BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 725 (Jones) Hearing Date: July 9, 2009
As Amended: June 22, 2009
Fiscal: Yes
Urgency: No
SUMMARY Extends the sunset date for California's Low Cost Auto
Insurance program from January 1, 2011 to January 1, 2016 and
renames this insurance program the Martha Escutia and Jackie
Speier low-cost automobile insurance program.
DIGEST
Existing law
1. The California Automobile Assigned Risk Plan operates the
California Low-Cost Automobile Insurance program.
2. The California Low-Cost Automobile Insurance program 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.
3. 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.
4. Premiums for the low-cost policy vary by county and installment
options are available.
5. To qualify for a low-cost policy, household income can't 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.
6. This program is due to sunset on January 1, 2001
This bill
AB 725
(Jones), Page 2
1. Extends the sunset from January 1, 2011 to January 1, 2016.
2. Names the California Low-Cost Automobile Insurance program
the Martha Escutia and Jackie Speier low-cost automobile
insurance program
AB 725
(Jones), Page 3
COMMENTS
1. Purpose of the bill This measure is sponsored by the
California Department of Insurance to extend the low cost
auto program sunset from 2001 to 2016 and to rename it the
Martha Escutia and Jackie Speier low-cost automobile
insurance program. 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 43,000 policies
since its inception, helping thousands comply with
California law.
2. 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
component to making liability insurance affordable and
available to all Californians.
3. Background California's Low-Cost Automobile Insurance
program has expanded steadily from its inception in 1999.
Starting as a pilot in Los Angeles and San Francisco
counties pursuant to 1999 legislation by Martha Escutia (SB
171) and Jackie Speier (SB 527), in 2005 SB 20 (Escutia)
authorized its eventual expansion to all counties in
California at the discretion of the Commissioner of
Insurance. 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.
4. Information provided by the DOI indicates that in 2008,
77% of all policies issued went to applicants with a yearly
household income of at or below $20,000.
5. In 2008, 7,892 applications were received of which 6,306
were assigned.
6. While the program specifies an applicant's vehicle can not
exceed $20,000 dollars in value at the time of their
application for insurance, in 2008 most vehicles insured had
a value of less than $5,000 dollars.
7. Statistics provided by the program administrator, the
California Automobile Assigned Risk Plan, indicate that in
2008, 70% of new policies went to applicants who were
AB 725
(Jones), Page 4
uninsured at the time of application.
8. Additional Statistics: California Low Cost Auto Insurance
Program
According to statistics made available by the Department of
Insurance, the number of policies written annually is as
follows:
---------------------------------------------------------------------------------------------------
| Year | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |2009 YTD |
| | | | | | | | | | (5/31) |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Policies | 1,116 | 2,390 | 5,631 | 7,202 | 5,991 | 6,216 | 8,144 | 6,306 |3,135 |
---------------------------------------------------------------------------------------------------
According to this data, program participation peaked in 2004
and 2007. The DOI has an active program underway to promote
awareness of its features and availability.
The January 2009 Annual Report of the Low Cost Auto
Insurance program discloses that there are approximately
5,400 active agents/producers in California who are
certified for the California Automobile Assigned Risk
Program (CAARP) and are thus required by law to process low
cost auto program applications. That number is approximately
1,000 less than the prior year; the Annual Report notes
"This is a result of certified agents not wanting to write
the program so have dropped their CAARP certification so
that they are not required to do so."
Other notable program statistics are:
1,599 policies were assigned during the 3rd Quarter of 2008
(July-September).
2008 saw the number of policies in force drop from 11,385
to 10,619.
Over the program's lifetime (7/1/00 through 12/31/08), it
has assigned 43,518 policies based on 55,152 applications
received.
The Top Ten Companies have renewal rates ranging from
45.52% to 61.84%.
AB 725
(Jones), Page 5
9. A recent 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 a
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.
10."Naming programs versus assigning bills "short titles":
Senate Rule 22.6 & Joint Rule 10.6 These two rules state "A
bill may not add a short title that names a current or
former Member of the Legislature.
Titles to bills enacted in earlier years can be found across
the California State Codes. Thus, for example, in the Food
and Agriculture Code, Section 74009 states:"This chapter
shall be known and may be cited as the Dills-Bronzan
Winegrowers Joint Commission Act of 1986." In the Education
Code, examples of law "titles" are found in Section 89305,
"This article shall be known, and may be cited, as the
Gloria Romero Open Meetings Act of 2000" and Section 69430,
"This chapter shall be known, and may be cited, as the
Ortiz-Pacheco-Poochigian-Vasconcellos Cal Grant Program".
AB 725 does not insert in the Insurance Code a provision
that names the body of law establishing California's
low-cost automobile insurance program after former Senators
Escutia and Speier; rather the program itself is named after
these former lawmakers. According to staff to the Senate
Rules Committee, programs named after a former legislator do
not violate the rules prohibiting the adding of a short
title named after a current or former legislator to a bill.
11.Support Consumer Watchdog, which supports the bill notes
that since its inception this program has insured about
45,000 low-income motorists, the vast majority of whom (over
80%) had been previously uninsured, thus documenting the
program's success in meeting its original goal. Consumer
Watchdog also notes the timeliness of this measure in the
current economy, that the economic downturn and job losses
"make the program more important than ever before".
12.Consumer Attorneys of California (CAOC) supports the bill,
AB 725
(Jones), Page 6
stating California motorists have shown a need for the
program as it insures over 9,000 low-income motorists a year
with annual premiums under $4000 per person. CAOC states it
"is important to maintain a low-cost policy available for
California motorists" and "Affordable insurance will help
motorists meet their responsibilities under California's
financial responsibility law".
13.Opposition None
14.Questions For ongoing monitoring of this program, the
issue of market acceptance, both on the consumer side, and
among the licensed insurance producers who are the
consumer's connection to the program, will weigh heavily on
the ongoing increase or decline in this program, as will the
current economy.
15.Suggested Amendments None
16.Related legislation AB 601 (Garrick) authorizes a continued
fee that supports various DOI consumer programs, including
publicizing the availability of the Low Cost Auto Insurance
program for low-income, California good drivers.
17.Prior Legislation
a. In 1999 SB 171 by Martha Escutia and SB 527 by
Jackie Speier
b. In 2005, SB 20 (Escutia)
POSITIONS
Support
California Department of Insurance
Consumer Watchdog
California Communities United Institute
Consumer Attorneys of California
Opposition
None
Principal Consultant: Kenneth Cooley (916) 651-4102