BILL ANALYSIS �
SB 1273
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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