Consumers lose with auto insurance plan
BY NOW everyone has seen the ads about the Massachusetts auto insurance system. Both sides sound compelling. But what’s best for consumers? And who is paying for those ads? To answer the second question first: The advertisements on both sides of the debate are written and paid for by auto insurance companies.
The big national insurers and most local companies favor Governor Romney’s plan to ”deregulate” auto insurance rates. Why? Because he would allow them to charge more than they can under the current system.
Three local insurers oppose the plan, presumably because they do not want to lose market share to the big national companies.
So, it’s obvious why the insurance companies are facing off — they have lots of money to gain or lose. For the rest of us, the more important question is the first one: Is Romney’s plan good for consumers?
The answer is no. The state’s consumer groups — Masspirg, the Center for Insurance Research, the Massachusetts Consumers’ Coalition, and the National Consumer Law Center — oppose the Romney plan because it will result in significantly higher premiums for many experienced drivers with good driving records, would allow insurers to use discriminatory pricing practices, and, most worrisome, would fail to address the key factor responsible for our high premiums.
Consider this: If you are a typical experienced driver with a six-year clean driving record and you live in, say, Brockton, Charlestown, Chelsea, Dorchester, East Boston, Everett, Hyde Park, Jamaica Plain, Lawrence, Lynn, Randolph, Revere, Roslindale, Roxbury, or Springfield, your already high rates will almost certainly rise when Romney’s plan takes effect.
The reason so many good drivers will be punished is that Romney wants to attract out-of-state insurers with the lure of ”competition” — which, in the auto insurance game, is simply a code word for ”unfair discrimination.” Instead of basing our rates primarily on driving records, as state law currently requires, insurers will be free to do what they do in other states, which is to price by stereotype.
Your insurance company will use personal information — such as your credit score, your marital status, your occupation, your education level, whether you own or rent your home — to raise or lower your insurance rates, and will heavily penalize people who live in ”undesirable” neighborhoods.
In addition to inviting the problems of rate spikes and unfair discrimination, the Romney proposal ignores the real cause of our high insurance rates. Massachusetts has the dubious distinction of having the highest accident rate in the country, by far — an astounding 40 percent higher than the rate in second-place Rhode Island, according to claims data reported by the Insurance Research Council.
The debate over how rates are set is important to the insurance companies but largely irrelevant to consumers. We need to focus on lowering our costs. It doesn’t make for as good a headline as ”deregulation” or ”Romney vs. Reilly,” but if we pursued a comprehensive cost-containment effort that improved our worst-in-the-nation accident rate to just second-worst and attacked fraud, as we did in the city of Lawrence, we could cut insurance premiums by at least 30 percent, or more than $300 on average per car per year.
Instead of addressing the difficult problems of dangerous intersections, aggressive driving, inconsistent traffic enforcement, and rampant fraud, we’re treated to a televised fusillade of misleading advertisements claiming that all drivers pay one rate. (Let’s just clear up that canard: Drivers with poor records who live in, for example, Jamaica Plain, Worcester, or Springfield now pay about $6,000 annually to insure a 5-year-old Camry, or roughly four times as much as the best drivers in those areas pay for the standard package.)
At a recent State House hearing on his bill, Romney stated that he asked the big national insurers what they wanted from him in order to sell car insurance in Massachusetts. Their answers are found in his ”reform” plan.
Evidently, the governor never asked consumers what we wanted. Here it is: We want lower rates; we want to be treated fairly; and we want our rates to be based on our own driving record and not on whether we are married, went to college, or missed a credit card payment.