BILL ANALYSIS Ó SB 1273 Page 1 Date of Hearing: June 25, 2014 ASSEMBLY COMMITTEE ON INSURANCE Henry T. Perea, Chair SB 1273 (Lara) - As Amended: June 18, 2014 SENATE VOTE : 26-7 SUBJECT : Low-Cost Automobile Insurance Program SUMMARY : Expands eligibility criteria for the Low-Cost Automobile Insurance Program (LCAP), extends the program sunset date, increases the commission paid for LCAP policies, and generally updates the LCAP statutes. Specifically, this bill : 1)Increases the maximum value of a vehicle that can be insured in LCAP from $20,000 at the point of purchase to $25,000 based on current valuation used by the Department of Motor Vehicles for calculating the vehicle license fee. 2)Permits a driver to purchase insurance from LCAP if the driver pays an additional surcharge and is any of the following: A) An undocumented resident with a driver's license and less than three years of driving experience. B) A driver with less than three years of driving experience. C) A driver who has not been continually licensed to drive for the past three years. 1)Increases the minimum initial payment required for an installment plan from 15% to 20% of the premium, and increase the number of installment payments from 6 to 7. 2)Requires LCAP to make an annual rate filing with the Insurance Commissioner (commissioner) between January 1, 2015 and January 1, 2017. Thereafter, requires LCAP to make a rate filing with the commissioner when the annual rate would increase or decrease by more than 7%. 3)Increases the commission paid for selling an LCAP policy to the greater of 12% of premium or $50. 4)Requires the California Automobile Assigned Risk Program SB 1273 Page 2 (CAARP) Advisory Committee to report to the commissioner on the following proposals: A) Allowing a driver to reinstate a lapsed LCAP policy. B) Allowing LCAP premium installment payments to be made with debit or credit cards. C) Allowing economically independent drivers under the age of 19 to purchase an LCAP policy. D) Allowing families to keep an LCAP policy if they add a driver under the age of 19. 5)Revises the statutory requirements for the LCAP website. 6)Extends the LCAP sunset date to January 1, 2020. 7)Repeals obsolete language relating to the formation of the LCAP. EXISTING LAW : 1)Requires the owner/operator of an automobile to demonstrate financial responsibility. This requirement is most commonly fulfilled by purchasing automobile insurance. 2)Specifies that automobile insurance must provide liability coverage with at least the following coverage limits (minimum limits policy): A) $15,000 for injury to a single person B) $30,000 for injury to two or more people in the same accident C) $5,000 for property damage 1)Permits an undocumented resident to obtain a driver's license if he or she can provide satisfactory proof of residency and can meet all the other qualifications for a diver's license. 2)Establishes within the California Automobile Assigned Risk Program (CAARP) the LCAP to provide low income drivers with a more affordable insurance policy to satisfy the financial responsibility requirement. 3)Requires LCAP policies provide the following coverages: A) $10,000 for injury to a single person SB 1273 Page 3 B) $20,000 for injury to two or more people in the same accident C) $3,000 for property damage 1)Permits, generally, individuals with good driving records and income below 250% of the poverty level to purchase insurance through the LCAP. 2)Restricts LCAP policies to vehicles with a value of $20,000 or less at the time of purchase. 3)Permits LCAP to offer installment payment plans if the purchaser pays at least 15% of the premium when the policy is issued. 4)Requires LCAP to submit its rate plans to the Commissioner for approval every year. 5)Restricts the sales commission paid to insurance agents for LCAP policies to $35. 6) Provides that an LCAP policy can be cancelled for: A) Non-payment of premium B) Fraud C) Purchase of additional automobile insurance above the LCAP policy limits. 7)Requires the CAARP board to establish a website for LCAP that refers consumers to a participating agent and allows consumers to purchase an LCAP policy online. 8)Sunsets the LCAP effective January 1, 2016. FISCAL EFFECT : Undetermined COMMENTS : 1)Purpose . This bill would make necessary reforms and enhancements to the California Low Cost Auto insurance program so that access to affordable auto insurance is available to as many individuals residing in the state as possible. Insurance industry estimates state that approximately 15 percent of the cars on the road do not have insurance for various reasons, with cost being one of them. Although the numbers of SB 1273 Page 4 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 California Low Cost Automobile insurance program will face a sunset provision that would terminate the program as of January 1, 2016. Also, the bill allows drivers currently excluded by the requirement to have at least three years of previous driving experience, including many new low-income drivers and many of the estimated 1.4 million newly licensed drivers under AB 60, to participate in the program if they meet the other requirements and pay a surcharge on top of the base premium. 2)Financial Responsibility . California law requires anyone owning or operating an automobile to demonstrate "financial responsibility." While there are a number of options available to satisfy this requirement, virtually all drivers purchase a private passenger automobile insurance policy to do so. Despite this requirement, the Department of Insurance estimates that between 3 and 4 million vehicles in California are operated without insurance. 3)CAARP/LCAP . The LCAP was established to partially address the problem of uninsured drivers by making cheaper insurance policies available to low-income drivers with good driving records. LCAP policies were made cheaper by creating a policy with lower coverage limits that satisfies the financial responsibility law. Relatively few drivers buy LCAP policies (approximately 11,000 at present) because they are frequently able to buy a policy from a private insurer with higher limits at only a slightly higher price. However, there are aspects of the program, such as installment payment options, vehicle valuation rules, and the inability to reinstate a policy, that pose challenges to individuals interested in an LCAP policy. The bill addresses these issues by making relatively minor adjustments to the program and requiring the CAARP Advisory Committee to study a number of options to improve the program and make recommendations to the commissioner. REGISTERED SUPPORT / OPPOSITION : Support SB 1273 Page 5 Department of Insurance (sponsor) California Catholic Conference California Immigrant Policy Center Consumer Federation of California Personal Insurance Federation of California Opposition None received Analysis Prepared by : Paul Riches / INS. / (916) 319-2086