BILL ANALYSIS
AB 1597
Page 1
Date of Hearing: April 7, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 1597 (Jones) - As Amended: March 8, 2010
SUBJECT : Automobile insurance: assigned risk plans and
low-cost automobile insurance.
SUMMARY : Extends the sunset date of the low-cost automobile
insurance program by five years, and makes procedural and
clarifying changes to this program. Specifically, this bill :
1)Extends the sunset date of the low-cost automobile insurance
program until January 1, 2016.
2)Eliminates the requirement to publish a notice of a public
hearing in a newspaper located in the City of San Francisco
and a newspaper located in the City of Los Angeles whenever
the Insurance Commissioner (IC) proposes to amend the
"assigned risk plan." The assigned risk plan is the plan
adopted by the IC that requires all automobile insurers to
accept an equitable share of applicants who are unable to
purchase insurance through the normal channels.
3)Requires the manager of the assigned risk plan to ensure
access at no cost to the user as part of the electronic
effective date procedure, rather than requiring the manager to
maintain a toll-free number as part of this procedure.
4)Requires the electronic effective date procedure to include a
procedure to prevent fraudulent applications, rather than
requiring the reference number or a verification code on the
application.
5)Provides that in order for the insurance coverage to be
effective on the day the application is transmitted through
the plan's electronic effective date procedure, the
application forms and deposit shall be submitted to the plan
manager no later than two days after the forms are completed.
The mailing date would be established in accordance with the
procedure established by the plan.
6)Provides that if the application is made without using the
electronic effective date procedure, the insurance coverage
AB 1597
Page 2
shall be effective in accordance with an alternative procedure
established by the plan.
7)Requires the plan to establish a procedure for the maintenance
of appropriate records of risks in order to provide evidence
of the requested effective date of insurance coverage, rather
than specifying in statute the types of evidence required for
the effective date.
8)Requires the application form to contain a notice advising the
applicant that coverage is not effective unless the agent or
broker has transmitted the application within two days of its
completion, and that failure to do so can delay the effective
date of the insurance coverage.
9)Eliminates the requirement that the IC's outreach plan on
low-cost automobile insurance contain the most recent report
to the Legislature on the status of the low-cost automobile
insurance program from the California Automobile Assigned Risk
Plan.
EXISTING LAW :
1)Authorizes the Insurance Commissioner to approve amendments to
the assigned risk plan after holding a public hearing to
determine whether the amendments are in keeping with the
intent of this law.
2)Requires the notice of the public hearing to consider
amendments to the assigned risk plan to be published at least
60 days before the hearing in two newspapers of general
circulation, including one in the City of San Francisco and
another in the City of Los Angeles.
3)Provides that an applicant for insurance under the assigned
risk plan may request a future effective date for coverage
which is no more than 15 days from the application date.
4)Requires the manager of the assigned risk plan to maintain a
toll-free telephone number as part of the electronic effective
date procedure.
5)Provides that insurance coverage for vehicles becomes
effective when certain requirements are met including: (a) the
producer of record inserts the reference number or other
AB 1597
Page 3
required verification code on the application, and (b) the
application forms and the required deposit are mailed to the
plan manager.
6)Requires the producer of record to maintain appropriate
records of all insured risks in order to provide evidence of
the requested effective date of coverage. This evidence shall
consist of the completed applications, eligibility
certification forms, a mail log, a check copy, a check
register, a receipt, and other records created
contemporaneously with the application.
7)Requires the application form to contain a notice advising the
applicant that coverage is not effective unless the agent or
broker has mailed the application within two days of its
completion, and that failure to do so can delay the effective
date of the insurance coverage.
8)Sunsets the low-cost automobile insurance program on January
1, 2011.
9)Requires the Insurance Commissioner to annually propose a plan
to the Assembly and Senate Committees on Insurance that
specifies the methods of informing eligible households about
the availability of the low-cost automobile insurance. This
plan must include, among other requirements, the most recent
annual report to the Legislature on the status of the low-cost
automobile insurance program from the California Automobile
Assigned Risk Plan.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose of bill . The primary purpose of this bill is to
extend the sunset date of the Low-Cost Automobile Insurance
Program until January 1, 2016, in order to ensure that
low-income, good drivers will continue to have access to
affordable auto insurance.
2)Background . California law requires motorists to purchase
auto insurance or to be otherwise financially responsible.
Motorists benefit when all drivers carry insurance. The
low-cost automobile insurance program was created to make
available low-cost liability insurance to "good drivers" who
AB 1597
Page 4
demonstrate financial need and have reached age 19. A good
driver is defined as having:
no more than one at-fault property damage accident
or no more than one point for a moving violation (cannot
have one of each);
no at-fault auto accident involving bodily injury or
death within the past three years; and
no felony or misdemeanor conviction for a violation
of the California Vehicle Code.
