Mass. AG Appeals Auto Rate Increase Decision

Massachusetts’ Attorney General Tom Reilly is appealing the Division of Insurance’s December 15 ruling, arguing that a 2.5 percent increase in the cost of auto insurance is unwarranted and will result in close to $100 million in additional costs for Mass. drivers.

The appeal, filed with the Supreme Judicial Court for Suffolk County, argues that the DOI wrongly imposed the 2.5 percent increase, which will add an estimated $25 a year to the average Mass. driver’s insurance bill, raising the average to more than $1,000 annually. In the complaint, AG Reilly alleges that the DOI used flawed methodology and erroneous calculations in fixing and establishing the rates.

The complaint alleges that the DOI did not 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.

“For the second consecutive year, the DOI has, without justification, ruled in favor of an increase in auto insurance rates that will hurt Massachusetts drivers,” AG Reilly stated. “Massachusetts consumers should not have to pay more as a result of unfair and unsubstantiated methodologies favored by the auto insurance industry.”

“The DOI’s recent ruling emphasizes the need to reform the state’s auto insurance system,” he continued. “Consumers will be far better served by a market fueled by competition. Without it, they will continue to overpay for auto insurance.”

Reilly’s action is the latest occurrence in the ongoing debate over Mass. auto rates. Last month the National Association of Independent Insurers waded into the conflict with letters from its general council calling for reform of the state’s auto insurance regulations (See IJ “east” Dec. 23 and 24). More recently the Mass. Motorcycle Association said it has had enough, and filed a lawsuit in the state’s Supreme Court against insurance Commissioner Julianne Bowler to reduced rates on motorcycle coverage and give policyholders a proportional rebate for past overcharging. (see IJ Website “east”” Dc.31).

Changing the “residual market,” which assigns uninsurable drivers to carriers within the state, is the first step in reforming the Massachusetts auto insurance market. For more than a year, AG Reilly has been advocating for changes in the way the residual market, known as the Commonwealth Automobile Reinsurance (CAR) system, is run.

The AG’s announcement stressed that his office has fought hard in recent years to protect consumers from substantial rate hikes. In 2001, AG Reilly opposed an industry request for a rate hike, and instead, obtained an 8.3 percent decrease for Massachusetts drivers. In 2002, despite an industry request for a 7.8 percent increase, no rate hike was awarded. Last year, the DOI awarded the industry an increase of 2.8 percent.