April 29, 2004
ROMNEY TURNS IGNITION ON AUTO INSURANCE REFORM
Task force to create competition, new high-risk driver distribution plan within 30 days
Committed to rescuing a failing auto insurance market place that offers virtually no choice to consumers, Governor Mitt Romney today introduced the members of a bipartisan task force charged with fixing the system.
Romney also announced that the Division of Insurance has taken the first steps toward reform by pushing for changes in the distribution of losses generated by high-risk drivers.
“It’s time to give our consumers more choice and the advantages that come with safe driving,” said Romney. “The goal of the task force is to form a consensus for a fair and smooth transition to a competitive marketplace.”
The six-member task force includes Senator and Assistant Senate Majority Leader Marian Walsh, Representative and House Insurance Committee Chairman Ronald Mariano, Chief of the Attorney General’s Public Protection Bureau Alice Moore, Secretary of Economic Development Ranch Kimball, Consumer Affairs Director Beth Lindstrom and Insurance Commissioner Julie Bowler.
The task force will review potential changes to the system that will open the door to more competition, move to a rate-setting system that is more in line with the rest of the country, examine the costs and benefits of our current “no fault” claims process, crack down on fraud and eliminate the subsidy that good drivers pay for bad drivers.
“Automobile insurance reform is a priority for the Senate,” said Senator Walsh. “It is very important to the citizens of Massachusetts that rates be fair and affordable.”
“I look forward to working with the Governor, his administration, the Attorney General and Senate leaders on this important task force as we try to devise ways to attract national carriers to Massachusetts,” said Representative Mariano.
Romney anticipates recommendations for legislation from the panel before the end of the year.
Meanwhile, Insurance Commissioner Julie Bowler today directed the 13-member governing committee of Commonwealth Automobile Reinsurers (C.A.R.) to revise the rules in its Plan of Operation to achieve fair distribution of insurer losses generated by the state’s high-risk drivers. The Commissioner’s letter to C.A.R. comes with the release of a study conducted for the Division of Insurance that outlined inequities in the state’s high-risk pool that have contributed to a 64 percent decrease in auto insurers offering coverage in Massachusetts since 1990, from 53 to 19 currently.
“Fixing the residual market is an important first step toward reforming the state’s auto insurance market,” said Assistant Attorney General Alice Moore. “I welcome the opportunity to work on these issues on behalf of Massachusetts consumers.”
“The current structure is a major barrier to entry and a prime reason smaller insurers have left. The Division’s report shows the losses from high-risk drivers are out of control. We must transition to a system that reigns in these costs through better management of high-risk losses while ensuring a fair playing field for drivers,” said Lindstrom.
Commissioner Bowler’s letter to C.A.R. requests that the governing committee deliver within 30 days a new plan for high-risk drivers that will result in a more efficient and equitable system that avoids market disruption and adverse impact on policyholders. The changes requested include:
Allocating fairly the premiums and losses of the involuntary agencies, which are agencies appointed by C.A.R. in underserved areas;
Maintaining the current C.A.R. system for voluntary agencies to ensure no market disruption until a full implementation of an assigned insurance plan; and
Implementing claims handling performance guidelines based on industry best practices, with penalties for those insurers who do not comply.
The Division of Insurance’s report on the state’s residual market system, conducted by Tillinghast Towers and Perrin, clearly illustrates that the auto insurance system in Massachusetts is broken and in need of repair.
Among the findings:
High loss agencies are not distributed equally among insurers. The performance of these agencies has caused very adverse results for some insurers that carry more than double their market share of high loss agencies;
A group of nearly 100 involuntary agencies assigned by C.A.R. had loss ratios in excess of 150 percent. Some of these agencies’ loss ratios approached 300 percent; and
The subsidies by driver class are unique to Massachusetts. Rates charged to various types of drivers do not properly reflect the differences in their loss experience.
C.A.R.’s guidelines do not sufficiently monitor quality of claim handling or provide an objective assessment of claim handling practices relative to well-defined benchmarks. The report recommends greater emphasis on evaluating claims handling practices for third party bodily injury claims.
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