Home insurance linked to auto

By DAVID KIBBE

TIMES BOSTON BUREAU

BOSTON - A proposed reform of Massachusetts' heavily regulated auto insurance industry is being held out as a potential solution to the homeowner insurance crisis on Cape Cod and the islands.



Gov. Mitt Romney has said changing the state's ''Soviet-style'' auto insurance system - where the state sets the rates - to a less-regulated model would lure deep-pocketed national insurers such as Geico, State Farm and Progressive to the state. In turn, those companies would be expected to offer home insurance and create competition in hard-hit areas like the Cape and islands.



On Cape Cod, thousands of homeowners have been forced into the FAIR Plan, the state's insurance coverage of last resort,



after being dropped by insurers who cited new risk models that indicate the region could sustain heavy hurricane damage.



But those looking for a quick fix may have to wait. Auto insurance reform appears stalled on Beacon Hill. Critics of Romney's plan say it will allow insurance companies to raise rates for lower-income and urban drivers, something proponents deny.



Even the insurance industry is split, with four of the state's leading insurers, which have done well under the current system, opposing the change. They include Liberty Mutual Insurance of Boston, Amica Mutual Insurance Co. of Lincoln, R.I., and Allmerica Financial Corp. and Premier Insurance of Worcester.



State Rep. Ronald Mariano, a Quincy Democrat who is co-chairman of the Financial Services Committee, said it is a ''legitimate question'' whether the Legislature will pass auto insurance reform next year, in part due to consumer apathy.



While Massachusetts has the fourth-highest auto insurance premiums in the country, at an average of $1,099, increases have been held in check the past several years. State Insurance Commissioner Julianne Bowler is expected to release next year's rates on Thursday.



''The debate is really being driven by the governor's bill and the insurance companies,'' Mariano said.



Even so, Marino said he believes something must be done to reform auto insurance to keep companies in the state, provide new competition and offer new options for homeowner coverage.



''We are reaching a crisis proportion where the FAIR Plan is the largest writer of homeowners' insurance in the commonwealth,'' Mariano said. ''It's not a good thing for the marketplace.''



Last week, Hingham Mutual Group announced it was dropping 6,500 policyholders in Southeastern Massachusetts, in-



cluding 5,000 on the Cape and islands. Quincy Mutual Fire Insurance Co. also said last week it will drop 1,500 to 1,600 policies covering coastal properties, many on the Lower Cape.



In February 2004, the Andover Cos. began the exodus of home insurers when it revealed it would drop 14,000 Cape policies. At least two other insurers also began phasing out local policies last year.



Now, the FAIR Plan is one of the largest insurers on the Cape, with about 35,000 policies. The Cape had about 95,000 households in 2000, according to Census data.



The state has only 19 companies writing auto insurance now, down from 53 insurers in 1990. And Middlesex Insurance said this summer it is phasing out Massachusetts auto policies, which will leave the Bay State with only 18 auto insurers. Middlesex wrote about 22,000 auto policies in the state, which is less than 1 percent of the nearly 4 million Massachusetts auto policies.



Jim Harrington, a spokesman for Fairness for Good Drivers, a coalition of insurance carriers that want reform, said the current system is a daunting business model.



''If something isn't done, unfortunately, we leave ourselves open for the possibility of other carriers leaving this market,'' Harrington said.



Massachusetts is the only U.S. state where the government sets the rate that insurers charge drivers.



In Massachusetts, suburban drivers have long subsidized urban drivers under the rate system. For instance, policyholders in Barnstable pay an average of $80 per car to subsidize city drivers, according to the Automobile Insurers Bureau of Massachusetts. Boston's Roxbury neighborhood receives the highest average subsidy, at $1,612 per car, according to the industry group.



Romney's proposal would reform how high-risk drivers are assigned and allow insurers to consider age, gender, marital status, credit history and education levels in setting rates. But Romney insisted there would still be caps on rate increases to urban drivers. Currently, individual rates are based on address, driving history and how long someone has been driving.



Romney said his plan would cut insurance costs for good drivers statewide by $52 to $119 a year.



''If you're a bad driver, regardless of where you live, you would pay more for insurance,'' Harrington said of the proposed change.