Originally created in 1999 for drivers in Los Angeles and San
Francisco, the program has been extended statewide since 2007
(SB 171 Escutia, Chapter 794 of 1999; SB 527 Speier, Chapter
807, Statutes of 1999; and SB 20 Escutia, Chapter 435,
Statutes of 2005). Annual auto insurance premiums are set by
county and currently range from $161 to $368 per year. The
premium rates are set by a public rate-setting process. The
Department of Insurance (DOI) uses a 5-cent assessment on
every insured vehicle in the state toward this program's
consumer education and outreach campaign.
In 2009, the program experienced a 19 percent increase in
demand, attributed chiefly to the economic downturn. The
low-cost automobile insurance program has provided
approximately 50,000 policies since its inception, and had
11,439 policies in force during the last reporting period
(December 31, 2009).
The DOI is working with the California Automobile Assigned
Risk Plan (CAARP) to change the online application system
(EASi) in order to capture better statistics about
Californians who approach producers as a result of advertising
regarding the low-cost auto insurance program but who decide
to purchase a standard auto policy.
1)Arguments in support . According to the author and the
sponsor, the DOI, this bill enables good drivers to purchase
insurance with lower coverage requirements than are available
on the open market, which often allows premiums to be lower.
These policies are required to be actuarially sound, to be
sold by licensed private insurance agents, and to be
underwritten by private insurance companies. The proponents
also state that as a result of the consumer education and
outreach efforts made on behalf of the low-cost auto program,
consumers are informed about higher levels of coverage
AB 1597
Page 5
available from regular policies that may cost the same, less,
or only slightly more. In some instances the consumer chooses
the standard policy with the higher coverage benefits. These
numbers are not now reflected in the "success" total of
consumers who benefit from this program. However, this
outcome should be counted as a success since the advertising
directly led the consumers to becoming insured.
2)What counts as success? The bill amends the section of law
that identifies the indicators of success for the low-cost
automobile insurance program (Section 11629.85 of the
Insurance Code). In light of the new information recently
provided to the Insurance Committee that a significant number
of meetings with insurance agents generated by this program's
advertising result in the purchase of standard auto policies,
it is recommended that the bill be amended to also identify
those instances as an indicator of success. Section 4 of the
bill (at page 8, after line 8) could be amended to include:
"(4) the program's outreach efforts lead uninsured motorists
to contact a producer, and the driver obtains any auto
insurance policy that complies with California law."
3)Assure that proof of financial responsibility law continues in
effect in counties of Los Angeles and San Francisco. In 1996,
AB 650 (Speier), Chapter 1126, Statutes of 1996, enacted the
requirement that the Department of Motor Vehicles require
individuals who apply to renew their vehicles to submit a
proof of financial responsibility (usually in the form of auto
insurance). That law also requires every driver to provide
evidence of financial responsibility upon the demand of a
peace officer. In 1999, SB 171 (Escutia), Chapter 794,
Statutes of 1999, established a 4-year pilot project to
authorize the sale of low-cost auto insurance in the County of
Los Angeles. Also in 1999, SB 527 (Speier), Chapter 807,
Statutes of 1999, established a 4-year pilot project to
authorize the sale of low-cost auto insurance in the City and
County of San Francisco. Both of these laws contained a
provision providing that when the authority to obtain the low
cost auto insurance expired (in 1-1-2004), the financial
responsibility requirements, noted above, would also expire.
The linking of authorizing the sale of low-cost auto insurance
with the application of the financial responsibility laws has
continued until the present day (with other authorizing laws).
The most recent law that extended the sunset date on the
low-cost auto insurance is SB 20 (Escutia), Chapter 435,
AB 1597
Page 6
Statutes of 2005, which extends the authority of the low-cost
auto insurance program until January 1, 2011.
Unless the Legislature takes action in this bill or another
bill, the proof of insurance requirement in the counties of
Los Angeles and San Francisco will sunset. That result would
be inconsistent with current state policy, especially if the
low-cost auto insurance program is extended. Thus, it is
recommended that this bill amend Sections 16020.1 and 16020.2
of the Vehicle Code to extend the sunset date to January 1,
2016 on the proof of insurance requirement for the two
counties.
4)Technical correction recommended . The bill proposes to
require that the application forms and the required deposit be
submitted , instead of mailed, to the plan manager no later
than two days after the application forms are completed. The
bill, however, still requires the mailing date to be
established in accordance with the procedure established by
the plan. Thus, the bill is recommended to be amended to
require that the submission date of the application forms be
established in accordance with the procedure established by
the plan. This change is proposed for page 4, line 37, of the
bill.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Insurance (Sponsor)
California Communities United Institute
Consumer Federation of California
Consumer Watchdog
Opposition
None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086