Mass. Auto Rate Hike Sparks Legal, Verbal Battle

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 of a state insurance department ruling, which raises the state's private passenger insurance rates by 2.5 percent, was attacked by an insurance trade group yesterday as "politics as usual."

In a complaint, filed at the Supreme Judicial Court in Massachusetts, Mr. Reilly said the increase in the cost of auto insurance is "unwarranted" and that the decision last month will result in close to $100 million in additional costs for Massachusetts drivers.

He also argued in his papers that the insurance division didn't have "a reasonable basis" to adopt a new underwriting profit model and that it used "flawed methodology and erroneous calculations" in fixing and establishing the rates.

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

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

He argued that changing the "residual market"--which assigns uninsurable drivers to carriers within the state--is the first step in 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 auto insurance rates that will hurt Massachusetts drivers," Mr. Reilly said. "Massachusetts consumers should not have to pay more as a result of unfair and unsubstantiated methodologies favored by the auto 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 in Massachusetts is driven by politics rather than market realities," said Gerald Zimmerman, assistant general counsel at the Des Plaines, Ill.-based NAII. "This type of political grandstanding certainly does not lead to insurers considering Massachusetts as a market to sell insurance and ultimately that lack of competition hurts policyholders," Mr. Zimmerman said.

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

Furthermore, Mr. Reilly's challenge also creates uncertainty in an already unstable market, Mr. Zimmerman said, "and that additional uncertainty could have a negative effect on the willingness of insurers to file for deviations or on the magnitude of any deviations offered?which, in turn, could hurt the state's best drivers because they won't be offered deviations or they are offered reduced deviations."

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