NAII Says Territorial Rating Ban Would Increase Premiums for Most Md. Drivers

In yet another attempt to limit an insurer’s ability to accurately assess risk in Maryland, the House Economic Matters Committee is considering eliminating the use of geographic location as a rating factor in insurance underwriting, according to the National Association of Independent Insurers (NAII).

The NAII recently testified before the House Economic Matters Committee that if HB 1162 were enacted it would severely hinder insurers’ ability to develop fair and balanced rates in the state. “The proposed bill essentially would take away an insurer’s right to use territory factors to accurately assess auto insurance rates,” Don Cleasby, assistant vice president and assistant general counsel for the NAII, said.

“An insurer’s actual loss costs in a given territory have been proven to be an accurate measure of risk in determining insurance rates. The higher the population and the more vehicles there are, the more likely there will be insurance claims. Across the country, residents who drive in higher density urban areas incur a greater risk than those in outlying areas. For instance, Baltimore residents are nearly 50 percent more likely to have accidents than the average Maryland resident and drivers living in the city incur 29 percent more claims than drivers living in suburban Baltimore. If territorial rating were eliminated, insurance companies would no longer be able to set insurance rates that reflect the actual costs of providing coverage for these particular areas,” Cleasby commented.

If insurers could not use territorial rating, 54 percent of Maryland policyholders would receive an average rate increase of about 15 percent to subsidize the decreases given to urban drivers who would not be paying their fair share of losses, according to an NAII analysis.