Study Reports 87% of Mass. Motorists Subsidize Costs for Bad Drivers

November 9, 2005

Massachusetts drivers pay 27 percent more for auto insurance than the rest of the country and 87 percent also subsidize the rates of the rest of the drivers in the state according to a new study released today. These are just two of the findings from the study “High Rates and Little Choice: The Burden of Automobile Insurance Regulation on Massachusetts Consumers.”

The study was conducted for the Property Casualty Insurers Association of America (PCI) by Dr. Robert Shapiro, a prominent economist and former Undersecretary of Commerce in the Clinton Administration.

“Every state regulates or oversees automobile insurance with the goal of providing coverage on an equitable basis at the lowest possible rates. By virtually every measure, Massachusetts has failed” said Dr. Shapiro.

“The explanation for all of these developments lies primarily in the way Massachusetts regulates automobile insurance and its adverse impact on normal competition.” Shapiro concluded. “The vast majority of the state’s drivers and consumers will not see substantially lower premium rates until the state government ends its current regulatory approach and welcomes much greater market-based competition” he said.

Shapiro’s study includes the following key findings:

* High Rates — Massachusetts drivers paid 27 percent more than the national average for personal automobile insurance in 2002.

* Inequitable System — More than 87 percent of Massachusetts drivers subsidize the rates paid by the remaining 13 percent.

* Fraud and Dishonest Claims Behavior — Rates of fraud and fraudulent buildup of accidents claims in Massachusetts are among the highest in the nation.

* Unsustainable System — Since 1996, the state-set insurance rates generated revenues for insurers that produced underwriting margins averaging negative 8.1 percent per year.

* Shrinking Number of Insurers — The number of automobile insurers serving Massachusetts has fallen by nearly one-half since 1990, leaving Massachusetts with less than one-tenth the number of insurers, per-driver, of the national average.

“Dr. Shapiro’s findings are simply the latest example in a long series of reports that all say the same thing – the Massachusetts insurance regulatory system is broken and we need to fix it” said Ernie Csiszar, president and CEO of PCI.

The Massachusetts Legislature is considering reform of the state auto insurance rate setting system. The Joint Committee on Insurance has held meetings across Massachusetts about this topic and will hold a hearing at the State House on Tuesday, Nov. 15. PCI’s Csiszar will testify at the hearing on behalf of the association and Fairness for Good Drivers, a coalition of property casualty insurers advocating for reform of the state’s regulatory system.

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