Mass. AG Makes Final Argument for 18% Cut in Auto Insurance; Proposes Anti-Fraud Program

Massachusetts Attorney General Tom Reilly on Wednesday made his case for an 18 percent reduction in auto insurance rates for 2006 and also proposed an anti-fraud initiative based on the ongoing efforts in the city of Lawrence that have resulted in a significant reduction in losses.

Reilly introduced the proposal and outlined the evidence in support of a 18 percent rate cut for Massachusetts drivers in a filing made today with the Division of Insurance. The filing, the equivalent of closing arguments, sums up AG Reilly’s case for a 2006 rate cut that would mean $200 in the pockets of average Massachusetts drivers. The insurance commissioner is expected to rule on next year’s rates by December 15.

“Enough is enough,” Reilly said. “Massachusetts’ drivers should get the relief they’re entitled to, an 18 percent cut. That’s $200 back in people’s pockets and the insurance companies shouldn’t get a penny more than they deserve.”

AG Reilly added, “The facts are on the drivers’ side.”

Today’s filing offers a detailed analysis in support of Reilly’s proposed 18 percent rate cut. Reilly argues that, based on inaccurate loss projections, the average Massachusetts driver paid $100 too much for auto insurance last year and is currently overpaying even more this year. The faulty projections reportedly forced Massachusetts drivers to pay auto insurance premiums 10 percent higher than necessary and gave insurers a $400 million windfall they did not deserve. Reilly is urging the commissioner to correct the errors so that 2006 rates are not inflated.

Today’s filing also urges the insurance commissioner to adopt a program that provides incentives to towns and cities like Lawrence that cut losses through anti-fraud activities. Five other communities have started similar initiatives, and Reilly is urging the commissioner to give residents of communities that start anti-fraud initiatives the benefit of those efforts.

“Right now, all of Lawrence’s hard work is just lining the insurers’ pockets,” Reilly said. “Lawrence cut $30 million of fraud out of the system, but its residents didn’t get any benefit from that effort in their rates. That is wrong. We need to give towns a reason to want to fight fraud, and we have to be fair about how we share the benefits of those anti-fraud efforts.”

Under the current rate setting system, savings from anti-fraud efforts take several years to work their way to policy holders. Reilly’s initiative would reportedly provide benefits to residents as soon as they establish a Community Insurance Fraud Initiative (CIFI) and start reducing fraud. Half of the loss savings over a set benchmark would go directly to policyholders. Under the proposal, Lawrence residents would be eligible for approximately a 15 percent reduction in major insurance coverage premiums. Parts of Boston, which began using CIFI in late 2004, would also be eligible for a credit.

Towns setting up a CIFI would be required to dedicate police resources to anti-fraud efforts, work with prosecutors, provide a hotline and promote anti-fraud efforts.