Garamendi Announces Legislation to Expand Low Cost Auto Program

California Insurance Commissioner John Garamendi recently announced Department of Insurance-sponsored legislation that will expand the Low Cost Auto Insurance program and the results of an outreach campaign to enroll drivers in the program.

The Low Cost Auto program, enacted by the state Legislature in 2000 and operational since 2003, aims to reduce the problem of uninsured drivers by offering affordable premiums to qualifying San Francisco and Los Angeles residents. The announced legislation, SB 20, is sponsored by State Senator Martha Escutia (D-Norwalk) and would eliminate the January 2007 expiration date for the program in San Francisco and Los Angeles and expand the Low Cost Auto program into six additional counties: Alameda, Fresno, Orange, Riverside, San Bernardino and San Diego.

Norman Williams, spokesperson for California Department of Insurance, said that up until now, the Low Cost Auto program was basically a pilot program. If SB 20 is passed by the Legislature, it will establish the program in the six specified counties in April 2006.

“SB 20 requires the insurance commissioner to establish the rate just as he does for the program now and to adopt regulations to put this into place,” Williams said.

As of August 2004, the number of policies issued in the history of the program (14,000) failed to meet target sales goals, so
Commissioner Garamendi “re-launched” the program in August 2004 with an outreach campaign.

Since the August re-launch, the Low Cost Auto program has generated more than 7,500 new inquiries; processed more than 3,200 applications; approved 83 percent of new applicants in time for the holidays; achieved a 26 percent increase in policies assigned compared to 2003; and averaged 1,900 new inquiries per month (compared to 820 average inquiries per month for the previous seven months), according to a press release issued by the commissioner.

Williams said that both the commissioner and the Department of Insurance were effective in generating greater interest in the Low Cost Auto program. The outreach campaign included press conferences, speeches and advertising.

“We held a press conference at what was the second most dangerous intersection in LA County,” Williams said. “The commissioner talked about the program and some participants in the program talked about how it’s affected them and how it’s helped them feel safe driving and be responsible and comply with the law. There is an outreach in the form of advertising that’s being done. He mentions it in interviews and in speeches if the region or area where he’s speaking is one that will benefit from this program.”

Ken Nigohosian, executive director of La Verne, Calif-based the American Agents Alliance, was hesitant in calling Garamendi’s outreach campaign a success.

“Frankly, the results touted by the commissioner are somewhat misleading as they do not reveal the number of policyholders ‘trading down’ to the reduced limits, or those who drop the coverage as soon as they receive their insurance cards,” Nigohosian said. “It would certainly be interesting to see some policy retention data compared to the non-Low Cost Auto market. I would suggest that the sudden increase in Low Cost Auto policyholders can bedeceptive and I would encourage our legislators to study the numbers carefully before approving any expansion.”

At the request of the program’s legislative sponsors, Sen. Escutia and Senator Jackie Speier (D-Hillsborough), the Alliance conducted an August 2004 survey to find out why the program was not meeting targeted sales goals. The Alliance found that many California independent agents and brokers were not aware that the program existed and that there was a lack of interest in the program on the part of consumers.

“Along with inadequate commissions and a lack of policyholder longevity, we found thatmany clients were simply not requesting the coverage,” Nigohosian said.

The Alliance survey also concluded that producers were able to sell increased liability coverage limits to the consumer for a few dollars more than the premium through the Low Cost Auto program.

Current premiums for the program are $347 for Los Angeles residents and $314 for San Francisco residents. The program, which is administered by the California Automobile Assigned Risk Plan, provides liability only, with limits of $10,000 for bodily injury or death per person, $20,000 maximum per accident and $3,000 for damage to others’ property.

“Markets currently available offer the legally mandated minimum liability limits of 15/30/5 at actuarially sound premium levels, something we do not believe is happening with Low Cost Auto, even with its reduced coverages of 10/20/3,” Nigohosian said. “I feel our current marketplace offers sufficient programs to fulfill consumers’ insurance needs.”