THE ARGUMENT
Do you support the Senate bill that will limit the use of a driver’s community of residence in setting auto insurance rates?
Vote in our online poll at bostonglobe.com/theargument.
Yes
State Senator Pavel M. Payano Lawrence Democrat
In Massachusetts, a troubling disparity exists with auto insurance premiums, one that disproportionately affects residents in urban and diverse communities. That’s why I’ve introduced legislation this session that I believe will help level the playing field and make auto insurance premiums more equitable across our state.
A study conducted by the Consumer Federation of America paints a stark picture. The data found that premiums in predominately African-American neighborhoods were 70 percent higher than for drivers in mostly white areas. Another study by the Consumer Federation showed that drivers with good records living in low-income zip codes were paying — on average — $410 more than those living in high-income communities.
Such pricing inequities are neither just nor fair. They result from an outdated system that allows insurance companies to set rates primarily based on geographic location. A driver might pay substantially more in premiums than another who lives just a stone’s throw away in a different municipality, sharing the same roads. It all boils down to a calculation called “projected loss cost.” Insurers have long defended their pricing by saying that the risk of accidents in those neighborhoods is greater, even for motorists who have never had one.
Our legislation seeks to rectify this situation. It calls for insurance companies, when determining premiums, to allocate no more than 75 percent of the territorial loss cost and at least 25 percent of the statewide average loss cost. Currently, the system permits a lopsided 100-0 ratio.
Connecticut already has embraced this system, and its effectiveness is clear. A stateconducted study revealed that the 75-25 percent loss cost ratio led to a reduction in premiums by as much as 10.6 percent in Hartford.
With the challenges of inflation and the rising cost of living, Massachusetts must prioritize policies that champion equity. Senate Bill 703 is a step in the right direction, as it aims to lower the burden of premiums for those who have been unfairly penalized simply because of their zip code.
Let’s work together to ensure that fairness, equity, and justice prevail when it comes to auto insurance premiums for all drivers.
No
Christopher S. Stark Mass. Insurance Federation executive director
Insurance companies compete vigorously in the market and seek to provide their customers with a product at the best possible rate based on the predicted risk of loss.
The most accurate and fair way to price policies is to use many actuarially-based rating variables, which assures that no single variable has a disproportionate impact on an individual’s premium. This allows insurers to offer products to a broader range of consumers at a competitive price. Territorial rating is a key factor in establishing that fair rate.
Massachusetts is already one of the most restrictive states in the country when it comes to regulating auto insurance rating variables. Like virtually all other states, however, Massachusetts does allow the use of territory in setting auto insurance premiums. Why? Because, as noted by the Casualty Actuarial Society, the use of territory “is considered one of the primary drivers of claims experience. Consequently, it is one of the most well-established and widely used rating variables.”
Senate Bill 703 ignores this reality and seeks to put its thumb on the proverbial statistical scale by requiring insurers and the regulators who review insurance rates to disregard this time-tested data. This would result in lowerrisk drivers subsidizing higher-risk drivers. Proponents also ignore data on insurance rates from the National Association of Insurance Commissioners that show Connecticut — on which Senate Bill 703 is based — as having higher insurance costs than here in Massachusetts.
When insurers can accurately price policies, consumers benefit with lower rates overall, more choices, and greater market and price stability.
Rather than further restricting underwriting and pricing criteria, the Legislature should be taking steps to enhance roadway infrastructure and safety, prevent distracted driving, and allow for the further development of a broad range of insurance-related discounts and other policyholder benefits.
Passing Senate Bill 703 might lower auto insurance costs for some higher-risk drivers in the short term, but based on what has happened elsewhere, it will likely raise prices for others. Wishing it otherwise will not make it so. This is why insurers oppose the passage of Senate Bill
703.