPPORT : (Verified 5/12/14) California Department of Insurance (source) California Catholic Conference, Inc. California Immigrant Policy Center Coalition for Humane Immigrant Rights of Los Angeles Coalition of California Welfare Rights Organizations Consumer Federation of California Friends Committee on Legislation of California Greenlining Institute AL:d 5/12/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED