Wrench thrown into auto insurance debate

By Bruce Mohl, Globe Staff | August 12, 2005



Auto insurance rates are headed down and company profits are up, prompting debate among lawmakers and industry officials about whether now is the time to launch an overhaul of the state's auto insurance system.



Two key Beacon Hill lawmakers said the auto insurance industry's request yesterday for its first-ever rate reduction took some of the steam out of the auto insurance debate. The industry's request for a 0.1 percent reduction, or $1 off the current average premium of $1,090, is the start of a lengthy state process for setting rates. Many industry officials think the state insurance commissioner will ultimately approve a rate reduction ranging from 5 to 10 percent, or about $55 to $109.



State Representative Ronald Mariano, the point man in the House on auto insurance, said the good news on rates and profits makes auto insurance less of a pressing issue. But the Quincy Democrat said in the long run the insurance system still needs to be overhauled. He expects hearings to be scheduled next month.



Democratic Senator Andrea F. Nuciforo Jr., of Pittsfield, the Senate counterpart to Mariano, said he thinks the Legislature should focus on revamping the way high-risk drivers are apportioned among companies.



Governor Mitt Romney wants to revamp the way high-risk drivers are apportioned, but his auto insurance bill would also attempt to spur competition and attract national carriers by letting companies set their own rates under government supervision.



Nuciforo said the decision last month by Sentry Insurance of Stevens Point, Wis., to pull out of the state was not because state regulators here set all the rates but because of the unfair financial burdens imposed by the system for distributing high-risk drivers. That system is called the residual market.



''The residual market in Massachusetts is the chief reason that companies leave here or choose not to write business here," Nuciforo said.



James A. Ermilio Jr., senior vice president and legal counsel at Commerce Insurance of Webster, which opposes the governor's bill, said the firms pushing for a competitive system are trying to create a sense of urgency. ''They're hopeful they can scare enough people to call their legislators," he said.



James MacPhee, senior vice president for the New England region at Liberty Mutual Insurance Co. in Boston, said supporters of the governor's bill are not trying to manufacture a crisis. He said the fact that rates are falling is good for the reform effort because any individual premium increases that might result from an overhaul of the system would be moderated by the downward trend in rates.



In its rate filing for next year, the Automobile Insurers Bureau said claims had fallen by $252 million in 2004. The bureau, which represents auto insurers in the state's rate-setting process, said 40 percent of the reduction occurred in six communities targeted by fraud task forces: Lawrence, Springfield/Holyoke, Brockton, Lynn, Lowell, and Boston.



Daniel J. Johnston, president of the bureau, said the proposed 0.1 percent rate reduction for 2006 was developed by the group's actuaries and not influenced by politics. He said it included profit and expense requests that have typically been rejected by state regulators here.