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Calif.: let's keep those liability subsidies moving

Auto-insurance rates in California are extremely high, especially in the litigious big cities, and a few years ago the state introduced a pilot program which compels insurance companies to provide steeply discounted basic liability coverage to low-income drivers in the state's largest cities. Minimal coverage under such a policy runs at only $347 per year. "That's pretty cut-rate when you consider that a bare-bones policy for a single man in Compton can be as high as $3,762 per year, according to the Department of Insurance," notes the Los Angeles Times. The idea is to reduce the number of drivers who illegally go uninsured; that in turn would relieve upward pressure on the price of uninsured-motorist coverage (which people buy to insure against the risk that an uninsured driver will collide with them). It would also benefit the plaintiff's bar by increasing the chance that there will be an insurance policy for them to proceed against after a crash. Since the state does not itself subsidize the program, presumably insurers are expected to make up the losses on the mandate by raising prices on their other customers.

But there is a serpent in Eden. Despite every effort to make the lunch temptingly close to free, relatively few poorer drivers are availing themselves of the coverage. "A pilot program was established in Los Angeles and San Francisco, with the idea that if it succeeded, lawmakers might consider expanding it elsewhere in the state. ...So far, only 6,000 people have taken advantage of the cheap policies. ... 'The sale and distribution of the product has not worked at all,' said state Insurance Commissioner John Garamendi".

And that could lead to great sadness in Sacramento: "If more don't sign up, state insurance officials will have no ammunition when they return to the Legislature in two years to ask that the program be expanded." What a loss that would be! The answer: Garamendi "later this month will launch a campaign in Los Angeles advertising the low-cost insurance." (Sharon Bernstein, "Making Insurance Less of a Financial Roadblock", Los Angeles Times, Aug. 10).

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.