Insurance tweak can ease burden on urban drivers (Editorial) [masslive.com]

MassLive.com

It wouldn’t be fair. That was one of the objections raised at a recent State House hearing on a bill that would lessen the reliance on zip codes in setting auto insurance premiums.

It wouldn’t be fair to people who live in the suburbs, an insurance industry official suggested to the Legislature’s Joint Committee on Financial Services. They would pay more.

That’s a hard argument to swallow, given that the system today is patently unfair to people who, because they live in cities, pay far higher premiums than residents of small towns.

The current system of setting rates, in effect, imposes a tax on people who live in our state’s cities, a levy that falls disproportionately on low-income people of color.

That’s what’s unfair – and what should be changed.

A bill introduced by state Sen. Pavel M. Payano, a Lawrence Democrat, would still allow geography to play a role in rates, but to a lesser degree. Payano’s legislation (S.730) is modeled on Connecticut’s system, where insurance companies can account for location in their actuarial tables, when setting premium costs, but not rely on them alone. Connecticut requires insurers to consider statewide averages on claims as one-quarter of its calculation. Where a driver seeking insurance lives can still account for three-quarters of that part of the company’s math.

Even that small adjustment is saving money for people who live in Connecticut’s cities, by shifting costs. A study Payano cites found that premiums declined by as much as 10.6% in urban Hartford after insurers made that change in Connecticut; rates rose 3.4% in suburban communities.

In testimony on Beacon Hill last month, Frank O’Brien of the American Property Casualty Insurance Association held to the industry’s familiar argument that, to paraphrase Freud, geography is destiny. O’Brien said higher urban car insurance rates are a product of “congestion” and said Payano’s bill would result in suburbanites “subsidizing” the insurance costs of city residents.

The picture is far more complicated than that.

For starters, consider that people who drive into cities from the suburbs are responsible for much of the traffic congestion. They get into accidents too.

Also, there is evidence that geography alone isn’t what skews rates. An analysis by Consumer Reports and ProPublica found that disparities in auto rates between minority and white neighborhoods are wider than differences in risk alone can justify. The project examined rates and claims in California, Illinois, Texas, and Missouri. Insurers have long argued that they need to charge more in cities because heavier traffic results in more accidents.

The Consumer Reports/ProPublica study found differing costs for premiums could not be blamed on locations and number of crashes.

Insurers were charging premiums that were 30% higher in minority-majority zip codes, the organizations found, compared to “whiter neighborhoods with similar accident costs.”

“This disparity may amount to a subtler form of redlining,” the study said.

Payano told his State House colleagues last month the same holds true for Massachusetts.

He said data from the state’s Merit Rating Board shows that drivers in places that are home to the highest percentages of people of color pay, on average, 90% more than drivers in less diverse communities. The state board tracks driving records and accident claims.

The playing field is ridiculously uneven. Again citing Merit Rating Board data, Payano told the joint committee that drivers in urban communities with excellent safety records have paid more for premiums even than drivers with recent histories of traffic violations – or those found to be at fault in crashes.

Live in a predominantly white town like Longmeadow and get in a crash? You could still pay less for insurance in Massachusetts than a safer driver in Springfield.

Rates can differ by as much as $1,000 a year. These disparities place an undue burden on low-income city residents.

The Republican used a calculator provided by the state Division of Insurance, combined with U.S. Census data, to illustrate the inequity of the current system.

A driver in Springfield who has held a license for 14 years and not been in an accident for five years could pay as much as 59.3% more than a similar driver, with the same model car, in the town of Longmeadow. Springfield’s median household income in 2021 was $43,308 and Blacks and Latinos constitute 68.3% of its population; in Longmeadow, where Blacks and Latinos make up 6.8% of the population, the median household income $129,780.

Payano calls his measure “an Act relative to reducing racial and socioeconomic inequities in auto insurance premium pricing.”

The purpose, the bill’s text says, is “to reasonably limit the difference in rates and premiums between territories, thereby diminishing the disparate impact on policyholders.”

We think Payano’s proposal is measured, incremental and entirely reasonable – and deserves to move ahead in this legislative session.