Business & Tech

State to keep incentive program for car insurers

Massachusetts Attorney General Maura Healey spoke to reporters earlier this year.
Steven Senne/Associated Press/File
Massachusetts Attorney General Maura Healey spoke to reporters earlier this year.

The Massachusetts Division of Insurance rejected an industry-backed plan that could have meant higher car insurance costs for drivers in low-income and minority communities.

In a decision released Wednesday, state regulators said a proposal to shrink the incentive program that encourages companies to offer coverage in underserved communities such as Chelsea, Lowell, East Boston, Springfield, and Brockton, as well as to riskier drivers, was unnecessary.

“There’s no reason for it at this time,” said Chris Goetcheus, a spokesman for the state insurance division. “The credits are working. If it’s not broken, don’t fix it.”

Advertisement

Massachusetts Attorney General Maura Healey, along with some insurance agents and insurers, had warned that reducing the incentive program would have pushed more drivers into what’s known as the high-risk pool, which is the insurer of last resort for those who don’t qualify for competitive rates.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

Drivers in the high-risk pool don’t get some of the benefits and savings available in commercial markets, such as accident forgiveness and roadside assistance, and can potentially pay higher premiums, as well as more in late payment fees. The average annual premium for a driver statewide was $992 in 2013, the most recent data available, compared with $1,707 for drivers in the Massachusetts Auto Insurance Plan, as the high-risk pool is known.

Insurance companies say average premiums in the high-risk pool are higher because there are more drivers with violations and accidents.

Healey called the decision a victory for Massachusetts consumers.

“These credits provide residents in low-income communities with greater access to auto insurance products and help keep insurance companies doing business in disadvantaged areas,” Healey said in a statement. “That’s good for drivers across Massachusetts.”

Advertisement

The Commonwealth Automobile Reinsurers, which manages the high-risk pool, had proposed the reduction earlier this year. The group, which is made up of many of the state’s insurers and several agents, argued that companies are increasingly serving low-income and minority communities on their own and didn’t need additional encouragement.

Officials with the reinsurers group did not return calls for comment on Wednesday.

But in the past they have pointed out that the number of drivers in the high-risk pool has declined sharply since the state deregulated the auto insurance industry in 2008, bringing more companies into the market and offering consumers more options for coverage. As companies tried to gain market share more of them were willing to pick up drivers in underserved communities, reducing the numbers that had to be placed in the high-risk pool.

In the past decade, the number of drivers unable to get insurance on the commercial market has dropped from 6.5 percent of the more than 4 million Massachusetts drivers to less than 2 percent. Now, just 68,000 automobiles are insured in that high-risk pool, according the industry group.

But state insurance regulators attributed some of that decline to the incentive plan, which essentially gives insurance companies credit for voluntarily selling policies to about 430,000 drivers who are considered higher-risk because they live in urban areas and are more likely to have their vehicle damaged, have more speeding tickets or accidents, or a history of failing to pay premiums.

Advertisement

By covering drivers voluntarily, these insurers shrink the size of high-risk pool and hence are allowed to use the credits to reduce the number of drivers they would otherwise be required to take from the high-risk pool. Some insurance companies actively search out the better drivers in these urban communities so they don’t have to take the more expensive, accident-prone drivers in the high-risk pool. They also make a profit by selling their credits to insurers who may be less active in those underserved markets.

Under the reduction proposal, the number of drivers that insurance companies could count for credit would have dropped to about 332,000, a 23 percent decrease.

Plymouth Rock Assurance Corp., the state’s sixth-largest auto insurer, took the unusual step of objecting to the credit reduction and asked insurance regulators to hold a hearing earlier this year.

Paula Gold, a lawyer for Plymouth Rock, said the state’s decision reaffirms the importance of the incentive program and signals to insurers that they need to be careful when proposing future changes to the plan.

And it may encourage more insurance companies to offer coverage in these communities voluntarily, because they can take advantage of the credit, Gold said.

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.