AIA Welcomes Mass. Governor’s Call for Auto Reform

April 7, 2004

The American Insurance Association (AIA) said it supports reform of the Massachusetts auto insurance system to provide consumers with more choices and increase competition in the market. Gov. Mitt Romney’s (R) call for reform of the system is reportedly welcome and AIA will work with the governor and legislature to enact meaningful reforms that will improve the market.

According to AIA, Governor Romney is correct that the first item that must be addressed is the unfair way in which the riskiest drivers are placed in the residual market. Beyond reforming the residual market, Massachusetts must open its borders to competition and take significant action to remove fraud and abuse from the system. The state must also work to improve highway safety.

“The trend globally and in the United States is to encourage competition through regulatory modernization, including allowing the private sector to set prices through competition. The requirement that the rates companies charge must be approved prior to their use exists in approximately 25 states. Massachusetts is the only state left where the government directly sets uniform rates for auto insurance among the companies. It therefore represents the ultimate degree of government control of pricing — prior approval of a uniform rate,” said David Snyder, AIA vice president and assistant general counsel.

“AIA will work with Massachusetts policymakers to create a system with a fair residual market, pricing that accurately reflects risk and that will attract capital to this market and give consumers more and better choices,” added Paul Moran, AIA vice president, Northeast Region.

AIA has called for this type of reform in previous testimony before the Insurance Department’s hearing on the fix-and-establish rating system in May 2003, and more recently in testimony before the Joint Insurance Committee’s hearing on the use of credit-based insurance scores.

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