In Mass., Good Drivers Lose Discounts While Employer Groups Retain Theirs

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Only three of the 19 companies still writing private passenger auto insurance in Massachusetts will offer discounts to safe drivers this year.

Five years ago, there were one-third more writers of the coverage and most of them offered good driver discounts, which are one of the few ways drivers can get a price break in a market where rates are set by the government.

Critics of the state’s regulation of auto insurance say the lack of safe driver discounts is one more sign that change is needed.

At the same time they are cutting discounts to drivers with good driving records, the biggest insurers are continuing to offer discounts to employers and affinity groups. Amica Insurance of Lincoln, R.I., the tenth-largest insurer writing auto in the state, is offering a discount of 4 percent to drivers in the best classification (Step 9), which would save drivers about $40 on a $1,000 premium. Last year, Amica offered a 6 percent discount. Russell Furlong, assistant vice president of Amica, said the company reduced the discount because it was losing money covering its share of the losses in the high risk reinsurance pool.

American Automobile Insurance Co., a division of Fireman’s Fund Insurance, is giving 2 percent off to good drivers, down from 10 percent last year, and Electric Insurance, based in Lynn, kept its good-driver discount at 5 percent. But American and Electric each insure less than 1 percent of the cars in Massachusetts.

Premier Insurance, the Travelers auto division in Massachusetts, and National Grange, of New Hampshire, both offered good-driver discounts in 2003 but neither is renewing them for this year.

Daniel Johnston, president, Auto Insurers Bureau of Massachusetts, said rates set by Insurance Commissioner Julianne Bowler for 2004 are so “thin” for all steps—good and bad drivers alike—that insurers can’t afford to give discounts. “They’re not adequate, even for Step 9 drivers,” she said.

For 2004, Commissioner Bowler rejected the auto insurance industry’s request for a 12.4 percent increase and approved a 2.5 percent statewide average rate increase instead. The ruling produced an average increase of $25.51 per vehicle and a statewide average annual rate of $1,047.04.

Frank O’Brien, New England regional manager for the Property Casualty Insurers of America, said the drop-off in good driver discounts should not come as a surprise. “As we’ve been saying for what seems like an eternity, unless insurers have the opportunity to compete in an environment that doesn’t set artificially low rates, the people of Massachusetts will continue to see fewer insurers and fewer discounts—discounts that are common to good customers in other states,” he said.

Even Attorney General Thomas Reilly, who has filed a court challenge to the 2004 rates set by Bowler claiming they are too high, was disappointed with the bad news for good drivers.

“Clearly, the dwindling number of insurers offering discounts indicates that the Massachusetts market is badly in need of reform,” agreed Sarah Nathan, spokeswoman for Attorney General Thomas Reilly, another critic. “Without reform, insurers will have no real incentive to come up with innovative or cost-cutting initiatives to attract new customers.”

Bowler has tried to get reform rolling by encouraging industry and public officials to agree on a plan to replace the controversial high risk reinsurance facility, known as CAR (Commonwealth Auto Reinsurers). A committee has released a draft of a plan that would replace CAR with an assigned risk plan but the details are still being worked on.

The committee looking into replacing CAR is expected to release its final proposal this month. Its recommendations are expected to require regulatory but not legislative action.

Tami Stanton, NAMIC’s newly-appointed Massachusetts state affairs manager for the National Association of Mutual Insurance Companies, agreed that reform must begin with CAR.

“CAR requires lower risk policyholders to pay higher rates to ensure that other higher risk policyholders have lower rates justified by the risk they pose. This system distorts the market, resulting in dependencies that must be dismantled,” Stanton said.

One of the “distortions” in the Massachusetts market is that at the same time they are cutting back on rewarding safe drivers, more than half of the insurers are still giving group discounts to various employers, associations, schools and other groups. These discounts range from .03 percent up to 15 percent.

Chris Goetcheus, spokesman for the Massachusetts Division of Insurance, said that in 2003 there were more than 1,850 group discount plans. He anticipates about the same number for 2004 when all the filings are in.

Commerce Insurance of Webster, the state’s largest insurer with 27 percent of the market, wants to offer a 5 percent discount to members of the American Automobile Association. This is considered one of the largest and most successful of the group discount plans.

How can insurers afford to give group discounts but not safe driver discounts?

Industry observers explain that most members of discounted employer and association groups are in territories where rates, while not adequate in insurers’ eyes, are less inadequate than in other territories. Also, insurers enjoy some savings in marketing, administration, agent commissions and claims handling when they work through groups.

Some of the other group discounts Members of the Massachusetts Registered Nurses Association qualify for a 6 percent break from Arbella Mutual Insurance, which also gives 4 percent off to families belonging to the Marshfield Youth Baseball League.

Safety Insurance Co. rewards members of the Boston University Law Alumni Association with a 5 percent break while Plymouth Rock Assurance Corp. discounts premiums for those at Amherst College.

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