BILL ANALYSIS �
SB 1273
Page 1
SENATE THIRD READING
SB 1273 (Lara)
As Amended August 4, 2014
Majority vote
SENATE VOTE :26-7
INSURANCE 10-1 APPROPRIATIONS 13-4
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|Ayes:|Perea, Hagman, Bradford, |Ayes:|Gatto, Bocanegra, |
| |Ian Calderon, Cooley, | |Bradford, |
| |Dababneh, Frazier, | |Ian Calderon, Campos, |
| |Gonzalez, V. Manuel | |Eggman, Gomez, Holden, |
| |P�rez, Wieckowski | |Linder, Pan, Quick, |
| | | |Ridley-Thomas, Weber |
|-----+--------------------------+-----+--------------------------|
|Nays:|Beth Gaines |Nays:|Bigelow, Donnelly, Jones, |
| | | |Wagner |
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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 time of purchase to $25,000 based
on current valuation used by the Department of Motor Vehicles
for calculating the vehicle license fee.
2)Permits the California Automobile Assigned Risk Program
(CAARP) Advisory Committee to develop an alternative method to
determine the current market value of the vehicle subject to
the approval of the Insurance Commissioner (commissioner).
3)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.
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c) A driver who has not been continually licensed to drive
for the past three years.
4)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 six to seven.
5)Requires LCAP to make an annual rate filing with the
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%.
6)Increases the commission paid for selling an LCAP policy to
the greater of 12% of premium or $50 in 2015.
7)Requires the 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.
8)Revises the statutory requirements for the LCAP Web site.
9)Extends the LCAP sunset date to January 1, 2020.
10)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.
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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; and
c) $5,000 for property damage.
3)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.
4)Establishes within the CAARP the LCAP to provide low income
drivers with a more affordable insurance policy to satisfy the
financial responsibility requirement.
5)Requires LCAP policies provide the following coverages:
a) $10,000 for injury to a single person;
b) $20,000 for injury to two or more people in the same
accident; and
c) $3,000 for property damage.
6)Permits, generally, individuals with good driving records and
income below 250% of the poverty level to purchase insurance
through the LCAP.
7)Restricts LCAP policies to vehicles with a value of $20,000 or
less at the time of purchase.
8)Permits LCAP to offer installment payment plans if the
purchaser pays at least 15% of the premium when the policy is
issued.
9)Requires LCAP to submit its rate plans to the commissioner for
approval every year.
10)Restricts the sales commission paid to insurance agents for
LCAP policies to $35.
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11) Provides that an LCAP policy can be cancelled for:
a) Non-payment of premium;
b) Fraud; or
c) Purchase of additional automobile insurance above the
LCAP policy limits.
12)Requires the CAARP board to establish a Web site for LCAP
that refers consumers to a participating agent and allows
consumers to purchase an LCAP policy online.
13)Sunsets the LCAP effective January 1, 2016.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, this bill would result in minor administrative costs,
less than $50,000 (Insurance Fund), to the California Department
of Insurance to modify policies and comply with reporting and
consumer information requirements.
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% 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 California Low Cost
Automobile insurance program will face a sunset provision that
would terminate the program as of January 1, 2016. Also, this
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
(Alejo), Chapter 524, Statutes of 2013, to participate in the
program if they meet the other requirements and pay a
SB 1273
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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 three and four 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.
This 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.
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086
FN: 0004576