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  








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            (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








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               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  








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            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 
           








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          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