AG will seek 10 percent auto insurance rate cut
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August 25, 2005
Source: The Wilmington Advocate
BOSTON - Attorney General Thomas Reilly plans to push for a reduction in auto insurance rates of "at least" 10 percent next year, officials from his office said recently, while auto insurance industry officials said rates are likely to decrease in future years without systemic reforms.
The rate reductions, industry and elected officials say, are mainly due to a coordinated effort by law enforcement officials, lawmakers and the media to curb fraudulent claims. According to the Automobile Insurers Bureau of Massachusetts (AIB), claims dropped 10 percent, or $253 million during the last year, in the wake of a new law toughening fraud penalties a focused crackdown in several urban communities.
Communities that have established task forces to directly curb fraudulent claims, including Lawrence, Boston, Springfield, Holyoke, and Brockton, accounted for nearly half of that reduction. Industry officials say consumers statewide will soon reap the benefits of those efforts.
The average auto insurance rate this year is $1,090.
The insurance industry, represented by the AIB in the annual rate setting hearings, earlier this month requested a reduction of .1 percent in 2006, roughly a $1 break for the average consumer. Through a statement and through testimony presented by one of his top aides at the annual Division of Insurance hearing on auto insurance rates, Reilly said drivers deserve a deeper rate reduction.
"Between the cost of gas and the cost of insurance, drivers are getting hit from all sides these days," Reilly said in a statement. "The insurance industry's request for a one-tenth of one percent rate reduction is an insult. The figures are clear to me - drivers deserve at least a 10 percent reduction this year."
The industry has traditionally asked for rate increases. AIB President Daniel Johnston said after the hearing that the rate cut request is the result of a formula based on expenses and profits in the industry over several years, and is not an effort to halt a Beacon Hill movement, which has gained some traction this year, to reform the system.
"That's just the way the numbers came out," Johnston said. "There's no advocacy or politics behind it. I know it surprises many people, but that's the truth."
According to the AIB, while the accident rate in Massachusetts remains the highest in the nation and nearly twice the national rate, accidents decreased by 5 percent between 2003 and 2004.
Senate President Robert Travaglini recently named auto insurance reform as a top priority for the Senate when the Legislature returns from its summer recess, and leading lawmakers have expressed an interest in changing the way high-risk drivers are pooled and covered by insurers. Gov. Mitt Romney has proposed creating a more competitive system that he says will result in immediate rate reductions for consumers.
Several lawmakers from Lawrence attended the hearing to call for immediate rate reduction for their constituents, who have been forced to subsidize the increasing costs of claims in Lawrence, most of which were fraudulent, lawmakers said.
Sen. Susan Tucker (D-Andover) said the number of injury claims per accident in Lawrence has dropped more than 57 percent since 2003, when there were 141 injury claims per 100 accidents. Tucker, along with Reps. Barry Finegold (D-Andover), David Torrisi (D-North Andover), and William Lantigua (D-Lawrence), urged Commissioner Julianne Bowler to create an incentive for communities to reduce the claims generated there. Massachusetts is the only state that unilaterally sets its auto insurance rates.
"Since we're doing this for our citizens, the citizens should see the benefits," said Capt. Michael Driscoll, chief of staff for Lawrence Police Chief John Romero. Alice Moore, assistant attorney general and chief of the Public Protection Bureau, said consumers should experience the benefits of the savings from a reduction in fraud and claims. She said industry officials have overestimated the number of claims, or losses, in past years and built a large profit margin.
"If the anti-fraud efforts are not accounted for in the rates, then all the savings from them will go to the insurance companies rather than consumers," Moore said. "This is effectively what happened in last year's 2005 rate cycle. The insurers should not be allowed to do it again.
Instead, the benefit of the anti-fraud efforts should be passed on to consumers, and the anti-fraud initiative should be vigorously expanded to other high-loss areas."
The attorney general has until Sept. 29 to file his rate request for 2006.
The State Rating Bureau (SRB), which represents ratepayers in the process, must file its request by Sept. 30. Commissioner Bowler sets the insurance rate each year by Dec. 15.
Kevin Beagan, director of the SRB, said that he has not yet completed his review of the AIB request, but said that figure and a separate request of the Massachusetts Association of Insurance Agents to increase commission allowance by 18 percent, "is not supported by the facts." Further, Beagan said, the state should gradually move toward a competitive market, such as Romney proposed.
Stephen Regan of the Massachusetts Auto Body Association called on insurers to control the costs of auto body repair and insurance claims. According to the association, insurers often refuse to pay repair shops the mechanical labor rate charged to consumers, forcing the mechanic to ship the vehicle to another shop and often absorb additional costs.
"The regulations governing collision repair costs and procedures are followed only when they benefit insurers," Regan said. "Those that don't are ignored or twisted to shade the truth." Regan urged the commissioner to "demand compliance" with the system, or reform the system to benefit consumers and not insurers.
According to a transcript of Reilly's comments provided by his press office, the attorney general told FOX News that he "strongly" believes in reform, and ought to support bringing competition into the system "over time."
"I strongly believe in reform," Reilly told FOX. "But right now we can help drivers under the current system if we just pay attention to those facts, focus on those facts and if the commissioner will, quite frankly, do what we are going to fight for. Over time, we do need reform, we do need to bring competition into this system and open this system up and I'm confident that we'll be able to do that."
During the division's annual hearing in May on establishing a competitive auto insurance system, Reilly testified in favor of moving to a competitive marketplace.
After hearings earlier this year, Jean Harrington of the Division of Insurance ruled that the auto insurance system, as it is currently constituted, is not suited to the introduction of competitively set rates.
"Institution of competitive rating without thoughtful planning and carefully structured implementation would benefit neither consumers nor insurers," Harrington wrote. "No speaker has presented a comprehensive alternative to fixing and establishing rates that, within the current statutory framework, would ensure that urban and inexperienced operators would not be confronted with dramatic rate increases. In addition, moving to competition at this time could disrupt the operation of the legislative process."
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