NAII Says Quickest Cure for MA Auto Insurance Market is Increased Competition

May 19, 2003

Representatives of the National Association of Independent Insurers told the Massachusetts Division of Insurance at a recent hearing that one of the most effective ways to enhance the insurance market for consumers in the Bay State “is to move from the current system in which the Division fixes and establishes rates to a more competition-driven regulatory system.”

Gerald L. Zimmerman, senior counsel for the NAII stated: “For more than 25 years, competition has been suspended and rates have been ‘fixed and established’. It’s time to begin actively working to restore a more competitive system, starting in 2004, as contemplated by Massachusetts law.”

The NAII’s testimony pointed out that there are only 20 insurance companies that write a significant amount of business in the state, and the number has been declining steadily for decades. “Ten years ago, there were 30 insurers in the state with writings of more than $1 million; and in the late 1980s and early ’90s, another 14 insurers paid more than $250 million in “exit fees” to leave the market. Experts believe there may be five fewer insurers writing in the state over the next five years,” the bulletin noted.

“This is the smallest number of carriers of any state in the country, and it is symptomatic of a distressed, unhealthy market,” Zimmerman stressed. “Should one of the remaining writers with a large market share stop doing business here, Massachusetts consumers could well face an availability problem and a major auto insurance crisis.”

The problem, said the NAII, is that “Although the Division has assembled several task forces over the years to consider a return to competition, nothing has come of the efforts to date – in large part because of Massachusetts’ deeply embedded territorial and class subsidies.” Zimmerman indicated that “while those subsidies may have originally had some social or political justification, they seriously distort the pricing of auto insurance in Massachusetts. Most good drivers pay too much and bad drivers pay far too little.”

The NAII said it supports a solution that would bring “incremental rather than sudden change to the system, starting with a very small step in that direction for 2004, such as allowing insurers to develop and price endorsements to the auto policy.” It also wants to see “more freedom in pricing of one or more optional coverages, perhaps involving the use of flex-rating bands.”

It urged the Division “to engage outside actuarial experts to design and implement these steps.” Zimmerman concluded, “that kind of expertise will be essential, and we do not believe it can be obtained through another task force.”

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