The Globe has a story about “lawmakers skeptical about insurance reform.” Let’s look at who is quoted as being opposed to insurance reform:
One of the pro-reform quotes is from an insurance company with their own agenda – they want reform so they can enter the market. You have to read his words with a grain of salt.
But what does the insurance commissioner get out of this? Nothing that I see. She’s the closest to an independent voice that the article finds. And she says that it is time for change. I agree.
Please share widely!
I object to your classification of the opponents of this “reform” as being “subsidized”. Why? Because insurance is all about subsidies.
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Most people in this state will not file a claim. Most people who live in “high risk” areas will not file a claim. The people who don’t file a claim pay more to “subsidize” the people who do file a claim — that way, if you do get into a serious accident, you don’t have to shell out $100k as a result. That’s insurance 101.
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I don’t doubt that it is possible to draw demographic lines around groups of people and figure out which are better risks. The question is, why should we? A poor person may have better odds of filing a claim — but what behavior do we hope to change by piling on his insurance bills? Do we, as a state, just want the poor to stop driving? Do we want to penalize people who work in certain professions? Is that the goal here?
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Check out insurance rates in other states. Poor teens living in cities get quoted in the $7-8,000 range. Are we, as a state, saying that such people should get yet another disadvantage in their lives? Do you think it’s right that if you call for a quote and say you’re a doctor, you’ll get charged less than if you call for a quote and say you’re a roofer?
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If the goal of different rates is to incite people to become better drivers, then we should only be using driving record to determine how much a person pays. Install devices in cars and penalize EVERYONE for reckless driving, not just the drivers that happen to get caught.
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Massachusetts has high insurance rates because we have the highest accident rates. I’m not making that up — I saw a table that listed the states, DC was #1 in the country, followed by MA, then RI. MA had an accident rate 2 to 3 times higher than the #3 state.
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The line about “this will bring in competition, and competition will lower the rates” is 100% bull. Insurance companies are free to enter the market now. They don’t, because they don’t think there is enough money to be made, because rates are too low. That means they will only enter when rates INCREASE.
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Insurance is required by law to drive in this state. That’s why it needs to be regulated. If the state wants to be “hands off”, then drop the requirement for people to carry insurance and “let the market work it out”. Try suing an urban teen when he hits you, and see what you get. That’s a truly “free market”.
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You are confusing subsidies with shared risk. They are not the same.
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Then why not provide insurance for free? Hell, throw in a car, too. The Commonwealth could provide them.
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If a private company is going to insure drivers, they have the right to charge more to those customers whose circumstances show a greater propensity for filing claims.
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…and address the real issues regarding insurance.
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The purpose of insurance is to spread risk among an identified population. The issue is the set of risk factors that insurance companies are allowed to take into account when setting premiums for certain types of policies. Example: I don’t know whether this is still the case, but auto insurers are permitted to consider age and gender of a prospective insured into account (young male, high premiums; young female, not so much), but the insurers were not permitted to take gender into account for health insurance (women, especially older women, are more likely to make use of the health insurance system).
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It is the set of risk factors that insurance companies are permitted to take into account that determines how they set their rates for particular policies. And, as should be obvious, the set of risk factors differs among different kinds of insured risks.
I don’t dispute that it’s time for change, but it seems to me that legislators who represent poor areas ought to represent those poor areas.
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How do you conclude what the proposed reform is? From the Globe story, I can’t tell.
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And rates are high for two reasons: One, we’re the worst drivers in the world. Two, we’re required by law to buy insurance, so the normal supply and demand dynamic, which would drive prices lower with increased competition, is not there.
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And by the way, whenever I drive anywhere, I thank the Commonwealth that people are required to buy insurance.
Well, not exactly — because under the current system, the state sets the rates. There is no competition, and more or fewer people buying insurance therefore wouldn’t have any effect on rates.
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Absolutely, all drivers should be required to have insurance. But it seems to me that deregulating to some extent is an experiment worth trying.
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The state’s the 6th highest
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I’m pretty sure that most, if not all, states require insurance.
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Next, you claim insurance is high because we’re lousy drivers? Can you perhaps back that up? Something tells me, the lack of insurance carriers and the strangle hold that Commerce Ins. has on the market has something to do with the prices. Just a hunch, but it’s got to be more than bad drivers.
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= high rates. I was being rhetorical, not stating a fact, but your handy fact proves my point.
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David, my point was, the choice not to buy should be a factor in insurance demand. But it isn’t, because we have to buy it.
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Last I knew New Hampshire did not require car insurance, but that may have changed. I’m not sure about other states.
it’s a factor in “demand.” But because prices are 100% regulated in this market, demand has no effect whatsoever on price — it’s simply not relevant. That’s my point.
