March 10, 2010
Pursuant to Elections Code Section 9005, we have
reviewed a proposed statutory
initiative related to vehicle insurance (A.G. File No. 10‑0006).
Background
Requirements of Automobile Financial
Responsibility. Currently, there are over 28 million registered
private passenger vehicles in the state. Current state law requires
owners of private passenger automobiles in California to have and show
proof of financial responsibility when registering their vehicles with
the Department of Motor Vehicles (DMV), transferring ownership of a
vehicle, when the vehicle is involved in a traffic accident, or upon
request of law enforcement. Financial responsibility is typically
defined as having automobile insurance. (Ordinarily, drivers carry a
card in their motor vehicle issued by their insurer proving that they
have coverage.)
To comply with this financial responsibility
requirement, California motorists are required to have a minimum amount
of bodily liability insurance and property damage coverage to provide
protection for another person in the event a motorist is involved in an
accident. The minimum insurance requirements include coverage for
$15,000 for injury or death to one person, $30,000 for injury or death
to more than one person, and $5,000 for damage to property.
The DMV is the primary agency that enforces the
state financial responsibility requirements. Specifically, the DMV is
required to suspend a motorist's vehicle registration if (1) an
insurance company notifies the department that the required coverage has
been canceled, or (2) evidence of financial responsibility has not been
submitted within 30 days of issuance of vehicle registration. Insurance
companies selling automobile policies in California are required to
electronically report insurance information to the DMV.
Additionally, the DMV is required to suspend the
registration of a vehicle if the owner or driver provides false evidence
about financial responsibility. The DMV is also required under current
state law to suspend a motorist's driving privileges if the individual
fails to provide proof of financial responsibility at the time of an
accident.
Fees and Penalties. Currently,
motorists are subject to penalties or fines if they are convicted of
driving without having proof of financial responsibility or if they
cannot show proof of financial responsibility upon being involved in a
vehicle accident. The DMV charges various fees to motorists who apply to
have their driving privileges reinstated following suspension due to a
failure to show financial responsibility. In 2008, state and local
governments collected over $200 million from various fees and penalties
related to violations of the financial responsibility requirements.
Insurance Premium Tax. Under
current law, insurance companies doing business in California pay an
insurance premium tax in lieu of a state corporate income tax. This tax
is based on the amount of insurance premiums the insurer earned in the
state each year. In 2008, insurance companies paid about $247 million in
premium taxes on automobile insurance policies in California.
Major Provisions
This measure repeals current provisions in law
that require mandatory financial responsibility for private passenger
automobiles. Thus, motorists would no longer be required to have
automobile insurance for private vehicles and to show proof of financial
responsibility. However, the measure would not affect commercial and
interstate transportation vehicles. These would continue to be required
to have and show proof for financial responsibility.
The measure also removes:
-
The requirement that
DMV suspend a motorist's driving privileges if the motorist provides
false evidence of financial responsibility.
-
The requirement that
DMV suspend driving vehicle registration if a motorist fails to
provide evidence of financial responsibility at the time of an
accident.
-
The requirement that
insurance companies electronically report insurance information to
the DMV.
Fiscal Effect
This measure would result in lower costs to the
state because DMV and other state agencies would no longer have to
enforce various statutory financial responsibility requirements. Annual
cost savings could amount to about $25 million to these agencies.
Additionally, local governments could experience some unknown, but
probably minor, amount of reduction in workload.
Under this measure, failure to provide proof of
financial responsibility at the time of an accident would no longer
constitute a violation of law. As a result, fees and penalties would no
longer be assessed for failure to provide proof of financial
responsibility. The reduction in these revenues to state and local
governments combined would probably amount to a couple of hundred
million dollars a year.
By repealing the statutory requirement for
financial responsibility, this measure would give motorists the option
to drive a private vehicle without automobile insurance. As a
consequence, some motorists may choose not to buy automobile insurance.
How many of the state's vehicle owners would do so is, however, unknown.
To the extent motorists choose not to buy automobile insurance, there
would be a decrease in insurance premiums sold in the state, and a
corresponding reduction in state premium tax revenues. This reduction,
however, would be offset to an unknown extent by higher state (and
local) sales tax revenues to the extent that motorists purchased other
taxable goods with savings from their insurance costs.
Summary
This measure would have the following fiscal
impacts:
-
Annual state
savings, probably about $25 million, due to a reduction in costs to
enforce financial responsibility requirements.
-
A reduction in state
and local revenues from fines and penalties related to violations of
the financial responsibility law, probably in the couple of hundreds
of millions of dollars.
-
Unknown reduction in
state premium tax revenues, offset to an unknown extent by increased
sales tax revenues.
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