Democrats Push Bills to Cut Cost of Car Insurance

Calling the high cost of car insurance “California’s most serious consumer problem,” Senate Democrats proposed a package of legislation Thursday that could cut rates for some motorists by as much as 25%.

In Los Angeles and other urban areas where insurance companies charge higher rates, the legislation would permit motorists to buy reduced coverage at a lower cost.

At the same time, however, the legislation would take away the right of innocent drivers involved in car accidents to receive full compensation if they do not have their own automobile insurance.

The package of 10 bills, whose principal author is Sen. Alan Robbins (D-Van Nuys), drew immediate criticism from both the insurance industry, which asserted it would cost too much, and consumer advocates, who contended there is no guarantee that it would reduce rates.

The Senate Democrats’ proposal was prompted by the high rates charged by insurance companies in Los Angeles and other urban areas. The problem is particularly acute in low-income areas such as South-Central Los Angeles, where critics contend that many insurers engage in “redlining” either by refusing to offer coverage at all or charging rates that are prohibitive.

Many drivers were caught in a bind last year when a state law took effect requiring motorists to carry proof of insurance. Five months after it took effect, however, the state Supreme Court suspended enforcement of the statute pending a decision on its constitutionality.

Legislators anticipate that the 1985 law will be found constitutional and will continue to contribute to the high cost of insurance--labeled by Senate President Pro Tem David A. Roberti (D-Los Angeles) as “California’s most serious consumer problem.”

The central bill in the Democrats’ package would provide for a 10% reduction in insurance rates for drivers who have had no violations or accidents during the previous year. Drivers older than 55 with a clean record would be eligible for another 10% reduction. An additional 5% reduction would be permitted for drivers who equip their cars with air bags or tougher bumpers. A final 5% would be offered to drivers under age 30 who sign a pledge not to drive after drinking or taking drugs. Taken together, some drivers could be eligible for a rate reduction of 25%. But Consumers Union charged that the law would not prevent insurers from first raising their rates before offering the discounts, nor solve the problem of making insurance available at a cost that low-income motorists in urban areas can afford.

“It’s not going to allow people to get insurance at an affordable cost,” said Judith Bell, a lobbyist for Consumers Union. “(It) provides no guarantee except the loss of important consumer protections.”

Criticism from the Assn. of California Insurance Companies was equally harsh. The Senate proposals, the association said, would “saddle insurers with massive losses” that, in turn, would be passed on to consumers in the form of higher rates.

A separate bill was aimed at providing affordable insurance by allowing companies to offer half the required minimum coverage in areas--such as Los Angeles--where rates are at least 25% higher than the statewide average. Such policies are geared toward low-income motorists who do not have significant assets to protect.

Another measure, which was designed to encourage motorists to buy insurance, would prevent an uninsured driver from collecting any more than medical and auto repair bills after a collision. This would apply even if the uninsured party was not at fault in the accident.

Other bills in the package would prohibit cancellation in the middle of a policy, require 60 days’ notice of a premium increase, create up to 10 insurance rate appeals boards to investigate excessive rates, and limit the amount of interest that insurance companies could charge.

Source of Financing

Robbins said reduced rates would be financed by the increased income that insurance companies have received as a result of the law requiring proof of insurance. During the five-month period the law was enforced, Robbins said, previously uninsured motorists purchased $750 million in new policies.

But George W. Tye, a spokesman for the association of insurance companies, countered that the jump in new policies did not mean “windfall profits” for the industry. He said Robbins and his Senate colleagues are ignoring the fact that insurance companies will have to pay for the losses incurred by the new policyholders.