Insurance executive blasts governor

Auto plan to boost political hopes, not consumers, he says

By Bruce Mohl, Globe Staff | June 8, 2005



A top official at Commerce Insurance yesterday said Governor Mitt Romney is trying to fuel his presidential ambitions with an auto insurance proposal that would line the pockets of big national insurers at the expense of Massachusetts drivers.



James A. Ermilio, senior vice president and legal counsel at the state's largest auto insurer, said the bill Romney filed last week would offer no real savings for consumers and would instead lead to higher rates, particularly for two groups: youthful drivers and urban drivers.



''It's quite clear it's an effort to line the pockets of national insurance companies," Ermilio said. ''My guess is the governor hopes to garner financial support from the companies as he makes plans to run on the national stage."



One locally based national carrier is already backing Romney. Edmund F. Kelly, chief executive of Boston-based Liberty Mutual Group, joined Romney at his news conference last week and hosted a fund-raiser for the governor in April, at which at least nine officials with ties to the company donated a total of $3,500.



It's unclear whether Liberty and other companies played a role in crafting Romney's proposals. A spokesman for Liberty was unable to comment last night.



Christopher Goetcheus, a spokesman for the state Division of Insurance, said the agency drafted the Romney bill but may have shared ideas and concepts with other parties to get feedback. Goetcheus could not immediately say who those parties were.



''We were trying to produce the best product to correct this market and benefit drivers," Goetcheus said.



Romney attacked Commerce by name last week at a news conference when he unveiled his proposal to revamp what he called the state's ''Soviet-style" auto insurance system, where regulators set all auto insurance rates.



The governor labeled Commerce a defender of the status quo as he called for a system under which companies would set their own premiums after a four-year transition during which they would be given more and more pricing flexibility. Commerce, based in Webster, currently controls 29 percent of the state's auto insurance business.



Yesterday, Goetcheus said the governor's bill is needed to attract national insurance carriers to the state. He said 34 companies have left the state over the past 15 years as a result of the state's oppressive regulation.



''Why is Commerce afraid to compete?" Goetcheus asked. ''They want to retain an artificial system where the vast majority of our drivers are not benefiting."



Ermilio said Commerce is not afraid to compete, but warned that Romney is using a ''bait-and-switch" tactic to try to sell Massachusetts drivers on a system that won't benefit them.



Critics of Romney's plan say that Massachusetts has about the same number of large insurers as other states, and that's what counts. Many states, for example, attract large numbers of small companies, but have little market share. According to one study, Massachusetts has 12 companies with market shares of more than 2 percent, one more than the national average of 11.



Romney's bill promises the two-thirds of Massachusetts drivers with clean records a guaranteed 5 percent reduction in their premiums next year, but Ermilio said preliminary claims data from 2004 indicates all drivers in the state should receive at least a 5 percent rate reduction next year even if no changes are made in the system.



Ermilio said the 5 percent reduction for good drivers proposed by Romney could represent a savings for insurers, since they would be free to charge the remaining one-third of drivers higher rates under the governor's proposal.



''Do you think national companies would come in to Massachusetts when rates are going down?" Ermilio asked. ''No, they'll only come in only if it's lucrative for them to do so."



Ermilio said Massachusetts' system is the best in the country from the driver's standpoint, largely because drivers in all areas have access to affordable insurance. He said Massachusetts has one of the lowest levels of uninsured drivers in the country.



The Commerce official predicted auto premiums would rise over time under the governor's plan, not drop. He said urban drivers and youthful drivers could end up paying a lot more as subsidies for those drivers are eliminated. He said that if Romney was serious about charging bad drivers more and good drivers less, he could do that now by modifying the state's safe-driver insurance plan, which uses surcharge points to reward and penalize drivers.