BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1273|
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THIRD READING
Bill No: SB 1273
Author: Lara (D), et al.
Amended: 4/22/14
Vote: 21
SENATE INSURANCE COMMITTEE : 9-1, 4/9/14
AYES: Monning, Corbett, Correa, DeSaulnier, Lieu, Mitchell,
Roth, Torres, Vidak
NOES: Nielsen
NO VOTE RECORDED: Gaines
SENATE APPROPRIATIONS COMMITTEE : 4-1, 5/5/14
AYES: De Le�n, Hill, Lara, Steinberg
NOES: Walters
NO VOTE RECORDED: Gaines, Padilla
SUBJECT : Insurance: low-cost automobile insurance program
SOURCE : Department of Insurance
DIGEST : This bill extends, until January 1, 2020, the sunset
date on the California Low-Cost Automobile Insurance Program
(CLCA); expands eligibility criteria to include drivers with
less than three years of continuous driving experience and
assesses a surcharge on those drivers; and makes other changes
designed to increase participation.
ANALYSIS :
Existing law:
CONTINUED
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1. Provides that the financial responsibility of the driver or
owner of a vehicle is established if the driver or owner
carries proof of financial responsibility, and that proof of
insurance satisfies that requirement:
A. Requires that qualifying insurance cover the owner or
driver for liabilities arising from any one accident in
amounts of at least $15,000 for bodily injury or death for
each person, up to $30,000, and $5,000 for property damage
for each accident.
B. Requires applicants for renewal of registration of a
vehicle to submit evidence of financial responsibility.
2. Establishes the California Automobile Assigned Risk Plan
(CAARP) for the purposes of providing automobile bodily
injury and property damage liability insurance to applicants
who in good faith are entitled to but are unable to procure
that insurance through ordinary methods:
A. Requires the Insurance Commissioner (Commissioner) to
approve or issue a reasonable plan and permits the
Commissioner to approve or issue reasonable amendments
to the Plan that are approved by the Plan's advisory
committee after a public hearing and other procedures;
B. Creates a 15-member advisory committee comprised of
eight members elected by subscribing insurers and seven
appointed by the Commissioner;
C. Requires that the cost of the plan, including any
personnel and contracting costs, be fairly apportioned
among the subscribing insurers;
D. Requires the plan to address standards for
determining eligibility; apportion eligible applicants
among insurers; provide for rules for administering and
operating the plan; and explain the basis for premium
charges; and describe other procedures;
E. Requires that rates not be excessive, inadequate, nor
unfairly discriminatory, and actuarially sound so as to
result in no subsidy of the plan;
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F. Requires the CAARP to establish a Web site, subject
to the Commissioner's approval, www.mylowcostauto.com or
other relevant domain name, and sets standards for the
Web site.
G. Requires the plan to provide an annual status report
to the Legislature.
3. Establishes the CLCA within the CAARP, to provide low-cost
auto liability policies:
A. Requires a CLCA policy to provide insurance coverage
for a one-year term offering coverage for liabilities
arising from any one accident in amounts of at least
$10,000 for bodily injury or death for each person, up
to $20,000, and $3,000 for property damage for each
accident;
B. Provides that notwithstanding Vehicle Code Section
16056, a CLCA policy issued under the program shall
satisfy the financial responsibility requirements of
Vehicle Code Sections 4000.37, 16021, and 16431;
C. Requires the insurer to offer optional
uninsured/underinsured motorist coverage and medical
payments coverage (covering medical expenses to the
insureds and passengers) for an additional charge;
D. Provides that the policy cover the named person and
any other person permitted to use the automobile, except
for members of the insured's household who do not meet
the eligibility criteria (not including the income
requirement and college student exclusion);
E. Limits coverage to automobiles valued at the time of
purchase to $20,000 or less;
F. Sets specific rates for certain counties, unless
otherwise established by the Commissioner;
G. Requires a surcharge for drivers or members of a
household covered by the policy that are unmarried males
between the ages of 19 and 24;
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H. Requires the CLCA to offer a six-month payment option
with no more than 15% down and prohibits any other
premium financing arrangement;
I. Requires that rates must satisfy the following
standards:
(1) Rates must be sufficient to cover losses
under the policies and expenses incurred due to
participation in the program, including the costs
of administration, underwriting, taxes,
commissions, and claims adjusting;
(2) Nonparticipating consumers must not
subsidize CLCA participants; and
(3) Participating consumers in one county
must not subsidize the rate in another county.
J. Requires the CAARP to annually submit a rate plan to
the Commissioner with the loss and expense data for the
CLCA program;
K. Sets eligibility criteria for applicants;
L. Credits drivers who have driving experience obtained
in countries other than the U.S. or Canada for the
purposes of qualifying with sufficient experience, as
specified;
M. Provides that the policy may be cancelled or
nonrenewed for only specified reasons;
N. Requires every producer (agent or broker) to inform
prospective applicants of the CLCA program, as
specified; and
O. Declares that the CLCA program is not intended to
amend, nor is subject to, Proposition 103.
4. Provides that an application may be made through a producer
certified by the CLCA and requires the applicant to provide a
copy of state or federal income tax returns or other reliable
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evidence from a government agency, as specified, for proof of
income, and requires a certified producer to provide
applicants with coverage disclosures and limitations.
5. Limits constitutional challenges to those commenced on
February 1, 2000, or before.
6. Repeals the CLCA program on January 1, 2016, unless extended.
7. Requires the Department of Motor Vehicles to notify residents
of the CLCA program when it sends a notice of intent to
suspend, cancel, or revoke registration for reason of lack of
insurance coverage.
