MASSPIRG strongly oppose the adoption of an auto insurance assigned
risk plan to replace the current reinsurance plan that protects
consumers against discrimination by insurers. The proper path to CAR
reform is, as the Commissioner did earlier this year, simply to change
the formula for dividing the residual market deficit among the insurers
while preserving the reinsurance structure of CAR. The proposed
“assigned risk plan” would allow insurers to reject drivers – even
those with perfect driving records -- based on non-driving factors such
as credit scores, income, education, and home ownership.
The best estimate is that over a million drivers, including hundreds of
thousands of drivers with clean driving records, would be rejected
under the proposed plan. Rejected drivers would be randomly assigned to
another insurer. As a result, they would lose the freedom to choose
their insurer, would be subject to discriminatory underwriting
practices, and, in many instances, would face higher insurance costs.
The proposed assigned risk plan has many negative impacts in consumers. Specifically it would:
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Allow insurers to reject drivers based on stereotypes. The new plan
would allow insurance companies to use personal information – such as a
driver’s credit score, income, education, and home ownership status
(i.e., whether the driver doesn’t own a home) – to reject drivers.
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Raise insurance premiums for many rejected drivers. As many as hundreds
of thousands of drivers forced into the plan could pay higher premiums
as a result of losing access to discounts (such as good driver
discounts and combined auto/homeowners insurance discounts) when
assigned to an insurer not offering the discounts.
- Limit choice. Rejected consumers would no longer have the right to choose their insurer.
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Fail to address the #1 Consumer Complaint – high premiums. While the
new plan clearly addresses the complaints of some auto insurance
companies, it would do nothing to address drivers’ complaints of high
premiums. The assigned risk plan does nothing to correct the main cause
of our high premiums – our highest-in-the-nation accident rate. The
only road to lower premiums is through cost reduction. If we pursued a
comprehensive cost‑containment effort that improved our
worst‑in‑the‑nation accident rate to just second worst and attacked
fraud as we did in the city of Lawrence, we could cut auto insurance
premiums by approximately 30%, or about $300 on average per car per
year. Without dealing with the underlying costs, we will not see any
overall decline in premiums, but rather a shifting of premium dollars –
some people would pay more and others pay less, based on factors that
make no sense to the average driver.
Lastly, any reform affecting over one million drivers should not be
adopted at this time, by an administration that has not been reelected.
Were it to fail, the public will have no one to hold accountable.
If an assigned risk plan is nonetheless adopted, it must contain the
following safeguards to protect Massachusetts drivers. The following is
not a comprehensive list of all the consumer protections that would be
necessary. MASSPIRG, the Center for Insurance Research and other
parties with a stake in consumer protection would need to work together
to evaluate fully all the ramifications of the industry proposal for an
assigned risk plan, in order to arrive at a comprehensive and workable
package of consumer protections.
A Partial List of Consumer Protection Items to Consider for an Assigned Risk Plan (ARP)
1. There should be underwriting restrictions on who can be placed in an ARP.
Insureds who have had no surchargeable offenses during the most recent
three years of driving experience available should be ineligible for
the ARP and must be written voluntarily by any insurer they apply to
for auto insurance.
2. There should be a comprehensive list of all underwriting factors
that may be considered by insurers in determining whether to deny
coverage in the voluntary market. The only workable way to minimize unfair discrimination in an ARP is to specify the underwriting factors that may
be considered in determining whether to deny coverage to a driver
rather than to list the factors that may not be considered. The set of
allowable underwriting factors should be determined through a process
that involves input from consumers, consumer advocates, insurers, and
regulators, and should focus on factors, such as driving record, that
are causally related to lower losses and that are within the driver's
control. Factors such as credit scoring, race, and sex, as well as the
other factors set forth in Section 22E of G.L. c. 175, should not be on
the list.
3. Drivers denied coverage in the voluntary market should be informed
in writing of the specific underwriting reason why they are being
denied.
4. Insurers should not be allowed to be inconsistent in the application of their underwriting criteria.
Such inconsistency would be irrefutable proof that other underwriting
criteria, unauthorized in Massachusetts, are being used by an insurer.
5. There should be an annual review of the makeup of the ARP in order
to revise ARP credits and debits to ensure that individual rating cells
are not overrepresented in the ARP. For example, individual
territories and towns should have representation in the ARP
proportional to the number of drivers in those territories and towns.
6. A mechanism needs to be in place to prevent risks from ending in the ARP unnecessarily.
Drivers should not be "placed" in the ARP. They should be informed that
the agent (or direct writer) cannot find a voluntary writer for the
driver, and should have access to a system where other insurers can
write them voluntarily before it is assumed that one rejection by an
agent (or direct writer) is enough to justify entrance into the ARP.
7. A mechanism needs to be in place to help ARP drivers leave the Plan.
There should be a system for drivers in the ARP to allow any insurer to
review their rating information and offer them insurance in the
voluntary market. That system would also identify drivers who would
automatically leave the ARP due to Item #1 above.
8. The Plan needs to state that drivers written by an insurer through
the Plan must receive the same premiums (including all discounts and
deviations) and service as drivers written voluntarily by that insurer.
9. Drivers removed from the Plan mid-term should not be charged a short rate penalty.
10. Enforcement mechanisms and penalties for violating Items #1 through #9 above need to be part of the Plan.
This is especially needed for protections that are not already clearly
set forth in existing statutes and regulations (e.g., credit scoring is
a factor that insurers claim is a legal underwriting tool under
existing law).
11. For insurers looking to withdraw from the market, exit penalties
similar to those in place currently should apply in future years.
In particular, the lack of specific exit penalties for policy years
2008 and beyond are clearly anti-consumer. Exit penalties are needed to
ensure an orderly and non-disruptive market for consumers when an
insurer decides to exit the market.
12. The burdens placed on drivers who lose voluntary coverage with their existing insurer need to be set forth in the Plan.
Would drivers with Collision or Comprehensive coverage need to have
their vehicles pre-inspected by their ARP insurer? What forms must
drivers fill out once they are rejected by their voluntary insurer?
What installment plan would apply to these drivers? The Plan needs to
describe in complete detail all the burdens these drivers would have.
13. All the rules and regulations that would operate in future years need to be set forth in complete detail now.
