Auto Insurance

A Maryland “Lifeline” Auto Insurance Program Would Cut Premiums for Low-Income Good Drivers

Abell Foundation Research Reveals Auto Insurance for Many Low-Income and African American Marylanders is Unaffordable

Washington, D.C. – Low-income drivers struggling to maintain auto insurance would benefit from the creation of a low-cost “lifeline” insurance plan, according to a report written by CFA insurance expert, Douglas Heller, which was commissioned by the Abell Foundation and published today. The paper, which highlights the high cost of auto insurance for Marylanders, especially in Baltimore City, details how such a program would work in Maryland and provides a template for other states where mandatory auto insurance coverage is unaffordable for lower-income drivers.

The report and executive summary are available here.

In the report, Heller illustrates key hurdles confronting lower-income and African American drivers in Maryland, who are required to purchase auto insurance but often face dramatically higher-than-average premiums for basic coverage, even when they maintain clean driving records. The report concludes that Maryland policymakers should adopt a program that allows lower-income drivers with good driving records to purchase a low-cost annual policy that provides coverage that is lower than otherwise required in Maryland but allows them to drive legally.

The proposal for a “lifeline” auto insurance program in Maryland is modeled after the California Low Cost Automobile Insurance Program, which has covered more than 150,000 low-income Californians by making a bare bones auto insurance policy available to qualifying good drivers for less than $500 per year, even in traffic-intense Los Angeles. Although there are no subsidies of these policies, the premiums remain low due to the unique structure of the program:

  • Policies are only available to safe drivers;
  • The amount of coverage provided is less than the minimally-required coverage otherwise mandated by California law; and
  • The rates are established to cover claims, expenses, and agent commissions but not to provide a profit for insurance carriers, which are required to participate in the state’s residual market, sometimes called the market of last resort.

“Too many Maryland drivers face prohibitively high auto insurance premiums when trying to comply with the state’s mandatory insurance,” Heller writes. “Establishing [a low-cost program] would add an important strategy to the several approaches Maryland can deploy to reduce the number of uninsured drivers, tackle racial inequities in the auto insurance market, and help low-income residents overcome the burden of high-cost auto insurance.”

The report identifies several reasons that a low-cost auto insurance program is needed in Maryland. These include annual premiums for good drivers costing thousands of dollars for minimum coverage; Maryland’s expensive minimum coverage requirement, which is the fifth highest in the nation; several major insurers’ use of non-driving, socio-economic characteristics for determining customer premiums; and significant price disparities for drivers in several predominantly African American ZIP codes. The report also details the impact of not being able to drive on economic mobility in connection with the importance of assuring affordable insurance.

Heller notes that while the Federal Insurance Office (FIO) of the US Department of Treasury determined in 2016 that auto insurance in ten Baltimore ZIP codes, home to 334,000 residents, was “unaffordable,” the FIO also determined that more than 18 million Americans lived in ZIP Codes across the country in which auto insurance is unaffordable. This suggests that policymakers in states beyond Maryland should also consider the California program as a model to help address the challenge of ensuring that lower-income resident can meet their state’s mandate that all drivers purchase auto insurance.

“Maryland has a clear need for, and is well-suited to adopt and adapt, a program for low-income safe drivers,” Heller said today. “But it is certainly not alone, and I hope other states will also look to address the high cost of auto insurance in order to help low-income drivers comply with coverage mandates and also to protect all drivers on the road, because everyone suffers when large numbers of drivers cannot afford insurance.”

The creation of a Maryland Lifeline Auto Insurance program for lower-income, safe drivers – and for drivers in other high cost states – will not likely eradicate the whole of the uninsured motorist problem, the report concludes, but it would confront discriminatory pricing in the market and provide an important opportunity for many thousands of drivers to improve both their literal and economic mobility.

In addition to today’s Abell Foundation publication, Heller and Consumer Federation of America have issued a series of studies on the plight of low- and moderate-income good drivers in affording state-required auto insurance over the past several years.

Contact: Doug Heller, 310-480-4170