The possibility of a slight auto insurance rate reduction next year doesn’t even address the systemic problems within our Massachusetts auto insurance system and will not provide the true savings that our state’s good drivers have earned and deserve. Plain and simple, our system of set rates and extreme subsidization forces good drivers, whether they live in the cities, suburbs or rural towns, to offset the costs incurred from their neighbors’ accidents.
Reforming auto insurance in Massachusetts requires a whole lot more than simply reducing rates. Believing that there are enough auto insurers here currently or that we can attract insurers to Massachusetts by only fixing part of the problem is a disservice to consumers statewide. To increase consumer choice, meaningfully lower rates for good drivers and infuse desperately needed capital, we need to move to a competitive marketplace.
You don’t have to look further than your television set to realize how little choice Massachusetts consumers have for auto insurance. During a Red Sox/Yankees game earlier this season, the ads made it all very clear within the first few innings. If you want to find out how to save $200, the “gecko” can’t help you in this state and neither can so many other insurers that won’t come here.
Most of the ads we see are actually national marketing campaigns, because insurers compete quite aggressively for consumers in 49 other states. Here, most of our 18 insurers don’t actively pursue us. They don’t need to. They know a fair amount of us will end up with them anyway. Recently, another small auto insurer announced it was leaving Massachusetts, yet another victim of our system’s failings. Twenty-two thousand drivers will be forced to switch insurers next year. This has happened to hundreds of thousands of drivers in our state in recent years… and that sure wasn’t their choice! In the last year and a half, almost 30,000 consumers have also lost choice in their home insurer. This frustration may have been averted if Massachusetts didn’t have a system that repels national insurers offering a full menu of insurance products.
How bad is it? Most of us get our insurance through our neighborhood insurance agency. About 55 percent of the state’s insurance agents have a business relationship with only one auto insurer. Very few have contracts with a variety of insurers. So when you walk through the door, you aren’t greeted with a range of options. And where we once had substantial discounts for clean driving records, we have virtually none and our insurers now spend their capital pursuing the best of the worst drivers, because that’s what the current system encourages.
Massachusetts consumers have long been able to shop for competitive home insurance and mortgage rates. They should be allowed to do the same for auto insurance. With only one policy and one state-set rate, our consumers cannot tailor coverage to their needs or shop their good driving records around for the best rates possible. Worse yet, the vast majority pays more than it should while a small percentage of drivers, some with very bad driving records, pay less than they should. Not to mention the $300 million passed on to all of us every year resulting from the accidents and claims filed by those worst drivers.
Governor Mitt Romney’s auto insurance reform plan will provide all drivers with greater choice in product and price, something that consumers expect and already have in most consumer markets and every other state in the nation. It will reduce the high costs of fraud that are annually passed on to policyholders by making insurers individually responsible for those costs. Equally important is the personal responsibility that drivers who fuel our highest in the nation accident rate will have to accept. In a competitive market, the financial incentive will finally exist for those drivers to improve their driving, because the vast majority of us deserve a better rate and some real choices. To kick-start that, the Governor’s 5 percent rate rollback for drivers with clean records would be applied in addition to any rate decrease the insurance commissioner might approve.
Our system is broken and not benefiting consumers. These urgently needed changes will not happen without your voice being heard. The very few insurers who benefit under this system and claim to have our interests at heart are spending a great deal of time and money to maintain the status quo by generating fear and uncertainty. Effective government remedies problems before they impact citizens.
I urge you to call or write your elected state officials and tell them that you want the same choices that drivers in every other state in the nation have!
Lindstrom is Director of Consumer Affairs and Business Regulation for the Commonwealth of Massachusetts, which includes the Division of Insurance. She can be reached at 888-283-3757 or 617-973-8787