State to decide if high-risk drivers can keep discounts under new plan
By Bruce Mohl, Globe Staff
November 6, 2004
Commerce Insurance of Webster offers a 5 percent discount on auto insurance to any member of the American Automobile Association, but state regulators are now trying to decide whether Commerce should be required to offer the discount even if the AAA customer ends up being insured by another company.
The transferability of such discounts from one firm to another has suddenly become a hot topic as state regulators begin a final review of proposed rules for a new system of apportioning as many as 1 million high-risk drivers among companies.
The new system is intended to provide auto insurance for drivers no company wants to insure voluntarily. The drivers would be randomly assigned to companies, with a firm's market share determining how many so-called high-risk drivers each insurer would get.
The proposed rules currently don't address what would happen when a consumer seeks out a firm offering a discount and ends up being assigned to another carrier that does not offer the discount.
For example, would a AAA member who signs on with Commerce to receive the 5 percent discount lose those savings if he or she ends up being assigned to another insurer?
Auto insurance discounts have become more scarce in recent years, but many companies still offer them, and they save consumers millions of dollars each year on their auto insurance premiums.
State officials say 837,000 policyholders receive so-called group discounts, including the 5 percent discount Commerce offers to AAA members and the 12 percent discount that Hanover Insurance offers to members of the Massachusetts Teachers Association.
There are also discounts for drivers in the best Step 9 classification, and discounts for drivers who insure more than one car or a car and a home with the same company.
A spokesman for the Commonwealth Automobile Reinsurers, the quasipublic industry group that has developed the proposed rules for an assigned-risk plan, said the organization didn't address discount transferability because it believes state Insurance Commissioner Julianne M. Bowler must rule on that issue.
Bowler's spokesman, Christopher Goetcheus, said it was premature to speculate about any final decision by the commissioner, but he indicated she was likely to favor transferability, particularly for group discounts.
At a public hearing on the proposed rules last Friday, a top aide to Attorney General Thomas F. Reilly urged Bowler to require that discounts be transferable so that consumers who end up being assigned to another company aren't penalized financially.
Bowler's aide, Alice Moore, chief of the public protection bureau, said any company offering a discount should be responsible for paying the discount amount to the company to which the consumer is ultimately assigned.
Most insurers and consumer advocates favor discount transfers. Robert Cordner, vice president of underwriting and marketing for OneBeacon Insurance Co., said he believes current law requires that all members of a discounted group must receive that discount, even if they aren't being insured by the company offering the discount.
Stephen J. D'Amato, the executive director of the Center for Insurance Research in Cambridge, said he didn't think discount transferability was part of existing law, but he said it should be required.
Commerce Insurance, the state's largest insurer with 28 percent of the market, would probably be the firm most heavily affected by a rule requiring discount transferability. The firm last year covered 649,000 Massachusetts vehicles under the AAA discount.
James Ermilio, senior vice president and legal counsel at Commerce, said the firm would have to study any transfer proposal before commenting on it.