Auto Insurance: New Law Highlights the Price Issue

The new year has ushered in tough penalties for uninsured drivers. A new state law, effective Jan. 1, has already proved to be enough of an incentive to send droves of uninsured motorists off in search of liability insurance, and that’s good. But despite recent declines in premiums, auto insurance is still too expensive for too many drivers, and an estimated 4 million to 6 million California drivers remain illegally uninsured.

The lack of affordable rates, which the new law does not address, remains the biggest deterrent. State law has long required car owners to carry liability insurance, but the cost currently ranges from $400 for a 40-year-old rural driver with a good driving record to as much as $3,000 for a 19-year-old male in central Los Angeles.

The new law permits police to ask motorists for documentation of their insurance or for the name of their insurance company and policy number. Insured drivers unable to provide the information can still avoid a steep fine by presenting the data in court.

However, the fine for driving without insurance for first-time offenders ranges from $1,375 to $2,750. Under the old law, it was $250. (The requirement that police ask for proof of insurance was allowed to lapse in the mid-1980s.) Under the new law, repeat offenders also face the threat of license suspension and their cars can be impounded by court order. Proof of insurance is now required when renewing auto registrations.

Responding to the new law, uninsured motorists in Orange County descended upon local insurance agencies to seek coverage. Applicants ranged from some with multiple drunk-driving offenses to a 52-year-old motorist who hasn’t had insurance since he was 17.

Others, particularly in Los Angeles where the uninsured rate is higher than the statewide average, find coverage too costly even with recent premium cuts. The average annual cost of liability coverage for a 30-year-old Los Angeles driver with a clean record is $978, just a small decline compared to the $1,009 premium in 1995. In Orange County, the average annual premium dropped to $680 from $729.

Insurers are required to provide new rating plans, eliminating ZIP codes as main determinants, by Feb. 18.

Enforcement of the new law is expected to vary from jurisdiction to jurisdiction, and this raises questions about how effective it will be. But there is no question that it is prompting many motorists to buy car insurance. Insurance industry lobbyists worry that the law will fuel political pressure for lower insurance rates. Well, that is precisely what California needs: more affordable auto insurance and more insured drivers.