Citing Anti-Fraud Success, Mass. Auto Insurers Seek Small Rate Cut

August 12, 2005

Citing a drop in claims, the Automobile Insurers Bureau of Massachusetts filed its proposal for 2006 personal auto insurance rates with the Commissioner of Insurance Julianne Bowler on behalf of insurance companies. The proposal calls for a -0.1 percent rate decrease, or about $4 million reduction statewide.

Daniel Johnston, president of AIB, credited a drop in claims across the board and successful anti-fraud actions in particular for holding down rates.

Claims for accidents, injuries, theft and glass are all down. In Lawrence, where the industry has worked with officials to combat serious claims fraud, claims are down significantly, by some 60 percent or more than $28 million.

Johnston attributed the improvement to the work of insurance company anti-fraud efforts and an anti-fraud task force comprised of the Insurance Fraud Bureau of Massachusetts and the Lawrence Police Department as well as the Essex County District Attorney and the Attorney General. Also, media attention by the Lawrence Eagle Tribune has kept the fraud fight and success stories in the spotlight, he added.

“Claims are still high but are way down. The anti-fraud initiative is paying dividends,” Johnston told Insurance Journal. He said the industry has taken its anti-fraud task force to other high claims communities in hopes of repeating the Lawrence success and the effort appears to be working. Losses have gone down in Springfield/Holyoke, Brockton, Lynn, Lowell and Boston as a result.

At the same time that it reflects a drop in claims, the latest filing includes a 3.7 percent profit figure, as well as recognition of certain company expenses such as contingent commissions that are recognized in other states but have not been allowed in Massachusetts, according to Johnston.

Public hearings on 2006 rate levels are set to begin on Aug. 22. Still to come are recommendations from the State Rating Bureau and the Attorney General’s office.

According to Johnston, this is the first time in recent memory that the automobile insurance industry has asked for a decrease in rates. Since 1995, auto insurance rate levels in the state have gone down 17 percent. Over the same decade, there has been a 17 percent increase in the number of insured vehicles on the roads, according to industry statistics.

The average insurance rate paid by consumers is $1090 today based on the latest information of what cars they drive and what coverages they purchase. Without any changes in these purchasing patterns, the estimated average rate for 2006 would be $1089 if the AIB recommendation were approved.

Insurance industry officials privately told The Boston Globe that they expect Commissioner Bowler to ultimately approve a reduction of about 5 percent when she sets the 2006 rates in December. The state sets uniform rates for all private passenger auto insurers.

Five percent would represent a savings of about $55 off the current average statewide premium of $1,099 and would be the biggest reduction in rates since 2001, when the state ordered premiums but by 8.3 percent. Insurers had sought a 2.5 percent increase that year.

Nationwide, the Insurance Information Institute estimates premiums will rise 1.5 percent on average this year, the smallest increase in five years. The average premium nationwide for 2005 is expected to be $870, up $13 per vehicle, the institute said.

For 2005, Bowler approved a statewide average rate decrease of 1.69 percent, an average decrease of $18.30 per vehicle and a statewide average annual rate of $1,063.19.

Bowler had been given three competing recommendations for overall rates for this year. The attorney general’s office had recommended that rates be reduced by 6.2 percent, while the State Rating Bureau, the consumer arm of the Division of Insurance, had urged that rates go up just slightly, an average of one percent. These contrast with the request for a 9.2 percent increase that was filed by the industry’s Automobile Insurers Bureau. The AIB had originally asked for an average increase of 5.8 percent for insurers but revised that figure to reflect the request by agents for a 32 percent jump in average commission.

State Attorney General Thomas F. Reilly, whose office is part of the rate-setting process, said that the recommended decrease should be bigger than one-tenth of 1 percent, although he did not say what he would propose.

“Drivers deserve a rate reduction that is far more significant” than 0.1 percent, Reilly said. “If that’s the number, that’s not going to fly. It’s not going to hold up.”

While the claims news appears to be good, the AIB chief warned that the Massachusetts auto insurance market “remains tenuous.” Only 20 companies (19 by 2006), the lowest number in the country, remain writing car insurance in 2005. “The ability to attract new companies, and hence new capital, to this marketplace has been non-existent in recent years. Undeniably, an adequate rate level is a required underpinning in order to reverse that trend,” he added.

Republican Gov. Mitt Romney has proposed changes in the way auto insurance is regulated in Massachusetts. Reilly, a Democratic candidate for governor, has also called for reforms.

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