MASSPIRG opposes Massachusetts deregulation
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August 19, 2005
By Deirdre Cummings and Stephen D’Amato
Here’s all you really need to know about Governor Mitt Romney’s recently announced plan to reform our auto insurance system by deregulating it. The plan has received support from only one sector: big insurance companies.
The recent conversation about auto insurance reform is being driven by the goal of making the business of auto insurance more profitable for the companies. But let’s start that conversation anew by asking, how do we reduce the cost for drivers?
There’s no question that Massachusetts’s heavily regulated auto insurance system has problems. But our strict regulations are not the cause of its worst feature, the ultra-high premiums drivers pay. The blame for that belongs to Massachusetts’s ultra-high accident rate. Massachusetts has the dubious distinction of having the highest accident rate in the country by far – an astounding 40% higher than the state with the second-highest rate, Rhode Island.
Governor Romney’s plan does nothing to protect consumers, reduce car accidents, or otherwise address the underlying reasons for high insurance rates.
Here’s how Romney’s plan benefits the insurance companies at the expense of the consumer. First, Massachusetts insurance regulations currently prohibit many types of anti-consumer discrimination that most other states allow. For example, in setting premiums Massachusetts insurers must give more weight to an individual’s driving record and less weight to incidentals like where that person happens to live. And insurance companies here are barred from using such discriminatory factors as credit scores, home ownership, marital status, education level, and employment status to raise drivers’ rates or deny coverage.
Under the guise of “reform,” Governor Romney wants to change all that. He wants to eliminate these hard-won consumer protections so that huge national insurance companies like State Farm, GEICO, and Progressive will start selling insurance in Massachusetts.
It’s certainly true that if we eliminate enough consumer protections we can get any insurer to come here. Then the big companies would get a new market in which to make money; and Massachusetts consumers would get higher premiums and a slew of anti-consumer pricing practices that have been outlawed here for decades.
Second, Romney wants to deregulate auto insurance rates, which he argues will lower our premiums. Let insurers undercut each other on prices, he suggests, and the consumers will benefit. We’ve heard that one before; just check your electricity bill. And the fact is that insurers are already allowed to undercut one another on prices under the existing system – but they also can’t charge more than the state-set ceiling on rates, a unique safeguard that Romney would eliminate.
If the Governor were serious about fostering downward rate competition, he would have mandated that his Insurance Commissioner pursue that goal years ago, by streamlining approval of competitive pricing proposals, by publicizing the lower rates already offered by some companies, and by making it easier for consumers to switch to lower-cost insurers.
And if Governor Romney really wanted to lower our premiums substantially, he’d have pushed his Insurance Commissioner and the state Legislature to promote safety and cost containment programs that would reduce our high costs and ludicrous accident rate.
There is no free lunch. The only effective way to reduce premiums is to lower the underlying costs. State Senator Susan Tucker of Andover, for one, recognizes this. She has filed legislation to develop a comprehensive plan to reduce accidents by redesigning our most dangerous intersections and roadways, improving driver training and behavior, and enhancing traffic enforcement. Even improving our worst-in-the-nation accident rate to second worst could drop our premiums by nearly 30%, or about $300 on average per car, producing over $1 billion in statewide savings.
Massachusetts consumers need to demand this type of insurance reform: reform that serves our needs and our pocketbooks. Governor Romney’s proposal seems driven by its appeal to big out-of-state insurance companies. Frankly we don’t care how this plays in corporate boardrooms elsewhere. We can make real reform here in Massachusetts using common sense and putting consumers first.
Deirdre Cummings is the Consumer Program Director for MASSPIRG, a non-profit consumer advocacy organization. Stephen D’Amato is the Executive Director of the Center for Insurance Research, a non-profit consumer research and advocacy organization based in Cambridge, and is a formerState Rating Bureau Director with the Massachusetts Division of Insurance.
Source: Deirdre Cummings and Stephen D’Amato
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