Low-Cost Car Insurance for Poor Is Feasible, Study Finds

Insurance companies could offer low-income drivers, mostly in Los Angeles County, a basic auto insurance policy for about $350 a year without subsidies from other motorists, a new study concludes.

Moreover, the study says, the $1 billion that Californians spend on uninsured motorist coverage each year could be cut by up to one-fourth if low-income drivers bought the new policies.

The report gives a hefty boost to legislation that would make California the first state to require insurers to offer affordable policies to needy drivers.

The insurance industry has vigorously fought the legislation, mainly on the grounds that providing low-cost auto coverage for the poor would require companies to charge other motorists more.

The study, released Thursday by two state senators, attempts to debunk that theory, prompting lawmakers to predict that affordable insurance for the poor could be a reality by next year.

“Industry can stop panicking. The sky is not falling,” said state Sen. Martha Escutia (D-Whittier), who introduced the first of two bills on the subject. “We now have an independent analysis . . . that confirms that a low-cost auto policy for low-income workers is possible.”

State law requires all Californians to carry auto insurance, but about 3.4 million drivers--roughly 22% of the state’s motorists--do not. Los Angeles County has 1.7 million uninsured drivers; in pockets of South-Central L.A. as many as 80% of motorists have no insurance.

Studies confirm that cost is the main obstacle. The yearly average that Californians spend on auto insurance is $776, but in some urban areas the figure is much higher.

Statistics from the state Department of Insurance show that in certain South-Central Los Angeles neighborhoods, good drivers--those who have had no recent accidents or traffic violations--pay an average of $1,882 yearly for basic coverage.

Escutia and others say that supplying affordable insurance would remove a major barrier to employment for the poor, many of whom cannot get to jobs without cars.

Her bill and one by state Sen. Jackie Speier (D-Daly City) are timely because the state’s mandatory automobile insurance law expires at the end of this year, and many legislators have vowed not to renew it unless low-cost policies are offered to the poor.

Escutia initially proposed a flat rate, $300 policy for drivers whose income is no higher than 150% of the federal poverty level. Under those conditions, the qualifying income for a family of three would be $20,000 a year or less.

Speier sought input from an independent actuary, who spent two months on the project, producing the report released Thursday.

The actuary, Donald Bashline, made cost estimates based on a policy that offers minimal liability coverage--below that now required by state law. Terms of the policy would include $10,000 for bodily injury or death for each person in an accident--with a cap of $20,000 for bodily injury or death per accident--and $3,000 for property damage.

Bashline concluded that such a policy could be offered to good drivers in Los Angeles County for $353 a year. Statewide, the average premium for good drivers could be as low as $271 annually, he found.

The study suggests that a 25% surcharge could be added for motorists who drive more than 10,000 miles a year; a 30% discount might be offered for those driving less than 5,000 miles annually.

In the next few weeks, a legislative conference committee will merge Escutia’s and Speier’s bills into one, crafting new language reflecting the study’s findings.

Speier said she anticipates that policy rates would differ by region, an approach the insurance industry favors.

But Escutia insists on a flat rate statewide, as does the group that sponsored her legislation, the Foundation for Taxpayer and Consumer Rights.

“We firmly believe that your driver safety record must count far more than any factor related to where you live,” said Jamie Court, advocacy director for the foundation. “There’s no reason to stereotype according to ZIP Code.”

Lynnea Olsen, vice president of the Assn. of California Insurance Companies, said she had just begun to review the study and could not comment directly on it.

She added that her organization is urging the Legislature to conduct a pilot project in Los Angeles County before adopting a low-cost auto insurance program statewide.

“We understand the need for this program but believe it is something we need to move into gradually,” said Olsen, whose association represents Allstate, Geico and other large insurers.

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By the Numbers

$353 per year: What study says auto insurance for low-income good drivers could cost in L.A. County without subsidies from other motorists*

3.4 million: Number of uninsured motorists in California

1.7 million: Number of uninsured motorists in Los Angeles County

$776 per year: What the average driver in California spends on auto insurance

$1,882 per year: What the average good driver in some parts of South-Central L.A. spends on basic coverage

* A good driver is defined as someone who has had no accidents or moving violations in recent years.

Source: California Senate