Proposal will lead
to rate increases, loss of consumer choice, and unfair discrimination by insurers
MASSPIRG and
the Center for Insurance Research today announced their strong opposition to
a Massachusetts auto insurance proposal that calls for adopting an assigned
risk plan. Recent press reports have indicated that Governor Romney and Attorney
General Reilly are working on such a proposal. An assigned risk plan takes drivers
that insurers prefer to avoid and randomly assigns them to an insurance company.
Assigned drivers would lose the freedom to choose their insurer, would forfeit
access to discounts, and would eventually pay higher rates. While the consumer groups support efforts
to reform the current system, they believe reform can be achieved without the
harmful effects of an assigned risk plan.
"The assigned risk
plan turns a generally positive reform into an extremely anti-consumer one,"
said Stephen D'Amato, Executive Director for the Center for Insurance Research.
"Hundreds of thousands of Massachusetts drivers would be hurt by this."
"The proposal also
opens the door for consumers to be harmed by a number of discriminatory practices
by insurers, such as redlining and credit scoring," D'Amato continued.
"Massachusetts abandoned an assigned risk plan in the 1970s, eliminating
unfair discrimination in auto insurance. Returning to this would be a huge step
backwards for consumers."
"The number of vehicles
in the assigned risk plan fluctuates at the whim of the insurer, and has historically
been in the range of 300,000 to 2,200,000," said Deirdre Cummings, Consumer
Program Director for MASSPIRG. There are roughly four million insured vehicles
in Massachusetts.
Cummings added that the
most effective way to reform the auto insurance system would be to lower rates
dramatically through increased cost containment. "Cost containment must
be the centerpiece of any reform effort," she said. "We have by far
the highest accident rate in the nation. If we don't address the underlying
system costs, our rates will never come down."
Examples of effective cost
containment include a concerted effort to reduce accidents at the most dangerous
intersections in Massachusetts, a statewide examination of traffic signals and
road signs, better consumer education about the high cost to a driver of having
an accident or a moving violation, and the passage of a more effective seatbelt
law.
The high accident rate in
Massachusetts offers the state a unique opportunity. "We have a lot of
room for improvement and that means we have the ability to reduce rates more
than any other state," D'Amato said. "There has never been an attempt
in Massachusetts to take on our accident rate. It's long overdue."
MASSPIRG and the Center
for Insurance Research commended the Governor and Attorney General Reilly for
addressing the issue of auto insurance reform, but noted that, any task force
on auto insurance reform should include nongovernmental consumer advocates.
Fact
Sheet: Problems with an Assigned Risk Plan for Auto Insurance in Massachusetts
An assigned risk plan for
auto insurance takes drivers that insurers prefer to avoid and randomly assigns
them to an insurance company. There are many problems with adopting an assigned
risk plan for auto insurance in Massachusetts, including the following:
- Hundreds of thousands
of Massachusetts drivers would be adversely affected. The number of drivers
in an assigned risk plan is determined unilaterally by the insurers. Massachusetts
insurance data for the past 20 years indicates that, depending on the year,
7% to 69% of vehicles (or 300,000 to 2,200,000 vehicles) would have been placed
in an assigned risk plan.
- Drivers in the assigned
risk plan would lose their choice of an insurance company. Consumers with a
long-standing relationship with one insurer would be randomly assigned to another
insurer. Consumers could lose the freedom to choose an insurer that offers auto
insurance discounts and could lose other discounts for combining various insurance
products (such as homeowners insurance and auto insurance) with the same insurer.
- Assigned drivers would
eventually pay higher rates. Drivers in assigned risk plans pay higher rates
simply by virtue of the fact that they are in the plan. Two drivers with identical
rating characteristics (such as driving record, territory, years of driving
experience, etc.) are charged different rates if one is assigned to the plan
and the other is not. The decision to assign drivers is made by the insurers.
- Massachusetts abandoned an assigned risk plan in the 1970s, in large part
to eliminate unfair discrimination by insurers. A return to an assigned risk
plan would reopen the door to a variety of discriminatory practices by insurers,
including credit scoring and redlining. "Credit scoring" is the practice
of using credit information (such as the number of credit cards a person has)
to decide whether to insure a driver. It is an extremely controversial practice
because it adversely affects low-income and minority drivers. "Redlining"
is the insurer practice of not providing insurance to low-income and minority
drivers based on their neighborhood. Experience in other states demonstrates
that a disproportionate number of low-income and minority drivers are in assigned
risk plans. (See, e.g., Auto Insurance Redlining in Texas: Availability Worsens,
Center for Economic Justice, April 1997.)
- An assigned risk plan
would allow insurers to bypass the regulatory process, causing drivers to pay
higher rates based on factors not reviewed and therefore not approved by regulators.
- Disrupting our system
by adopting an assigned risk plan would distract us from true reform—specifically,
reform that focuses on accident reduction and other cost containment measures
that would lower rates dramatically. Examples of effective cost containment
include a concerted effort to reduce accidents at the most dangerous intersections
in Massachusetts, a statewide examination of traffic signals and road signs,
better consumer education about the high cost to a driver of having an accident
or a moving violation, and the passage of a more effective seatbelt law.
MASSPIRG
Deirdre Cummings
(617) 292-4800 |
Center for Insurance
Research
Stephen D'Amato
(617) 441-2900 |
