Auto insurers should reduce rates at least 10 percent, attorney general says
by Statehouse News ServiceAUGUST 23, 2006 -- Citing a decline in accident-related injury claims for the second straight year, state officials told Insurance Commissioner Julianne Bowler Wednesday that Massachusetts drivers deserve a deeper cut than the 3.7 percent rate reduction recommended by auto insurers.
A representative of Attorney General Thomas Reilly said a rate reduction of at least 10 percent is warranted.
“Since 2003, losses in Massachusetts have fallen dramatically,” said Assistant Attorney General Alice Moore, chief of the Public Protection Bureau. In 2004, losses dropped by $236 million and in 2005 by $173 million, she said, citing “a huge windfall for insurance companies, at the consumers’ expense.”
“Preliminary 2006 data indicate that losses are continuing to fall,” Moore said at a public hearing before the Division of Insurance. “But in setting rates for 2006, the commissioner ignored the data and rejected the Attorney General’s proposals to establish rates that accurately reflected the reduction in losses.” Rates next year “must immediately drop by 10 percent before we reach the correct base from which any increase or decrease must occur.”
Kevin Beagan, director of the State Rating Bureau, the statistical arm of the Division of Insurance, called the 3.7 percent rate decrease “extremely moderate” given the significant reduction in claims. He did not suggest a specific rate cut but expressed support for gradual transition to allow a competitive system and said “the rate filings do not reflect rates that should be approved by the commissioner.”
If approved, the 3.7 percent rate cut would collectively save motorists $150 million, according to the Automobile Insurers Bureau of Massachusetts (AIB), an industry group. The average auto insurance premium this year is $1,020 and the average rate has been reduced by 21 percent since 1996.
Declining rates have lessened the pressure on the Legislature to introduce competition to the state’s highly regulated rate-setting process. While some competition is allowed in limited form through group rates and safe driver discounts, the commissioner establishes rates by each Dec. 15 following a judicial-style proceeding that begins in the summertime, after the insurance industry announces its annual rate request.
In addition to the proposed $150 million rate cut, AIB President Daniel Johnston noted 2006 rates were cut by 8.7 percent, saving policy holders $350 million.
“That would be a $500 million drop in rates in two years,” said Johnston. “In the long run, AIB strives to present to you a rate proposal that is fair to consumers, reflects all of the costs of doing business in our state and provides for a reasonable profit for the companies writing auto insurance in Massachusetts.”
Crediting the state’s creation of CIFI, Community Insurance Fraud Initiative, Johnston said the most significant reduction in auto-related injuries comes from communities that have high levels of suspected fraud.
Moore said there is a need to credit the communities that have been fighting “staged accidents.”
Eric Bourassa, representing the Massachusetts Public Interest Research Group, MassPIRG, asked for lower rates and suggested reforms to reduce the state’s “highest in the nation accident rate” would help lower insurance premiums.
“Given that the insurance industry has proposed a decrease of 3.7 percent, history would prove that the new state set ceiling should be significantly lowered,” said Bourassa. “And given the industries’ statements about the continual decline in claims, we hope you will be aggressive in determining the new rate.”
Sen. Andrea Nuciforo, co-chairman of the Committee on Financial Services, said every company in Massachusetts has had profits in private passenger auto insurance and credited the anti-fraud fight for yielding “positive trends.”
Bowler asked Nuciforo if the insurance companies profits could be fully attributed to their auto policy business in Massachusetts and questioned why more insurance companies do not want to do business in Massachusetts. The senator said the companies tend write other lines of insurance, and not only auto policies.
Also on Wednesday, the Supreme Judicial Court issued a ruling upholding the right of Bowler to make changes to a reinsurance pool that covers the state’s riskiest drivers. The ruling comes after Commerce Insurance won a lawsuit in the Superior Court level against Bowler, who had approved changes in 2004 in how private auto insurance is written for high-risk drivers. Bowler ordered the current plan to be phased out by Jan. 1, 2008, and replaced by an assigned risk plan. She appealed and the state’s highest court today reversed the Superior Court ruling.
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