California Looks to Revise Rates of Low-Cost Insurance Program

Analysts with the California Department of Insurance (CDI) are reviewing an insurance rate filing for the state’s Low-Cost Automobile insurance program (CLCA) that requests a 9 percent increase in rates, while a consumer advocacy group is contesting the rate hike, saying the program’s prices should actually be lowered.

CDI officials will spend the next several weeks evaluating the rate filing, as well as documents submitted by consumer groups, before making a final decision on how rates should be adjusted.

CLCA is a low-cost coverage option that provides low levels of insurance for only hundreds of dollars a year to drivers who meet specific income and driving-record eligibility requirements.

The program is meant to cover motorists who would otherwise likely be on the roads without insurance. More than half of drivers enrolled in CLCA since it began in 2000 previously lacked coverage, according to the latest CLCA report submitted to the state Legislature.

Fifteen percent of California drivers are uninsured, according to the latest statistics from the Insurance Research Council, slightly above the 2009 nationwide average of nearly 14 percent.

Program’s Managing Group Files for Rate Increase of 9 Percent

The California Automobile Assigned Risk Pool (CAARP), which manages CLCA, submitted a rate filing to CDI actuaries recommending that rates be increased 9 percent, according to Pat McConahay, CDI spokeswoman.

CAARP had initially submitted a filing to increase rates by 6.7 percent but revised it and submitted the latest filing at a public hearing about CLCA rates on Thursday, McConahay said.

At that hearing, advocacy group Consumer Watchdog was among many organizations protesting the prospect of a rate increase. Consumer Watchdog submitted its own actuarial analysis that recommended a 3.9 percent decrease.

CAARP’s rate filing of 6.7 percent was based on “generic statewide data,” according to Consumer Watchdog, which added that its own actuarial analysis was based on data from CLCA policyholders. That data justified its insurance rate filing to decrease rates by 3.9 percent, Heller said.

CAARP representatives could not be reached for comment.

CAARP’s 6.7 percent insurance rate filing would mean about a $24 hike to rates for CLCA policyholders in Los Angeles.

Doug Heller, executive director at Consumer Watchdog, said that the group “can’t assess” CAARP’s rate filing of 9 percent because it had not received data related to the filing yet. Heller said the organization had requested the data and expects to receive it shortly, after which it could revise its own filing.

Still, Heller said, CAARP’s revision from 6.7 percent to 9 percent isn’t encouraging.

“With the info we have, rates should be coming down,” he said in an interview with Online Auto Insurance News.

The CDI has no comments about the rate filings until regulators assess them, according to McConahay.

“CDI’s actuary will spend the next several weeks reviewing the updated actuarial filings,” she stated in an email.

McConahay said that, at Thursday’s hearing, public comments about “the value of keeping rates low” were offered by groups including the National Asian American Coalition, Latino Business Chamber of Greater Los Angeles, Ecumenical Center for Black Church Studies and the Chinese American Institute for Empowerment.

With the rate filings under review “over the coming weeks and months,” according to McConahay, new premiums for CLCA will be announced in Spring 2013.

Program Saw 9 Percent Rate Decrease in May

The last rate change for CLCA was in May, when the program saw rate reductions of up to 9 percent and an average of 4 percent statewide; it was the largest reduction since 2009.

Premiums across all of California’s 58 counties are now less than $350 a year and the average statewide annual CLCA premium is $257.69. Different counties charge different CLCA rates; San Luis Obispo County sports the lowest average rate of $231 a year, while Los Angeles County shows the highest of $347 a year.

To be eligible for CLCA, a driver must be at least 19 years old, have a clean driving record, have been licensed for at least three years and have a vehicle worth $20,000 or less. Eligible applicants must also meet income maximums that were increased in May.

Current maximum incomes for CLCA eligibility is $27,925 annually for one person, $37,825 for two people and $57,625 for a family of four. Also, single male motorists between the ages of 19 and 24 years old will incur a 25 percent surcharge to rates.

Regulators, Consumer Advocates Agree: Program Needs Better Enrollment

In its annual report issued in August, the CDI highlighted CLCA as a major focus in the Department in the past year, with 103 outreach events and plans for enrollment through text messaging.

In December, the CLCA website will begin allowing eligible drivers to start the application process online and have their application routed to a local agent to be finalized.

According to the CDI report, CLCA had almost 9,800 active policies at the end of 2011. CLCA officials are “working to expand outreach and keep people in the program,” McConahay said.

“We are not satisfied with the enrollment figures and are working daily to grow enrollment in the program,” she said.

Each year, thousands of applicants who enroll in the program are canceled because they miss installment payments, McConahay said.

According to Consumer Watchdog, enrollment could be boosted if insurers and agents abided by state law requiring that they notify consumers about CLCA when asked about the most basic liability coverage.

Agents and brokers fail to make those notifications “far too often,” the group said.

“If drivers don’t know there’s an affordable way to get insured and drive legally, they may end up driving uninsured, which is why the law clearly requires agents to pass on information about this program,” Pamela Pressley, Consumer Watchdog’s litigation director, said in a statement.

Heller said that Consumer Watchdog was “certainly surprised” by CAARP’s insurance rate filing, given that insurance regulators, administrators and consumer advocates alike are working toward the same objective.

“The goal is singular: to charge the lowest possible premiums for the low-income good drivers who qualify for this program,” he said. “I know the department has that as its goal and CAARP does as well.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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