Testimony In opposition to HB 1023

Submitted before Chairmen Ronald Mariano and Steven Buoniconti and members of the Joint Committee on Financial Services

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.