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Jul 05, 1999
by Jim Sams
Low Cost Auto Coverage Eyed
Plan Would Insure PoorSacramento -- Leslie Brewer of Stockton didn't buy car insurance until the state put teeth in its mandatory insurance law in 1996. Now she's shelling out $39.91 a month for the minimum coverage allowed by law.
"I really can't afford any more than that," said Brewer, a single mother who earns about $20,000 a year. But that $479 annual premium is a relative bargain compared with the cost of automobile insurance elsewhere in California. Drivers in Los Angeles can't get coverage for less than $1,000 a year even if they have perfect driving records, industry experts say.
That's why state legislators are considering creation of a new "lifeline insurance policy" that would offer low-income motorists bare-bones coverage at a discount, similar to the subsidized rates available to low-income electric and telephone customers. Low-income motorists would pay $300 or $400 a year for a liability-only policy, depending on whether they had one citation in the past three years or none. Drivers with more than one ticket wouldn't qualify.
Advocates say insurance companies have an obligation to offer low-cost coverage to poor people, because the state requires drivers to buy their product whether
they can afford it or not. They predict that the lifeline policies won't cost insurance companies a dime, because actuarial data show that premiums will cover the cost of claims plus commissions to agents and administrative overhead.
The policies, however, will create far greater savings for drivers in high-cost cities such as Los Angeles than in the relatively cheap Central Valley.
Assemblyman Michael Machado, D-Linden, and other skeptics say that if the advocates are wrong and the lifeline premiums don't cover costs, insurance companies will raise nonlifeline premiums, and drivers in places such as Stockton will end up subsidizing drivers in Los Angeles.
That scenario would create a serious problem for motorists such as Brewer. Her job as a sales clerk pays slightly too much for her to qualify for the proposed lifeline policy. She could end up paying more for a program that benefits low-income drivers in Los Angeles if nonsubsidized rates go up to cover the cost of the lifeline insurance.
Creating flat-rate insurance pricing is a perennial issue in the California Legislature. If insurance companies didn't charge higher rates in riskier, congested, urban areas, they would have to raise rates elsewhere. The proposed lifeline flat rate would affect only low-income drivers, but Machado said it could set a dangerous precedent.
"I represent the people of Stockton," Machado said. "I don't want to open the crack in the door to go to flat rating in other areas. We should have to pay for the risk that we incur and we create."
Two versions of the lifeline auto insurance are working their way through the Legislature. Senate Bill 171 by Sen. Martha Escutia, D-Montebello, would create the flat-rate policies at $300 or $400 per year. Car owners who earn less than 150 percent of the federal poverty level, about $20,000 for a family of three, would qualify if they had one or no moving-violation points in the past three years.
The lifeline policies would offer less coverage than the amount now required by law: $10,000 for bodily injury, $20,000 maximum for all people injured in the same accident and $3,000 for property damage instead of the $15,000, $30,000 and $5,000 minimums now set by law.
The bill has passed the Senate and is scheduled for a hearing Wednesday before the Assembly Insurance Committee.
Sen Jackie Speier, D-Hillsborough, has introduced a similar bill that leaves open the exact cost of the policy until a Senate-appointed actuary determines what the price should be based on historical loss data.
The Foundation for Taxpayer and Consumer Rights in Santa Monica, which is sponsoring Escutia's bill, hired its own actuary, who determined that rates would not rise as a result of the lifeline policy. Spokesman Doug Heller said the policy would help motorists even in relatively low-cost communities such as
Stockton. Although drivers with years of experience and clean records can purchase basic insurance for as little as $201 a year in Stockton, young drivers have to pay hundreds of dollars more, Heller said.
What's more, Heller said, the lifeline policy would reduce the cost of uninsured-motorists coverage, because many of the 3 million California drivers who don't have insurance would finally be able to afford it.
"With lifeline, we want to make sure that Mr. Machado's constituents who are poor have access to an insurance policy so they can drive to work if they have to," Heller said. "If they are not able to drive to work, the state is going to have to pay welfare and such, or they are going to have to drive illegally."
The insurance industry tells a different story. Jerry Davies, spokesman for the Personal Insurance Federation of America, said lifeline policies certainly would make rates go up, because thousands of Southern California drivers would sign up for the bare-bones coverage and create thousands of high-cost claims.
Insurance companies know from experience that they will pay more for each claim in the Los Angeles area. Lobbyist Diane Colburn said accidents are more frequent, repair costs are higher, accident victims are more likely to get attorneys, and organized fraud rings work full time on submitting bogus claims.
"If you go into Los Angeles and offer a policy that costs one-eighth of what a regular policy is costing good drivers now, then somebody somewhere is going to make up the difference," Davies said.
Despite its opposition, the insurance industry may not be able to prevent the Legislature from passing some version of a lifeline bill this session. And Machado may not even be a serious player in the decision-making.
Colburn said that when an industry-sponsored lifeline proposal came before the Assembly Insurance Committee in April, Assembly Speaker Antonio
Villaraigosa, D-Los Angeles, pulled Machado off the committee and replaced him with Assemblyman Gil Cedillo, another liberal Los Angeles Democrat.
Cedillo voted no, and the bill failed on a 6-6 vote.
Machado said he doubts the speaker will let him stay on the committee when Escutia's bill is heard. "If recent history is to be looked at, the chances are no," he said.
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