Maryland May Relieve High Risk Drivers of Premium Financing Cost

February 28, 2008

State lawmakers are considering a bill that would allow the Maryland Automobile Insurance Fund, the insurer of last resort for many motorists, to accept installment payments like private companies.

Advocates say the proposal could save the average MAIF customer up to $300. But lobbyists argue the measure could hurt the industry that makes its money financing premiums.

The legislature established MAIF as a fallback for high risk drivers in 1972 when it made auto insurance mandatory for all drivers. Over the years, MAIF’s customer base evolved to include low- and moderate-income motorists with poor credit as well as those with poor driving histories. Since few of those motorists could afford to pay the entire premium upfront, they were forced to turn to finance companies, many of which charged hefty rates.

The General Assembly has considered changing the requirement that drivers pay the full premium upfront for three consecutive years, each time unsuccessfully.

This year, the idea has important support from Gov. Martin O’Malley and Senate President Thomas V. Mike Miller, Jr.

“The present system increases the cost of automobile insurance, and it increases it for low- and moderate-income people, which hurts them and hurts other people by decreasing the amount of people on the road who have insurance,” said Insurance Commissioner Ralph S. Tyler, who told The (Baltimore) Daily Record he supports the measure because high insurance costs might discourage people from having any insurance at all — even though that is against the law.

Sen. Thomas M. Middleton, D-Charles, who heads the Senate Finance Committee that is considering the measure, said he is open to some changes involving MAIF this year even if those changes fall short of abolishing the upfront proviso.

Premium finance companies have opposed changes in the system, arguing their services help reduce the risk for MAIF, which has higher cancellation rates than other insurers, said Bryson Popham, a lobbyist for Agency Services Inc.

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