Car Insurance for Poor May Be Tested in County

Los Angeles County has been chosen as the testing ground for the state’s first low-cost automobile insurance, a $400-a-year policy to be offered to low-income motorists with good driving records.

In a compromise with the insurance industry, legislators Thursday negotiated an agreement to permit a bare-bones auto policy to be sold only in Los Angeles County and only to drivers whose annual income is 150% of the federal poverty level or below. For a family of three, that is about $20,000.

“Instead of making poor drivers criminals, we now can make them consumers,” said Assemblyman Gil Cedillo (D-Los Angeles). Los Angeles County has 1.8 million--or 40%--of the state’s uninsured vehicles.

The agreement, which must win final approval from the Assembly and Senate, would require insurers to begin selling the policies in 2000.

They would have to price them at $400 for all good drivers who are poor, with one exception: Young male drivers ages 19 to 25--considered the highest risk--can be required to pay a surcharge that could raise their cost to $500.

The new policy would provide maximum liability coverage of $10,000 per injury, $20,000 total for each accident and $3,000 for property damage. The limits on most standard policies are $15,000; $30,000 and $5,000.

The pilot program would have a two-year life span, at the end of which it would either be expanded to other counties or abandoned.

State Sen. Martha Escutia (D-Whittier), who had initially proposed legislation requiring that a basic, low-cost auto policy be offered statewide, said legislators narrowed the scope of the proposal in response to intense opposition from the insurance industry. Insurance companies are major financial contributors to many legislative campaigns.

But she said her disappointment was tempered by the decision to begin the experiment in Los Angeles County, where 30% of drivers are uninsured. The only county with a higher percentage, Imperial, has 46%.

“People are frankly surprised that we’ve been able to get this far with this,” she said. “It’s my plan that if this product sells in Los Angeles, we can extend it to other counties.”

For years, California legislators have faced defeat when they tried to require a low-cost automobile policy for the poor. But this year, supporters of the proposals had two things going for them.

An independent, outside expert reported that contrary to the industry’s claims, low-cost policies could be offered to the poor without forcing other drivers to subsidize them. And legislative leaders made a decision to tie a measure by Sen. Jackie Speier (D-Daly City) making auto insurance mandatory to the passage of a low-cost insurance plan.

Although automobile insurance is mandatory in California, the law requiring it will expire this year unless new legislation is passed.

“If you have mandatory requirements and you don’t have a low-cost product,” Cedillo said, “you create a community of impoverished drivers who can’t comply with the law.”

He said the courts, especially in Los Angeles, have become so clogged with cases involving uninsured drivers that many judges have stopped levying fines against them.

Diane Colborn, senior legislative advocate and counsel for the Personal Insurance Federation of California, said her industry has supported the concept of a low-cost policy but “the question has always been who will pay for it.”

She said that despite the compromises, her group still believes the $400 price is too low and will require other Los Angeles drivers to subsidize it. “We’re convinced the rate they’re talking about right now is inadequate from the get-go.”

Likewise, officials at the Assn. of California Insurance Companies, which proposed many of the changes in Escutia’s original legislation, agreed that the new policy is underpriced by about $64.

Vice President Lynnea Olsen said the unknown for insurers lies with the so-called drop-down drivers--those who abandon their more extensive coverage for the new low-cost policy.

Although the legislation is designed to provide a low-cost policy for the uninsured who are poor, she said that if it attracts large numbers of current policyholders, it will defeat that purpose and make it a financial loser for insurers.

Nonetheless, she said her association strongly endorses the idea of a pilot program in Los Angeles. “We felt it was very important to concentrate on the highest problem area of the state,” she said, “and see if we can solve it there.”

Douglas Heller, a lobbyist for the Foundation for Taxpayer & Consumer Rights, disputed the industry arguments, saying that if the new policy is successful in attracting large numbers of drivers who are now uninsured, it will cause rates for other drivers to go down.

“This [agreement] will not address the full problem but this will be of great benefit to poor Angelenos who right now are forced to drive illegally,” he said.

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