Md. Sedan Owners Lose Drive to Halt 52% Rate Hike

October 24, 2005

The Maryland Automobile Insurance Fund has prevailed over a challenge to its most recent 52.8 percent rate increase by sedan owners.

The Maryland Insurance Administration upheld the increase in an order signed by Acting Commissioner James V. McMahan. The new rates affect nearly 70 percent of the state’s sedans.

The state residual market insurer also received approval to increase its safe driver discount from 15 percent to 20 percent per year for a maximum of 60 percent over three years for those sedans that remain accident free.

The filing also did away with physical damage coverage, which is not a mandatory coverage.

The rate hike was originally approved in September, 2004 with a Nov. 1, 2004 effective date but the Sedan Owners of Maryland challenged it. The groups’ members expressed concern that the MAIF data was inaccurate and its methodology flawed. They also complained that the resulting hikes would be a financial burden and force some sedan owners out of business.

Harry Pollay, president of the Sedan Transportation Association of Maryland, told officials that had personally removed several cars from his fleet and had merged with another sedan company to cut his overhead to remain in business.

Frederick Appelt, who owns one sedan and has approximately 300 customers, said his rates went from $2,800 to $5,200.

Ira C. Cooke, executive director of the sedan association, criticized the practice of including taxicab data in the sedan industry rate filing.

In response to the concerns raised, MIA conducted a two and one half month audit of the state insurance fund’s data for taxis and sedans. While the audit uncovered some errors in reporting surcharges and other items, MIA concluded that the discrepancies would not materially lower the rate indication but could actually raise them.

The final ruling also upheld the use of taxi industry claims data in the sedan filing for loss development purposes.

At the public hearing, MAIF representatives showed that a much larger rate increase of nearly 200 percent could be justified but that they had tempered their request out of concern for the impact on sedan owners.
According to Kent Krabbe, MAIF executive director, the fund had a 203 combined ratio for its sedan line of business.

Approximately 574 vehicles meet the definition of “sedan” and of those, MAIF insures 70 percent while the remaining 30 percent is insured in the private market, according to John Banghart, deputy executive director at MAIF. He said that about 67 percent of MAIF’s sedan book of business is without a surcharge or a credit.

The last time rates were increased for MAIF’s sedan business was 1997, when they went up 75 percent.

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