You’re right, of course, but I still say there’s an effect. You don’t have to buy an iPhone, but the fact that only one company makes it eliminates the price competition. But demands affects the price, because there is a point where people begin to consider to it too expensive.
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Here the situation is reversed: you have to buy the “iPhone,” but you can buy it from any insurer you want. So the state regulators, how do they set the rates? Based on the rates insurers charge in other states, to determine a fair level.
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Almost done: once the rates are set, a consumer in another state might be able to negotiate a discount. But not here, because the insurer has no competitive incentive to lower rates.
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Isn’t NoPol upthread correct to say that other insurers could come into MA if they wanted to, but they don’t because of the regulatory environment?
Regulated rates might be considered a hindrance, but I’m not aware of other barriers.
I don’t know if it’s still true, but years ago, Rhode Island didn’t require insurance on a car over 10 years old – like it’s better to be run over with a Delta ’88 instead of a Prius! That’s just one for example.
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The stranglehold is generated because a company CANNOT REFUSE to insure a driver. Even if the driver’s hobby is driving drunk and running over cats on Sunday. The best they can hope for is ceding the policy to CAR (Commonwealth Auto Reinsurers) but CAR will apportion a segment of loony drivers back to them regardless. This inability to refuse is a corrollary to requiring insurance to drive.
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Me, I’d let carriers refuse business and drive uber-bad drivers into a automobile FAIR plan with punitive rates and revoked licenses for failure to purchase. Even now, if you’re pulled over and your car is unregistered/uninsured, it’s towed to a yard until you provide proof of coverage. I would MAKE that proof of coverage expensive to get for dangerous drivers.
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Like the 65+ drivers who get an automatic 25% discount REGARDLESS OF DRIVING RECORD. Or a vehicular homicide conviction. DON’T GET ME STARTED…..
It appears (according to the Insurance Information Institute) that actually just about every state requires insurance, with perhaps only New Hampshire and Wisconsin as exceptions (though even those two have financial responsibility laws).
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But won’t those people just have their licenses revoked, especially after the tougher laws passed in the last legislative session? Anyway, maybe it’s not a bad idea to do what you suggest and require terrible (but not license-revoked) drivers to get a punitive rate insurance, to encourage better driving.
…a revocation is up to a judge or magistrate.
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THAT has been working out REAL well.
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Even THEN – they can get a ‘hardship’ dispensation of their revocation.
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The only solution I see is to allow companies to refuse business, and make them pay real, rather than subsidized, price for their driving habits.
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The demand curve doesn’t drive competition. We all have to eat to live, and yet there’s plenty of competition for food prices. Competition requires different suppliers fighting for a limited amount of demand. Demand is finite in MA — something approximating one insurance policy per adult. So long as there are multiple companies trying to make money, they’ll be competing for that limited amount of demand.
If you give a break to someone with a demonstrably bad driving record, that’s a subsidy.
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If you give a break to someone who’s middle-aged, or affluent, or has a good credit history, or lives in a low-crime area, then you are engaging in discrimination against those who don’t fit into one of those categories. Period.
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The insurance companies would be doing the same thing on the basis of race and ethnic background if such practice hadn’t been outlawed. So should these other discriminatory practices.
This is a great comment. I objected to the word “subsidize” because it is clearly being used to invoke a frame. Once that frame is successfully invoked, the discussion is over, because no one wants to “subsidize” anyone else.
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I’m not sure how a lower rate for someone who has a good driving record, but happens to live in a particular city or town, or happens to have a particular job, or happens to have a particular marital status, equates to “subsidy”. And I’m not sure why it’s good public policy to allow rate discrimination based on factors other than driving record.
Car insurance is not insurance against a driving record. It is insurance against covered claims. Any factor that affects the odds of a claim being made is relevant. Previous claims. Poor credit. Living in a high crime area. Or in the city. Marital status. Age. Sex. Driving experience. Claims history.
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In other words, it should be just like any other kind of casualty insurance.
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The driver who lives/parks in a high crime area, and gets a window kicked in twice a month SHOULD pay a higher premium, even if they have a stellar driving record. Why? Because they generate a lot of claims.
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Same with credit history. The driver with good credit is likely to just pay for a minor fender bender, rather than making a two-bit claim in order to avoid the surcharge. The driver with poor credit is more likely to make the claim, and deal with the surcharge.
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Heck, if urban drivers actually bore the unsubsidized cost of urban car ownership, then these people might be encouraged to make greater use of public transportation– in precisely the areas in which greater use of public transportaion is most feasible.
How does this:
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Square with this:
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Why is “giving a break” to someone with a bad driving record not discrimination against someone with a good driving record?
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Does it depend on whose ox is being gored?
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And why is that 49 out of 50 states allow insurers to set rates, but that’s not good enough for Massachusetts? Come on, people, let’s not delude ourselves. The Commonwealth is not some uniques little snowflake of a state that requires it to be different.
