Authored by Giovanni Falcon
In 2023, California enacted Senate Bill 1107 (SB 1107), a significant piece of legislation that mandates increased insurance policy limits for auto liability coverage. This bill, signed into law by Governor Gavin Newsom, reflects California’s ongoing efforts to protect consumers and ensure adequate compensation for victims of auto accidents. The new requirements, which came into effect on January 1, 2025, mark the first adjustment in auto insurance minimums since 1967 in over 50 years.
Background and Overview of SB 1107
Prior to SB 1107, California’s minimum auto liability insurance limits had remained unchanged since 1967. For decades, drivers were required to carry coverage of at least:
- $15,000 for bodily injury or death of one person,
- $30,000 for bodily injury or death of more than one person in an accident,
- $5,000 for property damage.
Today, these limits were widely regarded as outdated, given the rising costs of medical care, vehicle repairs, and general inflation over the years. In many cases, these low coverage amounts leave accident victims without adequate compensation for their injuries and damages, creating financial burdens on both the individuals involved.
SB 1107 aims to address this by raising the minimum required coverage amounts to:
- $30,000 for bodily injury or death of one person,
- $60,000 for bodily injury or death of multiple persons in an accident,
- $15,000 for property damage.
Key Changes Under SB 1107
- Doubling of Bodily Injury Limits: The new minimums for bodily injury liability effectively double the current limits from $15,000 to $30,000. This increase better reflects the true costs of medical treatment and related expenses that result from serious car accidents.
- Tripling of Property Damage Limits: The increase from $5,000 to $15,000 for property damage coverage addresses the steep rise in vehicle repair costs and the growing value of vehicles on the road today.
- Effective Date: The new policy limits will be required starting on January 1, 2025. This gives insurance providers time to adjust their policies and notify policyholders of the upcoming changes.
- Ongoing Adjustments: In addition to the initial increase, SB 1107 includes a provision for future periodic reviews and adjustments to ensure that minimum policy limits continue to reflect inflation and the rising cost of living in California.
Why Was the Change Necessary?
Inadequate Coverage for Accident Victims
As discussed already, the original liability limits were set during a time when medical costs and vehicle values were significantly lower. Over the decades, medical inflation, advancements in healthcare, and rising labor and material costs in the auto repair industry have caused expenses to skyrocket. This left many accident victims underinsured and unable to cover their medical bills, repairs, and legal expenses.
For instance, in cases of severe injury or fatality, medical bills alone could easily exceed $15,000, leaving victims or their families with considerable out-of-pocket costs. Similarly, a property damage limit of $5,000 is often insufficient to cover the repair costs of modern vehicles, many of which have sensors, cameras, and even a central motherboard (Electric Central Unit), all which did not exist in cars before. As a result of these complex electronic systems, cars have higher market values than ever before.
Shift in Financial Responsibility
Without adequate coverage, the financial burden of accidents frequently falls on the state or victims themselves, often leading to lawsuits to recover additional compensation. This situation has undermined the objective of the original law, which was to ensure that at-fault drivers took financial responsibility for the damages they caused. By raising the required minimums, SB 1107 restores that balance and ensures that victims are more fully compensated through insurance.
What are the Potential Impacts on Drivers and the Insurance Market?
Increased Premiums
The most direct impact of SB 1107 will likely be an increase in auto insurance premiums. Since insurance companies will be required to offer higher limits, the cost of providing coverage will rise. While the exact increase will vary depending on the insurer, the vehicle type, and the driver’s risk profile, some estimates suggest premiums could rise by 10% to 50% for minimum coverage policies.
Low-income drivers who carry only the state-mandated minimum coverage may be most affected by these premium increases. However, consumer advocates argue that the benefits of increased coverage outweigh the added costs, especially considering the financial protection it provides in the event of a serious accident.
More Comprehensive Coverage for All
On the positive side, the new limits mean that drivers and accident victims will have better protection and higher potential payouts when pursuing claims for personal injury and property damage. This reduces the likelihood of victims facing significant financial hardship due to an at-fault driver’s limited insurance coverage.
The change may also lead to fewer lawsuits, as victims will be more likely to receive adequate compensation from insurance claims rather than resorting to legal action to cover excess costs.
Implications for the Insurance Industry
Insurance companies operating in California will need to revise their policies and adjust premium rates in response to the new requirements. Some insurers may offer additional products or incentives to help drivers manage the increased costs. Industry experts also predict that the higher policy limits could reduce the number of underinsured motorist claims, which may ultimately benefit insurers by lowering long-term legal and claims costs.
California’s Senate Bill 1107 represents a significant step forward in modernizing the state’s auto insurance requirements. By raising the minimum policy limits, the bill ensures that victims of car accidents are better protected and receive fair compensation for their losses. While the law may result in increased premiums for drivers, the long-term benefits of enhanced coverage and financial security are expected to outweigh the costs.
As SB 1107 takes effect in 2025, both drivers and insurers will need to adapt to the new landscape of auto liability coverage, marking an important shift in California’s approach to road safety and consumer protection.