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Gov. Schwarzenegger Vetoes Extension for Low-Income Car Insurance

California Governor Arnold Schwarzenegger has vetoed an extension to the state's Low-Cost Automobile Insurance Program, an act which calls into question the future of the program once its current incarnation expires. The Low-Cost Automobile Insurance Program, an innovative initiative which has seen around 50,000 drivers across the state participate since its inception, gives drivers who meet age, income and driving record requirements the chance to buy specially packaged auto insurance policies at a discounted rate. The bill to extend the program, called AB 725, had support from members of both parties in California's State Assembly. The bill would have extended the program through the end of 2015. The current law expires on January 1, 2011, and lawmakers in support of the measure have been hard at work coming up with an extension to keep the program intact before the deadline.

An Overview of the Low-Cost Automobile Insurance Program

California's Low-Income Automobile Insurance Program is the first of its kind in the nation. It began as an experimental pilot program in the Los Angeles area, and expanded all across the state by 2006. The program has been a model for legislators in other states trying to come up with ways to design programs to reduce the number of uninsured drivers on the road. The Low-Income Automobile Insurance Program provides drivers with acceptable driving records who meet age, driving experience and income requirements with auto insurance coverage at a reduced rate. Low-income drivers can purchase basic liability coverage at a more affordable price. The thinking behind the program was that by giving low-income residents a less expensive option for basic coverage, the state could bring down the rate of uninsured drivers out on the road.

The Low-Cost Automobile Insurance Program costs around $300 a year for California drivers, with actual costs varying by county. Coverage for drivers electing to take part in the program includes $10,000 per person and $20,000 per accident for bodily injury coverage, and $3,000 in liability coverage for incidents resulting in property damage. The standard state minimums for coverage are 15/30/5, and only drivers who meet all qualifications for this program can elect this lower level of coverage. It gives low-income drivers an opportunity to get their vehicles legally covered and out on the road for a reduced rate. The goal of lawmakers who put the law together was to help these drivers to afford coverage so that the rate of drivers on the road with no insurance would be reduced, helping to relieve the overall insurance burden on the rest of the state's drivers.

To qualify for participation in California's Low-Cost Automobile Insurance Program, policy holders have to meet several requirements. They must be at least 19 years old with at least three years of experience as licensed drivers. The vehicles being covered must be valued at less than $20,000. The income of covered participants must not exceed 250 percent of the federal poverty level, which amounts to $35,425 for a family of two people or $55,125 for a family of four [1].

Why Did Gov. Schwarzenegger Veto AB 725?

On the surface, the Low-Cost Automobile Insurance plan seems like a perfect concept, a program that is self-sustaining and does not require any taxpayer dollars. However, Gov. Schwarzenegger does not believe the program is perfect, and questions its effectiveness in reducing the number of uninsured drivers on the roads in California. Critics of Schwarzenegger say the program has benefited more than just the 50,000 people who have participated since its inception, pointing out that any driver involved in an accident with a driver participating in the program also benefits, since they have their claims paid because the other driver was covered.

Schwarzenegger and those in his camp on the issue point to California's continued high rates of uninsured drivers. With approximately a quarter of all California drivers failing to meet legal minimums for insurance coverage, the governor does have some statistical basis for his opinion. He cites "the low participation rate among the uninsured" [2] in defending his choice to veto the bill. To Schwarzenegger and those who agree with him, 50,000 is a very small number in the face of the millions of uninsured drivers on the roads all across the state of California.

Another common criticism of the Low-Cost Automobile Insurance Program is that the coverage it provides are simply not enough to do much good in the event of an accident or other major claim situation. They point out that a $3,000 level of coverage for property damage liability, for example, just is not enough to cover damage done in most liability situations. Drivers who carry only the state's minimum mandated coverage often have insufficient insurance to take care of all the costs associated with an accident or other insurance claim. The result in many cases, when a driver with minimal coverage hits a car with more extensive insurance including underinsured motorist coverage, is that the driver with the underinsured coverage ends up footing most of the bill. The Low-Cost program may get more drivers legal to drive on the road, but it does not necessarily prevent other drivers from having to pay out from their coverage in cases like this.

What Happens Next for California's Low-Income Drivers?

The Low-Cost Automobile Insurance Program is still in effect in California, and will remain on the books until at least the close of 2010. For the time being, drivers who meet all the requirements for participation in the program can continue to elect to purchase this coverage for their vehicles. But without continued effort by state lawmakers, the law will expire and the program will cease on January 1, 2011. If this happens, drivers who rely on the Low-Cost Automobile Insurance Program will have to seek out other options to try to minimize their auto insurance costs. Gov. Schwarzenegger has not ruled out signing a new bill into office, and has invited state lawmakers to present him with a new bill in 2010 for him to consider. Low-income residents have until then to see what happens and must hope for the governor to be convinced of the effectiveness of the program in order for its renewal to come to pass.

Many lawmakers and lobbyists in favor of an extension of the Low-Cost Automobile Insurance Program are afraid that most of the drivers who have purchased discounted coverage under the initiative will forego insurance coverage once again if the program is allowed to expire once its current incarnation ends at the close of 2010. Their fear is that the backlash from a failure to get the program extended will do more harm to the rates of uninsured drivers on the road in California than any good the Low-Cost Automobile Insurance Program itself has ever done. But sensible low-income car insurance policy holders will hopefully recognize the error in thinking that they would be better off with no insurance at all. Obviously, the best-case scenario for low-income drivers is a continuation of the current policy; but in its absence, drivers should explore every possible option to find coverage they can afford.

[1] Retrieved 2009-12-05.
[2] Retrieved 2009-12-05.



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