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Remove state regulation of insurance rates and the majority of the drivers in Massachusetts will pay less, period. With the current system, a minority of drivers is holding the rest of them hostage in a lousy system.
Our experience with the deregulation of electric utilities should give one pause. Remember all the savings we were promised? Where did they go?
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One thing you can bet on, the reason that the insurance industry is lobbying so hard to deregulate has nothing to do with saving us money and everything to do with them making more money.
The only insurance companies I’ve seen ‘lobbying” in this state are Arebella and Commerce trying to protect their monopoply.
They empty wheelbarrows full of cash from the balcony in the State house upon the solons below that they “own”.
It is only because of the obscene profits they have made that they now “graciously” talk about a modest reduction in insurance rates. Let’s call a spade a spade. The insurance rates in this State ( the only one in the Nation that regulates and establishes rates for Auto insurance) are beyond ridiculous. Yes, city dwellers will get big increases…the price one pays for living in the fashionable city. Let them use the public transportation ( also among amoungst the most expensive in the Nation and also paid for by some poor SOB in Athol that never comes to Boston)
Enough.. let open competition and unregulated rates dictate what the prices shall be. If you’re a high risk driver or want to live in the “city’ where car theft gets a slap on the wrist and insurance fraud is a way of life … then sorry..PAY!!!
Is this Bizarro world? You’d have us believe that a few companies are making “obscene profits” and that other companies are not entering the market because we’re paying too much?
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That doesn’t pass the laugh test.
for Q1 2007 in a market where they are the ‘top dog” in a restricted ( read monopoly) market of only 15 insurance companies that operate here in the Nation’s only State with State controlled pricing and risk assignment.
commerce Ins
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Needless to say they are having a very nice laugh in your laugh test.
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As far as other companies not entering ( over 61 of them) may I suggest that you become more informed about the issues and the reasons why they choose not to participate before you do the laugh test. hint….risk assignment / risk management…
The following excerpt from Commerce’s Quarterly report is a caveat concerning forward looking statements or in other words their warning as to what could cause your investment in their company to get hammered.
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From the report:
“The following are among the key factors that could cause actual results to differ materially from forward-looking statements:
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? the possibility of severe weather, terrorism and other adverse catastrophic experiences;
? adverse trends in claim severity or frequency and the uncertainties in estimating property and casualty losses;
? adverse state and federal regulations and legislation;
? adverse judicial decisions;
? adverse changes to the laws, regulations and rules governing the residual market system in Massachusetts;”
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Note that adverse State and Federal regulations, adverse judicical decisions and changes to Massachusetts laws,etc are “biggies” in the investor risk warning verbage.
To translate this into the vernacular, .. If we suddenly lose our limited competition position and are exposed to full outside competition, your investment in our stock could suck in a hurry.
Why don’t you tell us why those 61 companies stay out of MA? Snide hints don’t get anyone anywhere. You’re the one in this discussion who’s convinced that it ain’t because our regulated rates are too low; so why don’t you enlighten us?
How do you ‘deregulate ” yet another Mass sanctioned monopoly?
That’s what it is. if you don’t like the service or prices of your current supplier ie, Boston Edison, Grid, et al ( they’re all, in the end, the SAME conglomorate by the way…. who are you going to ‘switch to”
Answer…. no competitor available…sounds like a monopoly to me… so deregulation is a farce created by politicians to give you the illusion that you actually have a choice…laughable
Peter Porcupine @ Tue Aug 14, 2007 at 12:01:40 PM EDT upstream
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most states do NOT require insurance.
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I don’t know how it is now, but when I was a resident of Ohio, they did not require insurance, but they did have a financial responsibility requirement. I don’t recall the details but if memory serves, if you wanted to get a car registered and did not want to go to an insurance company, you basically had to post a bond to prove financial responsibility that would cover you in the case of an accident. I’m not sure what the difference would be, but at that time Ohio did not require insurance.
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The stranglehold is generated because a company CANNOT REFUSE to insure a driver.
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Assigned risk pool. It is my understanding that the premiums in the assigned risk pool are much higher than the premiums in the “normal” pool. It is also my understanding that the percentage of drivers in MA who are assigned to the assigned risk pool is (to me) disturbingly high.
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Like the 65+ drivers who get an automatic 25% discount REGARDLESS OF DRIVING RECORD.
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I’ll presume that this discount is based on the assumption that those drivers are retired, and will likely not be driving as much, or at least as often during the rush hours, when a lot of accidents happen.
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As far as I’m concerned, discounts should be allowed based on location of garaging and the numbers of miles driven. And this would take into a couple of things regarding the risks taken. The problem with discussing auto insurance is that there are a number of risks under the auto insurance rubric, briefly liability insurance and damage to one’s own vehicle (those are actually two different categories).
