Car insurers seek rate cut
Double-digit decrease possible
If the past is a good yardstick, then Bay State auto insurers could get much more than they’re asking for in their request for a rate decrease in 2007.
Earlier in the month, the Automobile Insurers Bureau (AIB) – the actuarial arm for the state’s 19 auto insurance carriers – asked for a 3.7 percent rate cut for 2007 premiums, a move that would bring the average premium to $983.Daniel J. Johnston, AIB’s president, says the request represents the effect of anti-fraud efforts by the state in high-fraud cities like Lawrence, Lowell, and Holyoke, which dramatically lowered bodily injury claims in 2005. In addition to the rate cut, AIB has also requested upping the multi-car discount from 5 to 10 percent, but lowering discounts for some anti-theft devices. AIB also wants to accelerate rate-reduction in those towns with the anti-fraud programs, known as the Community Insurance Fraud Initiative (CIFI).
The request is only the most recent step in the annual rate-setting process, says Kevin P. Beagan, director of the State Rating Bureau. On Aug. 23, the Division of Insurance (DOI) will hold a public hearing to go over the AIB’s recommendations, and within a month, both the Attorney General’s office and the State Rating Bureau (part of the DOI) will issue their own recommendations based on their interpretations of industry statistics. A likely-lengthy hearing process will tease out differences between the three groups, all of whose recommendations will be sent to the commissioner of insurance, Julianne Bowler, who has the ultimate authority to set the rates. Her decision will be made on December 15.
"We asked for this because it’s the actuarially-correct number based on a non-political position, but often the ultimate decision reflects a very conservative estimate of a company’s rate or return," says Johnston. "Whether the commissioner will impose different thinking is unknown."
Bet on even bigger rate reductions. Over the last several years, Bowler has approved rates far lower than what insurers, through the AIB, have looked for (see above chart). Last year, AIB had proposed a 0.1 percent cut; ultimately Bowler cut it by 8.7 percent. The year before, AIB asked for a 5.8 percent jump, Bowler ultimately awarded a 1.7 percent cut.
Steve D’Amato of the Center for Insurance Research in Cambridge expects a significant lowering of premiums. "Most people feel we are in for a double-digit decrease," he says. Although no other state regulates the car insurance premiums like Massachusetts, most states are seeing similar patterns of decreases, according to the Insurance Information Institute.
It’s unclear how the request for a rate cut will affect the ongoing debate over reforming the state’s auto insurance market. A bill that would have opened the market to competitive rating by individual companies recently expired. Both Republicans and Democrats, including Worcester Rep. Robert Spellane, said before the end of the session that they would reintroduce the bill in the next session should it fail.
Critics of the current system, where the state, not the market, sets the rates, claim the annual premium-setting process is too politicized. Attorney General Tom Reilly, a Democratic candidate for governor, last year called for rate reductions of 18 percent. Reilly says he favors competitive-rating, but with some state oversight.
Kenneth J. St. Onge can be reached at kstonge@wbjournal.com
WBJ Web Partners
Most Recent
0 Comments