Uninsured Bypass DMV Rules in Rentals : Drivers: Half of those who take test in Santa Ana do so in cars covered only by nearby agencies’ policies.

SANTA ANA — Francisco, 19, hopped out of his rented car, clutching the paperwork that proved he had passed his driving test and was on his way to earning a coveted California driver’s license.

The license will enable the Santa Ana resident to legally drive the car he has stored at home, a vehicle he admits will remain uninsured.

Without the rental car, Francisco might have been thwarted from obtaining a license. Unlike the car he owns, Francisco’s rental, which he picked up across the street from the Department of Motor Vehicles office just minutes before his driver’s test, was insured--a prerequisite for cars used in driving tests and a legal requirement for all other cars on the road.

“The DMV wants you to have liability insurance and I don’t have it,” Francisco said. “It’s too expensive.”

There are enough driver’s license applicants like Francisco coming to the DMV office in this city to help keep three small car rental businesses nearby hopping.

But some people criticize the rental companies as amounting to a system that helps uninsured drivers get on the road, where they already cost the average insured driver $159 annually, according to a DMV report.

“It’s unfair,” said Kelly Mulcrone, a spokeswoman for State Farm Insurance, the nation’s largest auto insurance agency.

More uninsured motorists means higher premiums for insured drivers, Mulcrone said. “You’ve got people out there doing what they are supposed to do and they are (forced to buy) uninsured (motorist coverage) to protect themselves.”

But the car rental companies in Santa Ana say they are just meeting a need, a contention borne out by the fact that their numbers have grown from one to three in the past year alone.

“I’m just a businessman being an entrepreneur, trying to make a living,” said Jerry Lazerson, whose Drive Test Rentals Inc. is the newest name in the area, with an office directly across the street from the DMV building on East 1st Street.

“I hire employees, I put money back in the community. That is what makes our country, small business,” said Lazerson, who has owned a smog check business in the neighborhood for more than a decade. “People know the law,” he said. “If they are going to drive without insurance, they can just as well drive without a license.” His car rental business, Lazerson said, is not promoting anything.

The companies, all within one block of the DMV office, are waging an increasingly intense competition for motorists who need presentable cars for their driver’s license tests. In exchange for showing a learner’s permit and plunking down about $25, the agencies provide an insured, registered, well-maintained vehicle at the time of the test, five days a week.

The DMV in Santa Ana estimates that more than half of the approximately 80 driving tests each day are taken in cars rented from one of the three surrounding businesses.

The small agencies’ lifeblood is volume. Their cars typically are gone for about 30 minutes while someone takes a test. They do not rent cars for any reason besides the driving test.

“If I do 15 car rentals times $20 per day, I’m happy,” said Herbert Gramajo, who has been renting cars for the past six months from El Camino Car Rent at the corner of East 1st and Wright streets, one block from the DMV office. “But we have to hustle, you know.”

The owners of all three test car rental agencies conceded that most of their customers probably don’t have insurance. But they are quick to point out that the rentals benefit some people who do not have access to any other reliable car or who are trying to get a driver’s license to use as identification.

These people cannot turn to larger car rental companies, Gramajo said, because those agencies often require a valid driver’s license before they will rent a vehicle.

Even some of the test car agencies’ customers acknowledge that they rent the cars to earn a driver’s license and avoid having to insure their own vehicles.

“I don’t have insurance and sometimes my car does not work,” said an 18-year-old Lakewood youth who used one of the rental cars last week. He said he failed his driver’s test that day, and he does not plan to buy insurance once he secures a license.

The DMV operations officer in Santa Ana, Larry Stavroulakis, said the test car rental companies “are bringing in a vehicle that testers are comfortable with,” reducing fears about mechanical problems or failures on the road.

“It kind of makes our job easier in the long run,” Stavroulakis said. “The rental owners are good if we bring to their attention any problem with the car,” he said.

Stavroulakis said it is not the DMV’s responsibility to determine whether an applicant for a driver’s license has insurance on the car that person will usually drive.

Meanwhile, the practice of obtaining a driver’s license without also buying insurance has ramifications for all insured motorists, officials said.

“The more uninsured motorists, the more you pay” if you do have insurance, said Mary Crystal, spokeswoman for Western Insurance Information Service, a Los Angeles organization that follows issues pertaining to insurance coverage. “That is the consequence. And then insurance becomes less and less affordable for a greater number of people. It’s a vicious cycle.”

In 1989, insured motorists in the state paid an average of $159 per year as a result of accidents caused by uninsured drivers, according to a DMV study published in 1991.

“The problem can’t be solved by a simple measure and a more comprehensive reform of the auto insurance laws are necessary to attack the uninsured motorist problem,” said Bill Schulz, a spokesman for state Insurance Commissioner John Garamendi.

California law requires drivers to have liability insurance to cover physical injury and property damage, according to the DMV. The cost of such insurance varies, depending on the driver, the type of vehicle, the insurance company and the city, insurance officials said.

Despite the law, the DMV estimates that about 20% of the state’s 20.1 million licensed drivers are uninsured. Many of those 4 million uninsured drivers will never suffer the consequences--a suspended license--because they will never get into a traffic accident, which is about the only time that anyone might ask for proof of insurance, the DMV said.

“If you are looking to get by without it, you can beat the odds,” conceded DMV spokesman Bill Madison in Sacramento.

Insurance companies and state officials said the high price of insurance has kept many motorists from buying it and encourages them to let their policies lapse.

“As long as insurance remains extremely unaffordable,” Schulz said, “people are going to say, ‘Do I pay my rent? Do I pay for my kids’ clothes? Or do I pay my insurance?’ ”

Gramajo, the car rental owner, said: “A lot of people just make the minimum wage, so they can’t afford the insurance. Everybody has a car, but they can’t afford insurance. It’s tough.”

With an average of five to 15 customers each day, the test car rental businesses probably won’t put huge numbers of uninsured motorists on the roads, officials note.

“If you are going to get around it, you are going to get around it,” said Madison of the state DMV. “Yes, they can get around it with a rented car, but they can also do it with a friend’s car,” he said.

“If these guys (who rent cars) are in business and stay in business, then there is some market out there,” Madison said. “I wish I had thought of that.”

Apparently more and more people are thinking of it, as evidenced by the competition that unfolds each day outside the Santa Ana DMV office.

Lazerson’s 3-month-old business, like others in the area, offers discounts for people who must take the driver’s test a second or third time.

“The competition is bad,” said Thelma Hernandez, who works at Asociacion Motorista Americana, a car rental agency with four offices in Los Angeles County and one in Santa Ana. “We were the first and then came the other two.”

The car rental companies say their customers are almost exclusively Latino men and women who come from Santa Ana or surrounding cities. Some customers said they heard about the rentals from friends. Others saw one of the agency’s ads in Spanish-language newspapers or signs erected near the DMV office.