BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 1597 (Jones) Hearing Date: June 30, 2010
As Amended: April 13, 2010
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor(05/13/10)74-03/Pass
Asm. Appr. (04/28/10)13-02/Pass
Asm. Ins. (04/07/10)11-0/Pass
SUMMARY Would extend the California low cost auto program
sunset from 2001 to 2016 and to make various statutory changes
to conform its operations to standard California administrative
practices and facilitate greater efficiency and more
customer-friendly operations for the public and producers alike.
DIGEST
Existing law
1. The California Automobile Assigned Risk Plan operates the
California Low-Cost Automobile Insurance program which 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;
2. 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. 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 with premium that vary by
county; installment options are available;
3. Requires that access to the plan for an immediate date be
provided via a tool-free number and specifies the procedure for
AB 1597 (Jones), Page 2
establishing an electronic effective date shall be established
by the plan;
4. The Insurance Commissioner is required to adopt a plan for
operation of the program, including the apportionment of the
costs of this program equitably among admitted liability
insurers, following a public hearing conducted as provided under
this law, which includes a special requirement for a notice to
be published in two newspapers in Northern and Southern
California at least 60 days prior to the hearing or close of
public comment.
5. This program is due to sunset on January 1, 2001
This bill
1. Would delete the special notice procedural requirement of
the current low-cost auto program law and subject it instead
to the standardized provisions and procedures of the
Administrative Procedures Act.
2. Would make various procedural changes that support
technology and other operational improvements to make
administration of the CLCA faster and more convenient for
producers and public alike and makes other technical
changes.
3. Would extend the sunset from January 1, 2011 to January 1,
2016.
COMMENTS
1. Purpose of the bill To extend the California low cost auto
program sunset from 2001 to 2016 and to make various
statutory changes to conform its operations to standard
California administrative practices and facilitate greater
efficiency and more customer-friendly operations for the
public and producers alike.
2. This measure is sponsored by the California Department of
Insurance to extend the low cost auto program sunset from
2001 to 2016 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 50,000 policies since its
inception, helping thousands comply with California law;
AB 1597 (Jones), Page 3
3. The DOI notes last year's bill was vetoed by the Governor
who indicated there should be a review of program results
for the purpose of identifying changes to help ensure its
success. In response, the DOI and the CLCA have instituted
numerous changes to permit electronic transactions where
previously only mail-based transactions took place and to
facilitate more effective and cost-beneficial public
outreach. More specifically, they report:
a. Better targeted advertising;
b. Increased use of an online agent application process
to reduce errors and speed processing.
c. Immediately providing hotline callers with names of
3 qualified agents instead of sending a list through the
mails.
d. Making other various changes, improvements and
simplifications.
4. Notwithstanding last year's veto, 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 vital program in the current
economic downturn. It reports an 18.9% increase in
enrollment in 2009 and indicates numbers for 2010 continue
to be high.
5. Background California's Low-Cost Automobile Insurance
program has expanded 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.
6. 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.
7. In 2008, 7,892 applications were received of which 6,306
were assigned.
AB 1597 (Jones), Page 4
8. 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.
9. 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
uninsured at the time of application.
10.A 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.
11.Support Consumer Attorneys of California (CAOC) supports
the bill, 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 $400 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".
12.Opposition None
13.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.
14.Suggested Amendments None
15.Prior Legislation
a. In 2009, AB 725 (Jones) to extend the sunset and
make various other changes not in this bill was vetoed by
the Governor, as follows:
AB 1597 (Jones), Page 5
To the Members of the California State Assembly:
I am returning Assembly Bill 725 without my signature.
While I recognize the need to provide low cost automobile
insurance
to low income drivers, the effectiveness of this program is
questionable given the number of policies in effect and low
participation rate amongst the uninsured. Since the law this
bill is
looking to extend does not expire until January 1, 2011, I
encourage
the author and sponsor to take the next year to examine the
results
of the program and determine if any changes are needed to the
program
to ensure its success.
For this reason I am unable to sign this bill.
Sincerely,
Arnold Schwarzenegger
POSITIONS
Support
California Department of Insurance (Sponsor)
Consumer Federation of California
Consumer Attorneys of California
Consumer Watchdog
California Communities United Institute
Hon. Congresswoman Jackie Speier
Oppose
None
Consultant: Kenneth Cooley (916) 651-4102