Good
afternoon. My name is Deirdre Cummings and I am the Legislative
Director for the Massachusetts Public Interest Research Group
(MASSPIRG). MASSPIRG is a statewide, non-partisan, non-profit public
interest advocacy and watchdog organization with over 50,000 members
across the Commonwealth. I am here today to testify today in opposition
to HB1023 An Act Reforming Private Passenger Automobile Insurance in the Commonwealth.
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 – as measured by SDIP 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.
HB
1023, I believe, is an attempt to bring more insurance companies into
the state, unfortunately at a cost that is too high – the elimination
of critical consumer protections.
It’s
certainly true that if we eliminate enough consumer protections we can
get any insurer to come here. Then some insurers would get a new market
in which to make money, and many Massachusetts consumers would get
higher premiums and a slew of anti-consumer pricing practices that have
been outlawed here for decades.
In
fact, HB 1023, An Act Reforming Private Passenger Automobile Insurance
in the Commonwealth, will lead to higher not lower rates, will lead to
discriminatory underwriting and pricing practices, and while making
important steps towards cost containment and fraud prevention, could do
more to address the root cause of our high premiums.
Specifically, HB 1023 will:
1. Result in Higher Premiums
This
year our current regulated system resulted in a record 11.7% average
rate reduction for all Massachusetts drivers and that is after an 8.7%
average rate reduction for the year before. It is expected that our
current system would again result in a significant rate decrease for
2008, primarily due to a decline in underlying insurance costs. But HB
1023 appears to freeze the rates set by the state for the bodily injury
and personal injury protection coverages, even though current law would
be expected to produce a decrease in those state‑set rates.
HB
1023 allows auto insurers to deviate from state-set rates up or down by
5% for 2008. Insurers can already deviate down from state-set rates and
are not doing so. Allowing them to deviate up can only lead to higher
rates than the current system.
HB
1023 allows insurers to raise individual rates (as opposed to statewide
average rates) by 15% for the liability coverages and does not cap
individual increases at all for the collision and comprehensive
coverages, which are purchased by most consumers.
While
this bill has some important fraud prevention and cost containment
measures, and the chairmen should be commended for those, we can and
must be doing more to lower our accident rate. If we pursued a
comprehensive cost‑containment effort that improved our
worst‑in‑the‑nation accident rate to just second worst and continued to
attack fraud as we did in the city of Lawrence, we could cut insurance
premiums by over 20%, or about $200 on average per car per year.
Without dealing with the underlying costs, competitive rating by itself
will not produce any overall decline in premiums, but rather will shift
premium dollars around – some people would pay more and others pay
less, based on factors that make no sense to the average driver.
HB
1023 allows insurers to increase statewide average rates an unlimited
number of times during a year by at least 7% each time, starting in
2010.
HB
1023 allows drivers with perfect driving records to be placed in an
assigned risk plan subjecting them to rate increases with no rate caps.
2. Allow insurers to give much less weight to driving record than
currently required and to use discriminatory rating factors such as
occupation, education, credit scores, home ownership, etc .
Massachusetts currently requires insurers to give more weight to
driving record, as measured by the SDIP, than any other state. HB 1023
would change that by allowing insurance companies to charge rates based
on criteria such as homeownership, marital status, age, sex, education,
employment, amount of insurance purchased, and other rating criteria
that are currently used in other states but are not factors under our
current rating system. While companies cannot refuse to provide
insurance based on factors such as age, sex or marital status, these
factors will be used in setting rates. Therefore, many drivers with
perfect driving records would end up paying higher premiums due to the
application of these other rating factors. In addition, while the bill
bans the use of credit scores in setting rates, insurers get around
that in other states by refusing to insure drivers with low credit
scores in their subsidiary companies with the lowest rates, and instead
offering them insurance at a higher rate from one of their many other
subsidiaries.
3. Result in premium increases even for the best drivers in many urban communities
HB
1023 eliminates the subsidy or “rate flattening” mechanism for the
drivers in urban areas that already pay the highest rates and replaces
it with the system used in Connecticut. As a result, drivers in urban
areas such as Brockton, Everett, Jamaica Plain, Lynn, Randolph, Revere,
and Springfield could receive rate increases. Drivers in Dorchester,
Hyde Park, Roslindale, and Roxbury would see their rates soar –
increases estimated in last years rates - by over 25% on average. Even
drivers with perfect driving records would receive these increases.
While
we don’t have the perfect auto insurance system today, it has proven to
have very important consumer protections that do not exist elsewhere.
In addition, despite our highest in the nation accident rate – we do
not have the highest in the nation premiums – although you would expect
we would. Our average premiums – having been in decline in the last few
years – are about the same as the average premium in 1994. Instead of
throwing out some of the very important components of our regulatory
system we should be embracing them and instead work to lower rates for
everyone, by focusing on reducing our accident rate.
Further,
not to make light of a very serious problem - but more to provide
context - we do have competitive rates in our home owners insurance
system. And today insurers are pulling out of the cape and coastal
areas and leaving the Fair Plan as the largest insurer of homes on Cape
Cod. What is good for the insurers is not always good for the consumer.
