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Press Release Tuesday, June 26, 2001 |
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CONSUMERS UNION URGES INSURANCE DEPARTMENT TO EXPAND
OUTREACH FOR LOW-COST AUTO INSURANCE PROGRAM
Poorly
Publicized San Francisco Pilot Program
Has Failed to Insure Many Low-Income Drivers
San Francisco, CA - Consumers Union urged the California Department of Insurance to expand its efforts to publicize a unique state pilot program that makes low-cost auto insurance available to low-income drivers in San Francisco and Los Angeles. One year after the program was launched, just 26 residents in San Francisco and 822 in Los Angeles have purchased the low-cost policies. The consumer group charged that, under former Insurance Commissioner Chuck Quackenbush, the Department launched a limited and ineffective publicity campaign for the program and that insurance agents have shown little interest in marketing the policies.
"It's been nearly a year since the Insurance Department launched the state's low-cost auto insurance pilot projects and it's safe to say that most eligible drivers probably have never heard of the program," said Norma Garcia, Senior Attorney for Consumers Union's West Coast Regional Office. "We urge the state to re-launch this effort with a much more aggressive publicity campaign to ensure that more uninsured eligible drivers will know they have a low-cost option for obtaining insurance."
The low-cost auto policies are the result of landmark legislation enacted in 1999 to provide insurance to uninsured drivers through a four-year pilot program administered by the California Automobile Assigned Risk Plan (CAARP). The program was sparked by the dilemma faced by hundreds of thousands of uninsured low-income motorists who are required by law to carry auto insurance, but cannot afford to do so.
California has an estimated 5.3 million uninsured vehicles, and 2.2 million to 3 million of these are in regular use. Uninsured motorists face criminal penalties when they drive to work or job training. Their neighbors face a higher risk of having no way to pay medical expenses after being hit by an uninsured motorist.
In San Francisco, the publicity campaign
for the program consisted mostly of bus shelter advertisements and 10-second
radio ads. No focus groups were conducted to test the effectiveness of the ads
and no community or consumer groups were consulted before the campaign was launched.
A review of the publicity materials developed for the campaign revealed that
they were not focused enough to reach the target population of low-income, good
drivers. The ads also failed to identify the program as "state-sponsored"
to differentiate it from similar private policies with little value to the consumer.
Consumers Union's review of the pilot program revealed that the $410 premium
in San Francisco was still unaffordable for many low income residents, especially
given San Francisco's high housing costs. More troubling, some residents have
reported being dissuaded from purchasing the policy by insurance agents who
claim they can offer a better auto insurance policy at a "slightly"
higher price. While such a "buy up" is good in that these consumers
are being insured, some may end up losing their insurance coverage in the long
run if they cannot keep up with the more expensive premiums.
Representatives from the California Assigned Automobile Risk Plan have also reported that CAARP-certified agents in San Francisco have shown very little interest in trainings about the low-cost program. Agents are not motivated to sell the low-cost policies because the commission is relatively small and they receive no commission for an application that is rejected.
The low-cost auto policy covers two vehicles per household at an initial annual rate of $410 for San Francisco County and $450 for Los Angeles County. There is a 25 percent surcharge if the person named on the insurance policy is an unmarried male between the ages of 19 and 24, or if an unmarried male between the ages of 19 and 24 lives in the policyholder's household and will be a driver of the insured automobile.
The policy is only available to good drivers where the household income is 150 percent or less of the federal poverty line. This amounts to an annual income of $25,575 for a family of four. Eligible drivers can pay the entire premium upon purchase of the policy or pay an initial $100 followed by six monthly installment payments. The low-cost policy provides coverage of $10,000 for liability for bodily injury or death to one person, subject to a cumulative limit of $20,000 for all persons, and $3,000 for liability for damage to property. The policy satisfies California's' financial responsibility laws, which require drivers to carry minimum amounts of third-party liability.
To boost enrollment in the low-cost auto insurance program, Consumers Union urged the Department of Insurance to convene focus groups to develop a more effective advertising campaign, coordinate informational mailings to potentially eligible drivers through the Department of Motor Vehicles, and re-launch the pilot programs through a high-profile event with local leaders. The consumer group is also urging the Department to streamline the application process, re-evaluate the cost of the policy, and to call on insurance agents to make good on their commitment to help market the low-cost policies.
"We are encouraged that Insurance Commissioner Harry Low has been open to our suggestions and appears committed to ensuring the success of the low cost auto insurance program," said Garcia. "We hope Commissioner Low will provide the program with sufficient support so that more low income drivers can get the auto insurance they need."
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Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.
To read Norma Garcia's testimony click here.
