Insurers Call Mass. Bill to Mandate Fraud Fighting Program Refunds Attempt to Fix the Un-Fixable

March 14, 2006

Cost savings generated by anti-fraud efforts would be shared faster with all good drivers in Massachusetts with an overhauled auto insurance system, the Property Casualty Insurers Association of America (PCI) told the Massachusetts Joint Committee on Financial Services at a hearing on Tuesday.

Senate Bill 2332 would require that where there are significant savings produced by anti-fraud efforts in communities with excessive fraud, one-half of those savings be returned to good drivers in those communities.

This legislation is designed to return to the good drivers in Lawrence some of the nearly $30 million in claims costs reduction that have been obtained through several years of efforts by local officials, the Attorney General, the Insurance Fraud Bureau and a number of
insurers, and to provide an incentive for other communities to undertake the similar anti-fraud campaigns.

“PCI applauds the efforts of Senator Tucker and the others involved in
successfully attacking the fraud problem in Lawrence in recent years,” said Frank O’Brien, PCI’s Northeast Region vice president. “Those efforts are a model for other communities where fraud continues to plague the auto insurance system.”

However, PCI expressed concern about the mandate that requires the savings generated by such efforts be narrowly distributed to drivers in a particular community.

“While we are sympathetic to the plight of the good drivers in Lawrence who have had to pay too-high rates for far too long, we also note that drivers in non-urban communities throughout the state have been paying a disproportionate share of those excessive and fraudulent claim costs through the subsidies prescribed as part of the
rate-setting process,” said O’Brien.

PCI stated that the proposal attempts to fix the unfixable by adding yet another layer of complexity to a system that is near collapse because it is already so complicated and so rife with gamesmanship that most of the insurance companies who did business here 15 years ago have been driven out of the market or out of business.

“The best answer for good drivers in Lawrence and around the state is to get rid of that complexity and move to a system of regulated competition that is more open, is fairer and offers more choices,” said O’Brien. “Under such a system, good drivers in Lawrence would already have realized reductions in their premiums in recognition of the anti-fraud efforts of their community leaders, long before they will under our current, archaic structure. We urge the Committee to act on those long-overdue systemic reforms.”

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