As California goes, so goes the nation.
From auto-emissions standards to bike-helmet laws, it's the
innovative legislators in California who often set the tone for the
country. Now, insurance experts are looking west for a way to
reduce the number of uninsured drivers on the country's roads.
In some states, more than 25 percent of drivers are tooling
around without so much as liability coverage.
While most states require drivers to prove financial
responsibility in one form or another, the threat of a fine or
suspended license can't squeeze blood from a turnip. Younger people
pay more but can afford coverage least. (See "
This is as cheap as insurance gets
."). Many weigh the risks and spend the money on other
essentials.
So what's California's insurance innovation? Its
Low Cost Automobile Insurance Program
allows low-income residents with good driving records to buy
reduced coverage at a reduced price: $350 or less per year. Drivers
also get the option to buy uninsured motorist coverage.
Yet only a fraction of those who might qualify for the program
use it.
A unique experiment
The Low Cost Automobile Insurance Program is managed by the
state of California, but it uses no taxpayer money.
Insurance companies volunteer to sell the coverage directly,
just as with other policies. In return, companies get to add
customers to their rolls - - customers likely to either purchase
upgrades or stick with the company when they're able to afford full
coverage later.
Most participants in California's low-cost plan stay only
temporarily, migrating to standard coverage when their financial
situation improves. An estimated 66,000 drivers have used the
low-cost program since it launched in the test cities of San
Francisco and Los Angeles and expanded statewide in 2007.
"The program provides a lifeline for lower-income folks who
really want to do the right thing but are facing the choice of
putting food on the table or buying auto insurance," says Pat
McConahay, spokesperson for the state's
Department of Insurance
. "It's a program that people don't stay on for life. It's to help
them through a difficult time, hopefully."
California may be the only state with such a program. Nevada
tried, and failed, to pass similar legislation last year. And while
several states offer publicly funded options that help Medicaid or
Medicare recipients with accident-related medical bills under
no-fault laws, none of the options covers liability.
Yet Californians have either been unaware of the program or
unable to navigate its administrative complexities. While an
estimated 15 percent of California drivers, or about 4 million
people, are believed to now operate without auto insurance, only
11,000 drivers currently are enrolled in the low-cost program.
A bargain, but not for everybody
Why hasn't the program taken off? Clearly, the billions spent in
advertising standard auto insurance helps drown out any marketing
of the California plan, says Pete Moraga, spokesperson for the
Insurance Information Network of California (IINC). "All you have
to do is turn on the TV and … you're going to see a commercial for
the Good Neighbor, the Good Hands People, the Good Lizard or the
Good Flo," he says. "That's a lot of competition for the same
eyeballs."
Drivers who do investigate may find rates are not much cheaper
in the low-cost program. The low-cost program accepts only good
drivers with relatively inexpensive cars -- the same people who
would find the best rates on the open market.
To qualify, drivers must:
- Not have annual income exceeding $27,925 for a single person,
on up to $57,626 for a family of four.
- Drive a car valued at less than $20,000.
- Have no more than one point on their driving record.
- Be at least 19 years old and have three years of driving
experience.
The program guarantees rates under $350 per year, and in many
areas the cost is less than $300 annually. (The IINC offers this
county-by-county look at rates
.) For example, a driver in Los Angeles would pay $347.
But someone who shopped and compared insurance quotes might find
similarly cheap coverage among standard policies. Even in
California's priciest ZIP code for auto insurance, basic liability
policies from major insurance carriers for a 40-year-old with a
clean record range from $369 to $1,845.
A driver in the low-cost program gets less protection when
compared to drivers with standard insurance. The low-cost program
offers $10,000 in bodily injury liability per person, $20,000 per
accident and $3,000 in property damage liability -- less than
California's minimum standard liability limits of
$15,000/$30,000/$5,000.
But for many, the program will be the cheapest way to stay on
the road legally.
Getting the message out
To boost enrollment, California has launched a kind of
auto-insurance publicity tour, rolling out billboards, television
and radio ads, newspaper editorials and posters on buses. The state
passed legislation to allow consumers to buy coverage directly
online, and the premium prices have dropped even further.
This spring, the program got an unexpected nod - and subsequent
jolt - from the Consumer Federation of America. The organization
issued a report that highlighted the California program as one of
few bright spots in an otherwise inhospitable marketplace for
low-income drivers, who depend on their cars as surely as they
depend on their jobs. (See "Car insurers overcharge poor, watchdog
says.")
The National Association of Insurance Commissioners subsequently
formed a group to study exactly what, if anything, states and
insurance companies are doing to ensure that auto insurance is
affordable to everyone on the road.
"As government, we have an obligation that if we're requiring
people to buy a certain coverage, that they have access, and a
component of access is affordability," says Massachusetts Insurance
Commissioner Joseph Murphy, who serves as vice chair of the NAIC
task force.
Massachusetts has the lowest rate of uninsured drivers, about 2
percent, due in part to strict enforcement.
Yet no program can reach everyone, Moraga says. "Even if you
gave auto insurance away, you would still have people that for
whatever reason - lifelong scofflaws, felons or just too lazy -
would not take advantage of the program," he says.