Op-ed: Let's look at automobile insurance

6th February 2009

Arlington, Mass. - I filed a bill in the Massachusetts Legislature asking for a feasibility study on a statewide network of municipally sponsored auto insurance programs. Arlingtonians pay a total of about $27 million a year to insure nearly 30,000 cars for which the Treasurer’s office collects an excise tax. The state of Massachusetts has an estimated 4 million cars, with a total insurance premium estimated to be $3.9 billion a year, according to the Massachusetts Automobile Insurance Study Group of 2007.

Since the public is required by law to pay this enormous amount of money, it ought to be scrutinized as a possible source of revenue to help solve the fiscal crisis. In the age of consumer choice, I’d like to buy into public auto insurance with a local focus, backed by a statewide network of town-based plans. The bill asks for a study to learn if this could be done.

I also filed a warrant article asking if Town Meeting will direct local legislators to support this bill at the Statehouse.

Such a public option for auto insurance requires little new infrastructure or payroll for towns. Sales could happen as in the current system, if independent insurance agents are willing to offer the public option alongside the usual private plans. The statewide network would be managed by a third-party administrator working with the State Division of Insurance.

Publicly run insurance is not so unusual. Arlington’s Planning Office helps people enroll in the federal government’s flood insurance program. The state runs unemployment insurance. Why not find out if a public option for auto insurance could be more efficient as well?

The information available is hard to believe, I will be the first to admit. The annual cost to insure Arlington’s cars, some $27 million, is about one-fourth the town budget, including the salaries and benefits of some 800 active employees, 1200 retirees, the school system, police, fire, street maintenance, and so on. How can this be?

The auto insurance companies report a loss ratio in the neighborhood of 60 to 65% — meaning, for every $100 paid in premiums, about $65 is paid out for claims. The March 10, 2008 issue of Boston Business News has one of these reports, titled “Safety Announces Fourth Quarter 2007 Results.” Sixty-five percent of $27 million is about $16 million worth of auto wreckage in Arlington, every year, or $1.3 million per month. To achieve that level of loss, the town must experience the equivalent of 13 auto accidents every month, each costing $100,000 each, or a combination of many fender benders, major accidents, theft, and fire.

In last week’s Advocate, Senator Ken Donnelly said, “All ideas for generating new revenue should be on the table.” The governor has said now is the time “to take big steps, because the times require it.” These comments were about the fiscal crisis.

IF we could devise a smarter, more efficient system of auto insurance, the goal should be to reconceive this function as an enterprise zone whose purpose is not only to pay claims, but also to help pay for town services that prevent those claims, like snowplowing, traffic police, street maintenance, and traffic lights. This could reduce the burden on the property tax.

But a more important reason to consider a public option for auto insurance is this: The current insurance system, with its newly deregulated pricing, spits in the face of basic community ideals about equality and unity, as opposed to discrimination. A front page Boston Globe article of February 1 of this year reports a typical example: “managed competition” allows a discount if your children have good academic records. Rates are permitted to be lower if you own your home. Other factors that have nothing to do with your individual driving record can be considered. These pricing tactics are called “discrimination by social proxy.”

Source: http://www.wickedlocal.com/