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Someone upstream mentioned car windows being bashed in. (That actually happened to me when I lived in New Haven CT in the 1970s.) If you want to insure your vehicle against something like that, that should be unregulated. On the other hand, you should be required to carry liablity insurance if you want to drive–or as mentioned above exhibit “financial responsibility.) (Actually, it is the owner of the vehicle who carries the insurance, and for a good reason.) It is the fact of the state’s requirement that prompts the state regulation of rates, and, quite frankly, I don’t see a way to get around it.
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Going down a bit to Toms opinion @ Tue Aug 14, 2007 at 22:43:19 PM EDT
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I doubt that even Paul Krugman would consider in a market where they are the ‘top dog” in a restricted ( read monopoly) market of only 15 insurance companies (emphasis added) to pass the laugh test. 15 companies in a given marketplace would be far to many to comprise an oligopoly, much less a monopoly.
I reflexively oppose the current system since it limits our choices to only a few insurance companies (my dad could only choose between two not sure if thats his agency’s doing or the statewide reality) and I think bringing in Geico and other companies could lower costs in the long run by increasing competition.
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Yet a lot of these companies use tactics like credit scores to erroneously increase fees when they should only take into account factors that increase the risk of accidents.
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Basically I am pro-market and wary of any state agency “protecting consumers”, but I know that as a very young driver with no credit I will be whacked a lot harder.
Your understanding is incorrect. Voluntary or ceded policies pay the same rate based on level of coverage, value of vehicle, geographic location, and driving experience.
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The only difference is the SDIP (Safe Driver Insurance Plan) surcharge, which all drivers are subject to, for accidents or claims. And THAT is capped at 35 points and begins at 15 – so, with 2 DUI charges (14 points), while speeding (2 points), and having a single car incident (5 points), over a six year period, well heck – anything else happens, it’s on the house! No effect on your rates at all!
Is it your position that people are driving drunk because their insurance won’t go up because of it?
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Seems to me that the problem of drunk driving is far more complex than that, and the result of denying insurance to drunk drivers is that there will either be a lot more uninsured people on the roads, or a lot more people will lose their jobs because they have no transportation.
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If being thrown in jail isn’t enough of a penalty for drunk driving, how is higher insurance costs going to be a panacea?
What she was talking about is yet another “first’ for the People’s Republik here in Mass. It’s called the “safe driver
insurance program (SDIP) which is really a euphasmism for rip off the consumer and is unique to Mass as it being the only state in America that has such an incredible consumer rip off that is “legal” Here’s how/why it works….
In chapter 2 of our book on “The Great Massachusetts Insurance Rip Off” we learned that the majority of major insurance companies abandoned the Mass auto insurance market for essentially ONE basic reason…. they had NO control over their risks because they , by law, could not deny anyone insurance regardless of how horrendous their driving record might be. This opened the door for local companies “Commerce Insurance,Arabela et al, to step in and “play ball” with our corrupt politicians. These companies petitioned the politicians and insurance “czar” to implement a program whereby they could receive “compensation ” for assuming the risks associated with Massachusett’s notoriously bad drivers. This “compensation” took the form of SDIP.
How it works… let’s say you get stopped and are ticketed for not wearing a seat belt ( something that our corrupt solons swore they would never make illegal ( until a downpour of campaign contributions and lobbyist perks and money came raining down from the insurance companies in the state house balcony). You get a ticket and an outrageous fine. Bad enough but the really bad news is that this incredible “crime “costs you points against your “score” and results in an incredibly expensive insurance surcharge on your insurance premiumfor FIVE YEARS thereafter.
So Porcupine’ s little joke about 35 points is pretty much saying that it would take a Michael Bloomberg to afford an insurance policy with all those negative “points”. Note that by law, he could not be denied insurance as long as he could pay the king’s ransom dictated by all the negative SDIP “points” and could afford the legalized extortion of the Insurance Companies
So you lose in two ways….. first you’re paying outrageous insurance rates begin with to subsidize bad drivers, auto theft and insurance fraud artists , etc. … Second if you get a moving violation you will be paying the fine PLUS an outrageous annual price increase on your insurance policy for the next FIVE years. You don’t even want to know what a speeding ticket or DUI will cost you although our politicians don’ t seem to have any problems “beating” such charges when ( if ever) they are stopped for an offense.
Bottom line is that Massachusetts is an AWFUL place to own and insure an automobile. It is the only State in America that dictates auto insurance rates without allowing the”market’ to determine the rates AND it it is the only State in America that has an incredibly punitive and financially draconian “surcharge” system that is legal and produces incredible and obscene profits for the limited amount of insurance Cos licensed in the State. This is not surprising though when the political corruption and consumer apathy of Massachusetts is considered..