Massachusetts auto insurers would be required to provide up to a five percent discount to good drivers with clean records but be able to set other rates up to a cap of 15 percent on liability coverage under an auto insurance proposal unveiled by Gov. Mitt Romney today.
Romney said other changes would help remove costs from the system and fund the $150 million rate rollback for good drivers. These include a hike in the personal injury tort threshold from $2000 to $4000, a limit on chiropractic and other non-medical visits, and a fee schedule for reimbursing all medical providers similar to that utilized in the workers compensation system.
“With so few insurers doing business here, we can no longer pretend that our system is healthy and benefiting our citizens. This bill brings the flexibility to our system that exists everywhere else,” Romney said at a press conference at a Brookline museum filled with antique autos. “It attacks fraud and excessive treatment costs, gives our good drivers some immediate rate relief and provides insurers with flexibility to charge rates that reflect driver’s records.”
Officials maintain that 64 percent of all drivers in the state have clean driving records and would be eligible for the five percent discount the first year of the plan. Eligible policies would include those of parents with teenage drivers listed as occasional drivers who also have clean records.
Average savings would range between $52 to $119, with some of the biggest savings for urban residents. The five percent discount to good drivers would be mandated for the first year of the plan. In subsequent years, insurers would be able to discount good drivers up to six, seven and then 10 percent in the fourth year. After the fourth year, there would not be any required good driver discount. Romney envisions the marketplace relying on competition to set prices by that point.
Drivers with five surcharges or more within three years would need to go to an advanced driver training course or lose their license for 30 days.
The 15 percent ceiling on rate increases would apply only to liability coverages, not to comprehensive and collision coverages. Also, the bill would free insurers to use their own rating criteria and would no longer prohibit the use of age and gender in insurer rating formulas as current law does.
Insurers would still be required to file rates for scrutiny by the state insurance department but the department would no longer have an annual rate proceeding in order to set uniform rates for all companies.
Also, voluntary insurance agents would no longer have their commission levels set by the state; rather they would negotiate those with their insurers. Commissions on business placed in for the involuntary market would be 10 percent.
While the plan seeks to eliminate much of the subsidy good drivers pay for bad, it does not attempt to remove the subsidies suburban drivers pay for urban drivers.
“This isn’t Katie bar-the door, Wild Wild West” type of plan, Romney explained, justifying the retention of some regulatory controls. “But it’s a step toward competition. This isn’t the world’s best bill. The Legislature may make adjustments and I welcome that.”
Romney said he wants to end the current system under which the state sets rates for all insurance companies, a system he called “Soviet-style” because it dictates the prices and products and “benefits only a handful of companies that are doing very, very well.”
But he anticipates opposition.
“Some well-connected companies will fight with everything they have to keep the status quo, the Soviet-style system,” Romney said. “There are some enormous special interests so be prepared for some creative reasons on why things shouldn’t change.”
He singled out Commerce Insurance Co., the state’s largest personal auto insurance writer, and “maybe some agents who specialize in bad drivers” as likely foes of his plan.
Romney said his plan reflects a lot of the work of a task force he appointed, although that task force has not been able to arrive at a consensus for its own proposal after more than a year of work. He said he did not want to wait any longer to get a bill in front of lawmakers.
“We’ve talked this to death. It’s time to push for reform,” he said. “It’s time to catch up with the 49 other states. We’re not the first to do this; we’re the last to do this.”
He expressed regret that the task force was unable to reach a compromise, suggesting that Attorney General Tom Reilly, who is running for governor, was a roadblock.
“He’s not going to be on the same side. He favors the Soviet-style system,” Romney said.
On hand to lend support was Edmund F. Kelly, chairman and chief executive officer, Liberty Mutual Group, a Mass.-based international insurer. Kelly noted that Liberty Mutual writes in all other states and 12 foreign countries but Massachusetts is unique.
“This is the only part of the globe, not just in the states, but the globe, where we cannot compete on quality, product and price,” he said, likening it to there being only one type cereal, in the same size box, at the same price on grocery stores shelves across the state.
“We need to trust consumers more,” Kelly advised.
The legislative plan is separate from changes that Romney’s insurance commissioner, Julianne Bowler, has been pushing for the state’s residual market. Her proposed assigned risk plan has been challenged in court by Commerce Insurance Co. and others that have argued that the plan exceeds her authority. The Romney auto reform package will include a provision clarifying that the commissioner has the authority to issue a new high risk plan, according to officials.