Mass. Auto Rate Hike Sparks Legal, Verbal Battle

NU Online News Service, Jan. 7, 3:44 p.m.EST?Massachusetts Attorney General Tom Reilly's appeal ofa state insurance department ruling, which raises the state'sprivate passenger insurance rates by 2.5 percent, was attacked byan insurance trade group yesterday as "politics as usual."

In a complaint, filed at the Supreme Judicial Court inMassachusetts, Mr. Reilly said the increase in the cost of autoinsurance is "unwarranted" and that the decision last month willresult in close to $100 million in additional costs forMassachusetts drivers.

He also argued in his papers that the insurance division didn'thave "a reasonable basis" to adopt a new underwriting profit modeland that it used "flawed methodology and erroneous calculations" infixing and establishing the rates.

The Massachusetts insurance division's Dec. 15 decision, whichtook effect beginning of this year, will add some $25 a year pervehicle, raising the statewide average annual rate to about $1,047annually.

In a statement, Mr. Reilly argued that what Massachusettsdrivers need urgently is a reform for the state's auto insurancesystem. "The Division of Insurance's recent ruling emphasizes theneed to reform the state's auto insurance system. Consumers will befar better served by a market fueled by competition. Without it,they will continue to overpay for auto insurance," Mr. Reillystated.

He argued that changing the "residual market"--which assignsuninsurable drivers to carriers within the state--is the first stepin reforming the Massachusetts auto insurance market.

"For the second consecutive year, the Division of Insurance has,without justification, ruled in favor of an increase in autoinsurance rates that will hurt Massachusetts drivers," Mr. Reillysaid. "Massachusetts consumers should not have to pay more as aresult of unfair and unsubstantiated methodologies favored by theauto insurance industry."

The National Association of Independent Insurers called Mr.Reilly's action nothing more than political grandstanding.

"This move highlights the fact that the rate-setting process inMassachusetts is driven by politics rather than market realities,"said Gerald Zimmerman, assistant general counsel at the DesPlaines, Ill.-based NAII. "This type of political grandstandingcertainly does not lead to insurers considering Massachusetts as amarket to sell insurance and ultimately that lack of competitionhurts policyholders," Mr. Zimmerman said.

He described the Attorney General's appeal as "unnecessary andbaseless" and called the move "a prime example of overregulationand micromanagement" at a time when insurance fraud is costingMassachusetts insurers and consumers millions.

Furthermore, Mr. Reilly's challenge also creates uncertainty inan already unstable market, Mr. Zimmerman said, "and thatadditional uncertainty could have a negative effect on thewillingness of insurers to file for deviations or on the magnitudeof any deviations offered?which, in turn, could hurt the state'sbest drivers because they won't be offered deviations or they areoffered reduced deviations."

Mr. Zimmerman added, "When Massachusetts drivers open theirrenewal notices, they can thank Attorney General Reilly in part forthe fact those discounts aren't there, or are smaller than theyotherwise would be."