Industry panel attacks Massachusetts governor's auto insurance plan

(Cape Cod Times (Hyannis, MA) (KRT) Via Thomson Dialog NewsEdge) Apr. 13--

Members of an industry panel slammed a key argument in the Romney administration's proposal to loosen the state's auto insurance regulations, telling an audience of Cape insurance agents that the changes would likely do nothing to benefit coastal property insurance policyholders.

The panel discussion -- which included leaders of the Massachusetts Insurance Federation and the Massachusetts Association of Insurance Agents, a consumer advocate and an executive from the state's third-largest auto insurer -- was sponsored by the Cape chapter of the Massachusetts Association of Insurance Women and was held Tuesday at the Hyannis Golf Club.

Gov. Mitt Romney has said that by eliminating rate-setting for auto insurance, the state can entice larger, national companies to do business in Massachusetts. Those companies, the administration has argued, would then be more inclined to write homeowners insurance policies on the Cape and Islands.

Concerns about hurricane risk have led a number of smaller, regional insurers to abandon the Cape, leaving many residents no alternative but the state's property insurer of last resort, the FAIR Plan. That program often costs property owners about twice their former premiums.

In recent years, the FAIR Plan has become the largest property insurer in the Cape and Islands market, with about 57,000 policies.

And just as a legislative committee prepares to advance a bill containing Romney's recommendations, the state insurance commissioner has also produced an analysis indicating that the state's property insurance market may lack the capital to pay out claims from a major storm -- further bolstering the need to attract large companies, such as State Farm.

During the panel discussion, however, John Kittel, senior vice president for Arbella Insurance Group, said the commissioner's analysis "should be considered an embarrassment."

Commissioner Julie Bowler's numbers show that the Massachusetts property insurance market has a lower surplus than the markets in all other New England states, at about $33 in surplus for every premium dollar. By contrast, Bowler found that Vermont has the largest surplus at about $449 in surplus for every premium dollar.

But Kittel said those numbers are moot because they don't take into account reinsurance, which insurance companies buy to help pay claims in event of catastrophes. In his own analysis, Kittel found that New York only has about $18 in surplus per premium dollar.

"It's a ridiculous statistic. It doesn't mean anything," Kittel said.

Jim Harrington, executive director of the Massachusetts Insurance Federation, disagreed with Kittel, saying Bowler's claims about inadequate capital are valid. The federation represents insurance companies in the state.

In the event of a hurricane, "the losses would be dramatic, and the regional carriers who command this market would not have the resources to sustain that," he said. Harrington added that Arbella is one of three insurers that have thrived under the current auto insurance system, and oppose changes.

However, Harrington said, he doubted national insurance carriers would be more willing to take on coastal homeowners policies, even if they did decide to venture into Massachusetts under Romney's changes.

"That won't fix coastal homeowner's insurance problems," he said.

Frank Mancini, president of the Massachusetts Association of Insurance Agents, also said he was skeptical of the Romney administration's claims.

He added that he thinks "a federal solution," such as a catastrophe fund to help pay claims, would be most effective for encouraging insurers to move back into coastal areas.

Christopher Goetcheus, spokesman for the state Division of Insurance, declined an invitation to attend Tuesday's panel discussion. But in a phone interview yesterday, he said the governor's proposed changes are necessary, both to benefit consumers by providing more choice, and to bring more capital into the state's homeowners insurance market to absorb the cost of a major storm.

Some companies don't buy reinsurance and reinsurers can also go bankrupt from costly catastrophes, he added.

"We are not well-positioned financially to handle a category 3-plus hurricane," he said.

Sharon Hawkins, senior vice president of Dowling & O'Neil Insurance in Hyannis, was one of the agents who attended the discussion.

Hawkins said she favors a more competitive auto insurance system, but doesn't think that will necessarily lead to more insurers moving back into Cape Cod.

"I don't think insurance carriers are going to change their position," she said.

But Hawkins said she would be eager to see the state create its own catastrophe fund, which might keep home insurers on the Cape and help address skyrocketing rates.