Bad Week for Romney Auto Reforms Continues as Mass. Agents Oppose Competitive Rating

The day after a court struck a blow to his administration’s reforms of the state’s auto insurance residual market, the powerful independent agents’ lobby also pulled the rug out from under some of Gov. Mitt Romney’s other key reforms.

The Massachusetts Association of Insurance Agents came out yesterday in opposition to Romney’s plan to introduce a form of competitive rating in place of the current system of state-set uniform rates.

“While MAIA does and will support many aspects of Gov. Romney’s auto insurance reform legislation, such as an increase in the tort threshold, limitations on certain medical services, anti-fraud measures, enhanced driver education programs and glass coverage deductibles, we will not support the provision of his bill that would institute competitive rating for private passenger auto insurance,” Frank Mancini, president and chief executive officer of MAIA, wrote in a position statement to members.

Romney has proposed providing up to a five percent discount to good drivers with clean records while permitting auto insurers to set other rates up to a cap of 15 percent on liability coverage.

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.

Romney’ plan also includes other changes designed to 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 in announcing his plan. “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.”

MAIA’s Mancini said that Romney’s goal of rewarding good drivers could be accomplished without dismantling the current rating structure. He said this could be done using good driver rate deviations and bad driver penalties in the Safe Driver Insurance Plan, a combination that produced competition for good drivers in the 1990s.

“The combination of the increased use of step-deviations and enhanced penalties in the SDIP will reach the same goal Gov. Romney hopes to reach with his competitive rating plan, while leaving in place premium protections for urban, inexperienced, youthful and senior drivers that would likely disappear in a competitive rating environment,” the MAIA statement pointed out.

The Massachusetts rating system provides premium subsidies for urban, inexperienced, youthful and senior drivers. These subsidies apply to both good and bad drivers falling into certain age or geographic categories.

While Romney’s 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.

“Is there a corresponding benefit for those drivers who pay a little extra to maintain affordable premiums for the subsidized drivers— drivers, who in many cases, may go uninsured if premiums became unaffordable? MAIA believes there is,” MAIA asked and answered.

MAIA noted that the state has among the lowest uninsured motorists populations and premium.

According to MAIA, the real problem in the state’s auto program is the “unfair and archaic” residual market, not the rating system. “As competition was raging in the late 1990’s by the way of step-deviations and group discounts, companies were still abandoning Massachusetts and pointing to the residual market as the reason,” Mancini claimed.

But efforts to change the much-criticized residual market plan are in limbo following a Superior Court decision this week that Insurance Commissioner Julianne Bowler exceeded her authority last December when she ordered the creation of an assigned risk plan known as the Massachusetts Assigned Insurance Plan to replace the current reinsurance facility known as Commonwealth Auto Reinsurers. Commerce Insurance, Arbella Mutual, the Center for Insurance Research and a handful of insurance agents brought the suit that scuttled the Bowler plan.

The court found that the legislature never intended to give the commissioner authority to establish an assigned risk plan and, in fact, it intentionally moved away from such a structure when it created CAR in 1973. Bowler, backed by Attorney General Tom Reilly and proponents of the new plan, had argued that a 1983 law amending the original 1973 CAR legislation permitted her action. But Judge Ralph Gants dismissed that notion.

“She is wrong. As is plain from the history of this statute….there is nothing in the 1983 legislation that suggests any legislative intent to permit the Commissioner to re-establish an Assigned Risk Plan that the Legislature had specifically disestablished ten years earlier,” Gants wrote.

The court did not rule on the specifics or wisdom of Bowler’s MAIP plan but only on her authority to impose it without legislative approval.

No decision has been made whether to appeal the court ruling.

As for MAIA, it promised to keep residual market reform a priority and be part of any debate over what should be done next.