Monday, August 22, 2005

Insurance Policy

John F. Donohue, CEO of the Arbella Insurance Group in Quincy, has an op ed in today's Globe critical of Governor Mitt Romney's plan to overhaul state's car insurance system. It's really no surprise that Donohue is against it, given that Romney's reforms would open the state up to national insurers that would be in direct competition with his company. Donohue voices his concerns in this passage:

The out-of-state insurance companies want to come here only to cream the crop of our lowest-risk drivers while denying coverage to those they consider risky -- which will be determined by factors including employment, education, residence, and credit rating, not driving record. In other words, they want the state to grant them the opportunity to collect all the premiums they want and award them maximum protection from actually having to pay out claims.
The fear is that large insurance firms will swoop in and undercut the existing companies, luring away safe drivers and leaving the uninsurable to the locals. It's not an unreasonable fear, either, but we should be wary of people who benefit from the status quo advocating against change. Of course, I suppose I, too, benefit from the current situation as I doubt that anyone in the Boston Metro area will save any money under Mitt's plan given its high rate of auto accidents compared to the hinterlands.

On the other side of the insurance isle, Tom Reilly has announced that he wants to cut car insurance rates. Apparently Massachusetts insurance companies did so well that they told his office that they could drip their rates by a whopping one-tenth of one percent. Reilly has countered with a request that they do better by a hundredfold, and has asked the insurance commissioner to drop the rates by 10%. The AG points out that insurance companies have saved millions last year through fraud crackdowns throughout the state, but particularly in Lawrence where they saved $28.7 million alone. If a crackdown in one city can save insurers that much, perhaps that is the easiest solution to our high rates in Massachusetts. A statewide initiative to fight insurance fraud has no downside, except of course for the potential scammers, and as long as we have an insurance commissioner, insurers can be compelled to pass their savings on to consumers.