8. Requires insurers to pay an annual special purpose assessment
of up to $0.25, until January 1, 2016, for each vehicle
insured under an insurance policy it issues in this state:
A. Permits up to $0.05 of that assessment to be used to
notify insurers and other members of the public about the
existence of any low-cost automobile insurance program;
and
B. Requires the Commissioner to prepare and propose an
outreach plan for the CLCA program by March 1 of each year
to the Assembly Insurance Committee and the Senate Banking
Finance and Insurance Committee that address issues as
specified and makes funding for the Plan contingent on
review by those committees and specifies requirements for
the outreach plan.
This bill:
1. Removes obsolete provisions related to the county-by-county
expansion of the program and the statutorily rates set for
specified counties.
2. Eliminates the cap on the value of the insured vehicle set at
more than $20,000 valued at the time of purchase.
3. Requires that surcharges be added to the base rates of the
following:
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A. Unmarried males between the ages of 19 and 24 years
of age; and
B. Drivers who:
(1) Are licensed pursuant to Vehicle Code
Section 12801.9 with fewer than three years of
driving history;
(2) Have less than three years of driving
history; or
(3) Have not been continuously licensed to drive
for the past three years.
4. Permits the Commissioner to approve or issue additional
installment plan options.
5. Requires the CLCA to submit a revised rate plan to the
Commissioner every three years rather than annually.
6. Permits a person who has not been continually licensed to
drive or has fewer than three years of driving history to
qualify for the CLCA if they qualify for a surcharge as
specified.
7. Permits a producer not certified by the CLCA to refer
inquiring consumers to its Web site in lieu of the program's
toll-free number.
8. Revises the disclosure provided to CLCA policy purchasers to
reflect revisions to the eligibility requirements.
9. Entitles certified producers of the CLCA to a commission rate
of a fixed percent (currently set with a blank) or one set by
the Commissioner that is no less than that paid by the Plan
for private passenger, nonfleet risks.
10.Requires the CLCA and the insurer to notify producers of any
pending policy cancelations and allows the consumer to
reinstate, in lieu of canceling, policies canceled for
nonpayment of premium.
11.Requires the CLCA and insurers to accept payment by check or
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money order, and accept down or installment payments by debit
or credit card by telephone or through its Web site.
12.Requires the CLCA to submit the report required by Insurance
Code Section 11629.81 to the Commissioner (instead of the
Legislature) so that the Department of Insurance (DOI) may
combine that report with the outreach plan required by
Insurance Code Section 11629.85 and submit a consolidated
report to the Legislature (rather than specified legislative
committees) on March 15 of each year, and eliminates the
requirement that funding for the outreach plan be contingent
on review by specified legislative committees.
13.Extends the January 1, 2016, sunset date to January 1, 2020.
14.Revises provisions related to the CLCA's Web site located at
www.mylowcostauto.com, eliminating the alternative
contracting provisions related to the Web site and permitting
an applicant to apply for the program directly through the
Web site rather than through a certified producer.
15.Recognizes the validity of electronic signatures for the
purposes of the CLCA program.
16.Requires the CLCA and subscribing insurers to establish a
data system that tracks renewed policies, policy
cancellations, and nonrenewals and grant the DOI access to
that data.
Background
Private passenger automobile insurance protects the owner of the
vehicle, the driver, passengers, and any person potentially
injured by an accident involving the insured vehicle or person.
It basically provides some resources in making an injured party
"whole"; without auto liability coverage, injured parties may
receive nothing to assist in the payment of medical costs, lost
wages, etc., and may be stuck paying the bills themselves.
Since 1974, existing law has required drivers to carry liability
coverage for bodily injury or death of at least $15,000 for each
person up to $30,000 as well as coverage for property damage of
least $5,000 per accident.
The problem of uninsurance plagues the entire nation and a lack
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of affordable liability coverage hits low-income drivers the
hardest. The DOI estimates that there are approximately 3
million cars on the road that are uninsured, or roughly one in
ten. A March 2014 study by the Consumer Federation of America,
Uninsured Drivers: A Societal Dilemma in Need of a Solution,
explains that the data available "conclusively show that
lower-income drivers are far more likely, than higher income
motorists, to drive without liability coverage."
The Plan was originally created in 1947 to provide insurance to
those who could not otherwise acquire it due to a poor driving
record. Applicants for the Plan coverage are assigned randomly
to auto insurers based on each insurer's portion of the
voluntary market. Its primary impact has evolved over the years,
eventually becoming a primary source of low-cost insurance.
(See the Senate Floor Analysis to SB 429 (Lewis), 1993-94
Legislative Session)
In 2000, two CLCA pilot programs were established within the
Plan in Los Angeles and San Francisco Counties. Since then the
CLCA has been expanded to all counties, and according to the
DOI, more than 73,000 people have been covered by affordable
auto insurance through the program. Last year the CLCA
experienced a 22% increase from 2012. At the end of 2013,
11,521 CLCA policies were in force.
Comments
According to the author's office, this bill reforms and enhances
the CLCA program to provide income eligible drivers with
affordable automobile liability insurance. Insurance industry
estimates state that approximately 15% of the cars on the road
do not have insurance for various reasons, with cost being one
of them. Although the numbers of 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 CLCA program will face a sunset provision that terminates
the program as of January 1, 2016. Also, the eligibility
criteria that requires at least three years of previous driving
experience excludes many new low-income drivers as well as the
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estimated 1.4 million newly licensed drivers now eligible under
AB 60.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, minor
administrative costs to the DOI (Special Fund).
SUPPORT : (Verified 5/5/14)
California Department of Insurance (source)
California Catholic Conference, Inc.
California Immigrant Policy Center
Coalition for Humane Immigrant Rights of Los Angeles
Coalition of California Welfare Rights Organizations
Consumer Federation of California
Friends Committee on Legislation of California
AL:d 5/7/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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