Low-Cost Auto Insurance Plan Proposed

In a move to bring affordable auto insurance to millions of poor people, a group of Latino lawmakers wants to make California the first state to require insurers to offer a $300 policy to low-income drivers.

The creation of low-cost liability auto coverage would help stem the growth in numbers of uninsured drivers and remove a huge barrier to employment for the poor, many of whom can’t get to jobs without cars, said state Sen. Martha Escutia (D-Bell).

“If auto insurance is mandated, then we ought to make auto insurance affordable,” said Escutia, who introduced legislation Wednesday to require that such coverage be available. “We can’t make poor people criminals just because they need to drive to work.”

Her proposal is expected to have a good chance of passing the Democratic-controlled Legislature and winning the signature of Gov. Gray Davis. It is supported by a range of Latino legislators, including Assembly Speaker Antonio Villaraigosa (D-Los Angeles), Assemblyman Martin Gallegos (D-Baldwin Park) and Sen. Richard Polanco (D-Los Angeles).

Legislators are being forced to focus on the issue because the state’s mandatory automobile insurance law expires at the end of this year and many lawmakers have vowed not to renew it unless some form of low-cost coverage is made available to the poor.

At the same time, an explosion in the number of uninsured motorists--most of whom are poor--has undermined the effectiveness of the law. In California, about 3.4 million drivers, accounting for 22% of the state’s motorists, are uninsured.

“I’m very optimistic,” said Dan Edwards, a deputy to Insurance Commissioner Chuck Quackenbush. “I think the timing of a number of issues . . . means this [low-cost insurance] idea has a good future. It’s been on the commissioner’s radar screen for a long time.”

Rex Frazier, chief of policy for the state Insurance Department, said Quackenbush endorses the idea of low-cost coverage but would use a different approach from Escutia’s.

Quackenbush’s proposed legislation would reduce basic costs about 15% by requiring companies to offer a policy that would cover one driver only, Frazier said. The average annual cost of a basic auto policy in California is $549.

State law requires all policies to cover the car owner as well as others who might drive the car with the owner’s permission.

Escutia’s plan, which was developed by the Foundation for Taxpayer and Consumers Rights, an advocacy group, would make available to motorists a flat $300-per-year policy. Those eligible would be required to have a good driving record and incomes no higher than 150% of the federal poverty level. The qualifying income for a family of three, for example, would be $20,000 a year or less.

In keeping with its cut-rate cost, the flat-rate, liability-only policy would provide lower limits of coverage. The maximum coverage would be $20,000 for a single accident.

Escutia acknowledged that insurance companies would not be able to earn a profit on the policy. But she predicted that as more uninsured motorists took advantage of the low-cost coverage, the costs of providing coverage against uninsured motorists would drop.

But insurance companies immediately voiced opposition to the plan, calling it “fatally flawed” because it would drive up the costs of coverage for other motorists.

“Here they come with a bill that will require two-thirds of the existing policyholders in the state to pay more to subsidize drivers in the highest cost, highest risk areas of the state, such as urban Los Angeles,” said Dan Dunmoyer, president of the Personal Insurance Federation of California.

Barry Carmody, president of the Assn. of California Insurance Companies, said subsidies by other policyholders would be required not only for the initial cost of the flat-rate policy, but also to cover claims that exceed the financial limits of the policy.

Jamie Court, advocacy director for the foundation, disagreed, saying that the new policies would not require any subsidies.

Nancy Hernandez of Los Angeles, a single mother who earns less than $20,000 a year, said auto insurance takes away money she needs to spend on food and clothing for her three children.

“You just need a car in Los Angeles to work,” she said. “If I could only pay $300 a year, that would be great.”