Carriers Protest Maryland Automobile Insurance Fund’s Rates

Maryland’s private auto insurance industry is objecting to a proposal by the state’s insurer of last resort to lower rates as gasoline and food prices rise.

At a hearing in Baltimore on Friday, industry representatives told Insurance Commissioner Ralph Tyler that the Maryland Automobile Insurance Fund’s plan to make coverage more affordable puts the private sector and the state fund at risk.

The General Assembly created MAIF in 1972 after making auto insurance compulsory to provide auto insurance to drivers rejected by private companies. But private insurers must bail out the fund if there are major financial problems.

The state-controlled fund wants to reduce rates by an average of about $120 per policy. The average MAIF policy is about $2,400 a year.

“What we find is that most of the people that come to us are working families,” Executive Director M. Kent Krabbe said. “We insure people who are struggling and to the extent that we can help out, we want to.”

MAIF’s discount is “actuarially unsound” and could put the state fund at risk for insolvency, said Richard Stokes, a regional manager with the Property Casualty Insurers Association of America.

Krabbe dismissed that suggestion.

“We would have to lose $140 million in order to be in a position of insolvency,” Krabbe said. “That’s like saying nuclear war has broken out and life on earth has ended as we know it. That’s just not going to happen.”

The state fund, which has a $170 million surplus, provides more than 65,000 insurance policies and wrote about $120 million in premiums in 2007. The discount would reduce premiums by less than $6 million a year.

Some private insurers are also worried about competition. The state requires that MAIF only provide coverage to drivers rejected by two private companies.

But it doesn’t enforce that requirement strictly enough, said Hal S. Katz, president of Baltimore-based Interstate Auto Insurance Co., which specializes in covering drivers with blemished records.

“Would you want a state-operated entity to all of a sudden be a major competitor in the marketplace?” Katz said. “If there was enforcement … I would probably have never lodged the protest.”

Tyler delayed his decision after the hearing to give both sides more time to provide written information. Tyler’s decision is expected in several weeks.