A task force appointed by Massachusetts Gov. Mitt Romney last spring has concluded that the state’s private passenger auto insurance system is heading for a crash and has promised to produce a legislative reform package by May 30 in time for consideration this legislative session.
The release of the task force’s recommendations will coincide with the insurance industry’s launch of a major public relations and education campaign in support of reform of the system.
An interim report by the task force takes aim at the state’s system of state-set uniform rates and the annual process by which those rates are set. The members agreed that this process should be transformed into a “more flexible” system that is “carefully crafted and sufficiently flexible to allow good drivers to be rewarded for the good driving risks that they are, facilitate choices for consumers regarding both the types of policies they purchase and from whom they can purchase them, and protect consumers from burdensome rates that could make insurance unaffordable.”
In the view of the task force, changes to the system should increase competition to ensure greater choice and reasonable pricing; attack various built-in incentives for fraud; address driving and road safety, and help educate consumers about how to choose and bargain for coverage.
The task force expressed particular interest in reducing premiums for good drivers and providing consumers with more choice.
“Our review of the Massachusetts marketplace has identified ongoing problems that hamper the ability to achieve meaningful consumer choice,” the report stated. As evidence it cited the fall in the number of carriers from 53 in 1990 to only 19 today. That reduction in the number of insurers has taken place while the number of licensed vehicles has jumped by 20 percent. In addition, five of the 19 carriers write 70 percent of the market.
According to the report, “the glaring absence of carriers results in fewer consumer choices, fewer outlets for producers, and a concentrated marketplace that is highly vulnerable to financial or natural catastrophe.”
Carriers are reluctant to commit capital in the state under the current system, a trend that also has a “preclusive effect” on the homeowners market, according to the report.
The report cites as another major issue the state’s highest in the nation claim frequency and promises anti-fraud and safety proposals as part of its package. The report praises recent enactment of an anti-fraud law that makes the use of “runners” (who induce people to seek insurance benefits) a crime.
In the areas of roadway safety, the task force is considering a primary seat belt law, improvements in the process for license revocations, stronger operator laws for teen and senior drivers, and streamlining the municipal process for lowering maximum speed limits.
In the area of consumer education, it is weighing creation of a Web-based auto insurance primer that would allow drivers to shop for price and coverage options.
The members of the task force have held 18 meetings with industry, consumer, regulatory, law enforcement, trial bar and even auto parts and chiropractic representatives since getting started last April. They missed the original year-end deadline for issuing recommendations.
The task force is comprised of Senate Assistant Majority Leader Marian Walsh, House Financial Services Committee Chairman Ronald Mariano, Chief of Attorney General’s Public Protection Bureau Alice Moore, Secretary of Economic Development Ranch Kimball, Director of Consumer Affairs and Business Regulation Beth Lindstrom and Insurance Commissioner Julianne Bowler.
By the time the task force issues its recommendations, the industry hopes to have in place a big public relations, education and lobbying apparatus to convince drivers, voters and lawmakers that more competition is needed in the insurance market.
“It’s pretty fluid,” said William Cahill, in speaking of the membership roster for the group. Cahill is chairman of the steering committee for the group, which has given itself the name, Fairness for Good Drivers. He is also vice president and group counsel for Hanover Insurance Co., one of the companies that has advocated for reform of the system.
“We’re focused on fairness for good drivers,” Cahill said in describing the coalition. He said that under the current system of state-set uniform rates, a standardized policy form, subsidies for high risk, and only 19 insurers willing to write, there is very little consumer choice in Massachusetts compared to elsewhere.
Cahill said the group hopes to convince the public that good drivers pay more than they should under the current system and would benefit from the state granting insurers more flexibility to price and design their products.
The coalition is not endorsing any particular recommendations at this point. It is waiting for the final report from Romney’s task force before putting its weight behind any bills.
The group plans to run print and broadcast advertisements as well as lobby on Beacon Hill.
Thus far the insurers that have signed on in addition to Hanover include Liberty Mutual, Amica Mutual, Premier, Metropolitan Property and Casualty, OneBeacon, Encompass, Fireman’s Fund, and Electric. In addition, the American Insurance Association and the Property Casualty Insurers Association of America have joined.
Several key domestic companies, however, are not yet in the fold. These include Commerce Insurance, Arbella Mutual, Safety and Plymouth Rock. Cahill said the group is in its early stages and hopes to broaden its base by reaching out to consumer groups, insurance agents and insurers from out-of-state.
When the reformers are ready for Beacon Hill their proposals will go before a new legislative panel, the Joint Committee on Financial Services. This committee was created by merging the Joint Committee on Banks with the Joint Committee on Insurance. The new committee is co-chaired by Sen. Andrea Nuciforo of Pittsfield, a newcomer to insurance battles, and Ronald Mariano of Quincy, who co-chaired the previous insurance panel. Vice chairs will be Sen. Dianne Wilkerson and Rep. Robert Spellane. New members are Sens. Stephen Buoniconti, Mark Montigny, Susan Tucker, and Scott Brown and Reps. William Galvin, James M. Murphy, Peter Kocot, Robert Coughlin, Joseph Driscoll, James Welch, Joyce Spiliotis, Susan Gifford and Daniel Webster.
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