Insurers Hit Mass. Bill Directing Anti-Fraud Savings Refunds

March 15, 2006

Some Massachusetts politicians want to make sure that good drivers in communities that crackdown on auto insurance fraud reap the savings.

But insurers contend that an overhaul of the entire auto insurance system, rather than mandating that cost savings be returned to particular cities and towns, is the best way to reward anti-fraud efforts.

Senate Bill 2332 would require that where there are significant savings produced by anti-fraud efforts in communities with excessive fraud, one-half of those savings be returned to good drivers in those communities. This legislation is designed to return to the good drivers in Lawrence some of the nearly $30 million in claims costs reduction that have been obtained through several years of efforts by local officials, the Attorney General, the Insurance Fraud Bureau and a number of insurers, and to provide an incentive for other communities to undertake the similar anti-fraud campaigns.

But cost savings generated by anti-fraud efforts would be shared faster with all good drivers in Massachusetts with an overhauled auto insurance system, the Property Casualty Insurers Association of America (PCI) told the Massachusetts Joint Committee on Financial Services at a hearing.

Frank O’Brien, PCI’s Northeast Region vice president, applauded the efforts in Lawrence and other communities to combat fraud. “Those efforts are a model for other communities where fraud continues to plague the auto insurance system,” he said.

However, O’Brien expressed concern about the mandate that requires the savings generated by such efforts be narrowly distributed to drivers in a particular community.

“While we are sympathetic to the plight of the good drivers in Lawrence who have had to pay too-high rates for far too long, we also note that drivers in non-urban communities throughout the state have been paying a disproportionate share of those excessive and fraudulent claim costs through the subsidies prescribed as part of the rate-setting process,” said O’Brien.

PCI maintained that the proposal attempts to “fix the unfixable” by adding another layer of complexity to a system that it says is near collapse “because it is already so complicated and so rife with gamesmanship” that most of the insurance companies have left the market.

“The best answer for good drivers in Lawrence and around the state is to get rid of that complexity and move to a system of regulated competition that is more open, is fairer and offers more choices,” said O’Brien. “Under such a system, good drivers in Lawrence would already have realized reductions in their premiums in recognition of the anti-fraud efforts of their community leaders, long before they will under our current, archaic structure. We urge the Committee to act on those long-overdue systemic reforms.”

In Massachusetts, PCI member companies account for more than 25 percent of the personal auto insurance business and almost 30 percent of the total property/casualty insurance market. There are 27 PCI members domiciled in the Commonwealth.

Source: PCI

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