Study: Bad System, Not Bad Drivers, to Blame for Mass. Auto Woes

A new study suggests that the high cost of auto insurance in Massachusetts is the fault of bad government, not bad drivers.

The state’s strict rate setting system drives up costs because it fails to discourage claims, according to the insurance industry-sponsored report. The study, “High Rates and Little Choice: The Burden of Automobile Insurance Regulation on Massachusetts Consumers,” was conducted for the Property Casualty Insurers Association of America by Robert Shapiro, an economist with the consulting firm, Sonecon.

Massachusetts drivers pay 27 percent more than drivers in the rest of the country. At $984, the state’s average premium ranks fourth in the nation, according to 2002 figures from the National Association of Insurance Commissioners.

The Shapiro study acknowledges that Bay State drivers pay a lot because they file a lot more claims than drivers elsewhere. In Massachusetts, people are 2.4 times more likely to file bodily injury claims and 1.85 times more likely to file property damage claims.

Driving habits

But claims-happy Bay State drivers are not necessarily bad drivers; in fact they may be among the country’s best. Bay State drivers are not less skillful or more reckless than drivers elsewhere. In fact, Massachusetts drivers have fewer fatal accidents than drivers anywhere else in the country.

The problem is the system, not the drivers. According to Shapiro, “the state’s insurance regulation perversely encourages Bay State drivers and others to file those claims, even to the point of fraud.” In states where market competition helps determine rates, drivers’ premiums usually reflect the frequency with which they have not only been involved in accidents but also filed claims for accidents. Massachusetts drivers pay higher premiums if they’re at fault in an accident, but not for filing claims. Thus, according to the study, once an accident occurs, “everyone can try to collect for even the most minor accidents without concern that doing so might affect his or her premium.”

Claims history is just one of the desirable factors missing from the rating formula, according to the study. Massachusetts also prohibits the use of gender or marital status as rating criteria. Where it does permit pricing variations, such as with years of driving experience and garaging territory, the system softens the impact with subsidies for inexperienced and urban drivers.

The study maintains that 87 percent of insureds subsidize the premiums of the other 13 percent, who are mainly young, male and urban risks. If Massachusetts gave insurance companies pricing freedom, it is “highly likely” that this 87 percent of the state’s drivers would pay less than they now do, according to Shapiro.