Cold War Erupts in Mass. Over Governor’s Auto Insurance Reforms
A Cold War has erupted in Massachusetts over of all things, the state’s auto insurance system.
Republican Gov. Mitt Romney started it. In unveiling a deregulation package he hopes will attract national carriers and reward good drivers, Romney repeatedly referred to the Bay State’s current system as “Soviet-style” because of its controls over insurers and consumers.
“As a state, we are saddled with an anemic, punitive insurance system that is sapped of competition and gamed to reward the worst drivers on the road. This system is antiquated and needlessly complex,” Romney remarked when he unveiled his reform package that includes a 5 percent rate rollback for drivers with clean records and a flex rating provision for insurers. Massachusetts government sets uniform auto rates and the market has only 19 to 30 carriers, depending on who is counting
Romney, who is testing the waters for a plunge into presidential primaries but not yet ruled out running for reelection as governor, said he wants to tear down what he termed the current “Soviet-style” system because it is unfair to the 64 percent of good drivers and because it “benefits only a handful of companies that are doing very, very well.”
He wants reforms that will attract national companies like Progressive and State Farm while also encouraging others including home grown insurer Liberty Mutual to do more business in its own state.
In anticipation of propaganda from domestic special interests opposed to his plan, Romney fired some pre-emptive verbal shots.
“Some well-connected companies will fight with everything they have to keep the status quo, the Soviet-style system,” Romney warned.
Then he named names. He accused Commerce Insurance Co., the state’s largest personal auto insurance writer, of being afraid of competition and defending the status quo, as it is doing in court against Romney administration changes to the residual market mechanism.
The governor also charged that the main reason his own auto insurance task force failed to come up with a reform plan was Attorney General Tom Reilly, a Democrat who is the leading candidate to face him if he decides to run for reelection.
“Basically, the attorney general, who is running for governor, is not about to say that we are going to be on the same page on this. He is favoring the Soviet-style one-size-fits-all let’s take care of one insurance company model,” Romney added.
His targets wasted little time firing back.
The attorney general dismissed Romney’s characterization of his position to the Boston Globe as “flat out wrong,” noting that he has been heavily involved in pushing changes to the auto system’s residual market and has advocated a phase-in of competitive rating for several years.
“I think he needs to focus on Massachusetts and not what remains of the Soviet Union,” Reilly told the Associated Press.
Referring to reports that Romney had been studying China as part of prepping for a run for national office, the Democratic attorney general added, “My focus is on Massachusetts. It’s not a quick fix. It’s not trying to rush something through, take credit, and go someplace else.”
Reilly was not the only one linking Romney’s auto insurance politics to his presidential ambitions.
Commerce Insurance, which writes almost 30 percent of the market and which has been opposing Romney’s plan to change the residual market system, returned the political sniping. James Ermilio, senior vice president and general counsel for the Webster, Mass.-based carrier, charged that Romney was pushing the plan–a “terrible bill” in his opinion–in order to cater to insurance companies that could help his national campaign.
“Why would a governor take shots at his own business people in his own state? To me it’s clear that he wrote this bill for the benefit of national companies in hopes of lining their pockets in exchange for their support in his national efforts,” Ermilio told Insurance Journal.
A candidate for statewide office would not want to alienate Massachusetts business that way, Ermilio suggested. Also, Ermilio contended, if Romney truly wanted to help good drivers, he could do that through the safe driver surcharge plan without overhauling the rest of the system.
Ermilio may not have to worry. Privately, political leaders and industry lobbyists suggest the Romney plan is unlikely to win much favor with the politburo on Beacon Hill, with the feature giving insurers freedom to raise rates up to 15 percent for some drivers least likely to advance.
In a bad omen for Romney, the state’s powerful insurance agents lobby was on the verge of announcing it would not support the entire package. With that positioning, however, the Massachusetts Association of Insurance Agents may achieve a degree of detente with Commerce after months of the two bickering over the assigned risk reforms that are now stuck in court.