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AIA In Opposition to Bill to Expand Calif. Low-Cost Auto Program

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A measure under consideration in the California Legislature would allow California’s low-cost auto insurance program to compete directly with private insurance companies, according to the American Insurance Association (AIA).

The AIA reports SB 1427, authored by Martha Escutia (D-Whittier), would significantly expand coverage available under the two-year-old pilot program and arbitrarily lower the premium.

“SB 1427 would drastically increase the scope of the low-cost auto insurance program and put the program into direct competition with private auto insurance carriers,” Bill Gausewitz, AIA assistant vice president, western region, commented. “This measure would threaten all auto insurers that serve Los Angeles and San Francisco counties.”

SB 1427 would expand the pool of eligible applicants by increasing the income level for residents of Los Angeles and San Francisco counties from 150 percent of the federal poverty level to 250 percent. Despite requiring expanded coverage, SB 1427 would lower the minimum price of the low-cost policy from $450 to $319.

“This bill would set an arbitrarily low price while expanding the coverage and number of potential participants,” Gausewitz remarked. “Traditional insurers are required by the California Department of Insurance to set actuarially sound rates that cover expenses and losses. This bill would create a separate set of operating rules for the low-cost auto program and force all other drivers to subsidize low-income drivers.

“The changes in this bill would make approximately half of all Los Angeles and San Francisco drivers eligible for the low-cost auto insurance policy. A single person earning $22,000 a year would now be eligible for this program.”

The measure would expand the benefits mandated in the policy by requiring coverage for uninsured motorists and medical payments. It also would make the program permanent.

The low-cost auto insurance program was enacted in 1999 and was intended to allow low-income drivers to satisfy the state financial responsibility laws, and thus drive legally, by purchasing a defined, limited-price liability insurance policy.

“This program has only been in place for 18 months,” Gausewitz added. “More claims data and loss experience should be collected before the Legislature considers expanding the program and making it permanent.”

SB 1427 passed the Senate Insurance Committee on a vote of 5 to 2. The bill is now awaiting further consideration by the Senate Appropriations Committee.


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