Massachusetts Attorney General Appeals Auto Rate Increase

A.M. Best

John Hillman

January 9, 2004

BOSTON, Jan 06, 2004, (A. M. Best via COMTEX) -- Massachusetts automobile insurers' 2004 rates might yet be challenged, as the state's attorney general files an appeal claiming the rating methodology is unreasonable.

Arguing that a 2.5% increase in the cost of auto insurance is unwarranted, Attorney General Tom Reilly is appealing the Division of Insurance's Dec. 15 ruling, according to a statement from Reilly's office.

Insurance Commissioner Julianne M. Bowler rejected auto insurers' request for rate increases averaging 12.4%, instead filing a decision that would raise 2004 private-passenger insurance rates an average of 2.5% statewide and raising the average cost per driver above $1,000. The smaller increase--which took effect Jan. 1--resulted in an average increase of $25.51 per vehicle and a statewide average annual rate of $1047.04 (BestWire, Dec. 16, 2003).

Reilly's appeal--filed with the Supreme Judicial Court for Suffolk County--argues that the division wrongly imposed the 2.5% increase, which would result in close to $100 million in additional costs for Massachusetts drivers. Reilly alleges that the division used flawed methodology and erroneous calculations in fixing and establishing the rates and didn't have a reasonable basis to adopt a new underwriting profit model that leaves consumers paying about $80 million more than the method that had been in place for the previous 20 years.

The division believes its decision for 2004 auto rates was fair and provides for adequacy of rates in the market, said Chris Goetcheus, a spokesman for the division. The division can't comment on the litigation, however, he said.

The auto insurance rates did take effect Jan. 1, with insurers working on their manual rates to be filed by Jan. 15, Goetcheus said. The manual rates include any safe-driver or group discounts offered by the company, he said.

"For the second consecutive year, the division of insurance has, without justification, ruled in favor of an increase in auto insurance rates that will hurt Massachusetts drivers," Reilly said in a statement. "Massachusetts consumers should not have to pay more as a result of unfair and unsubstantiated methodologies favored by the auto insurance industry. The division's recent ruling emphasizes the need to reform the state's auto insurance system. Consumers will be far better served by a market fueled by competition. Without it, they will continue to overpay for auto insurance."

Massachusetts is unique in the United States for setting one rate that all auto insurers doing business in the state must use. It reviews the yearly proposal of the Automobile Insurers Bureau through the State Rating Bureau, a consumer-oriented segment of the insurance division.

Changing the "residual market," which assigns uninsurable drivers to carriers within the state, is the first step in reforming the Massachusetts auto insurance market, said Reilly, who has been advocating changes in the way the residual market, known as the Commonwealth Automobile Reinsurance system, is run.

At the beginning of 2000, 30 companies wrote auto insurance in Massachusetts, but as of mid-2003 only 20 companies were left--a 33% drop. (BestWire, Aug. 28, 2003).

In December 2002, Bowler turned down the auto insurance industry's request for a 7% rate hike but approved a smaller increase of 2.7% for 2003. Historically among the nation's leaders in claims frequency, Massachusetts saw property-damage losses rise from an average of $110 to $121 a vehicle between 1999 and 2001, with glass claims rising from about $122 million in 2000 to about $151 million in 2001 (BestWire, Dec. 13, 2002).

The top five writers of private-passenger auto physical damage in Massachusetts in 2002, according to A.M. Best Co.'s state/line reports, were: Commerce Group, with a market share of 25.5%; Arbella Insurance Group, with 10.5%; Safety Group, with 10.5%; MetLife Auto & Home Group, with 7.9%; and Liberty Mutual Insurance Cos., with 7.3%.

Copyright (C) 2004 A.M. Best