Regional Gaps in Auto Insurance Prices “Not Equitable or Fair,” Lawmaker Says

Industry Leader: Reforms Would Make Non-Urban Areas Subsidize Cities

STATE HOUSE, BOSTON, MAY 8, 2023…..Some state lawmakers are looking to change how heavily a resident’s ZIP code weighs in determining the cost of their auto insurance, claiming that people of color in low-income and urban areas pay higher rates. But insurance companies say the move would take away one of the only tools left for them to determine rates and could raise insurance payments for all.

“Right now in Massachusetts, residents living in urban and diverse communities are being forced to pay substantially more than their suburban counterparts for auto insurance,” said Sen. Pavel Payano, who filed a bill (S 703) that would change the rating formula to give no more than 75 percent weight to a person’s local area and 25 percent weight to a statewide average, aimed at tempering the rates in urban areas.

Payano based the formula off of Connecticut’s insurance rating territory policy. A 2006 report from the Connecticut Legislature’s research office said “the less weight given to territorial experience, the lower auto insurance rates are in urban areas, but with a related increase in rates in all other areas of the state.”

Testifying on the bill before the Joint Committee on Financial Services on Monday, Payano said data from the Merit Rating Board showed that communities with the highest percentage of people of color paid on average 90 percent more than drivers in less diverse cities and towns.

“These gaps persisted with both experienced and safe drivers. Experienced drivers in BIPOC communities paid 95 percent more, and experienced drivers with excellent records still paid 80 percent more than those living in majority white communities,” he said. “The disparities were so pronounced that this report found that experienced drivers with excellent records in urban communities were paying 12 percent more than drivers in less diverse communities who had a recent history of at-fault accidents or violations. These prices are not equitable or fair.”

The lawmaker cited a study done in Connecticut that he said showed the 75/25 ratio led to declines in premiums of as much as 10.6 percent in the city of Hartford, compared to prices when insurance companies weighted rates completely based on local ZIP codes as Massachusetts law currently allows. The study showed that premiums in suburban and less diverse cities and towns rose no more than 3.4 percent as a result of the shift, Payano said.

Payano’s bill is not the only legislation aiming to change insurance premium criteria. A Rep. Gerard Cassidy of Brockton bill (H 969) seeks to ensure that no insurance company can refuse to issue or renew insurance based on ZIP code, geographical area or where a driver garages their vehicle.

Outside Boston, Brockton had the highest car insurance rates in the state in 2020, with the average annual premium for Brockton drivers about $900 more than neighboring East Bridgewater, The Brockton Enterprise reported.

“By making insurance more affordable in the state’s lowest income communities it will reduce the number of uninsured drivers on the road, and it will create savings for all drivers,” Michael DeLong of the Consumer Federation of America said to the committee Monday.

But Christopher Stark, executive director of the Mass Insurance Federation, said territory is one of the “most well-established and widely used rating variables” for insurance companies.

“There’s a lot to balance in that from roadway safety and infrastructure investment in some of these areas, but when claims and exposures in certain areas are higher, the rates for those individuals are also going to be higher,” he said. “If there’s good drivers in some of these neighborhoods, that is one of the reasons why we should be more open in our underwriting criteria and less restrictive.”

Massachusetts is one of four states, along with Michigan, California and Hawaii, that broadly bans using gender, credit score and level of education when determining insurance rates, according to quote-comparison website The Zebra’s 2022 state of insurance report.

The report also shows that Massachusetts ranks 33rd on a most-expensive to least-expensive listing of auto insurance in the 50 states, with an average annual rate of $1,346 in 2022.

Frank O’Brien, vice president of the American Property Casualty Insurance Association, also argued that Massachusetts does not allow rating factors that are used “pretty much everywhere else” to determine premiums.

“Urban communities tend to have higher claims. It’s a function of congestion. If you are in an urban community, it tends to be more crowded. And when you have more congestion, people hit each other and hit things more often than they do in areas that are less urban,” ” O’Brien said. “Passage of this bill would result in non-urban communities subsidizing urban communities in the commonwealth. If that’s something that you want to do from a public policy point of view, of course, it’s just not something that is actuarially significant.”

After Stark’s testimony, Rep. Steven Owens challenged his statements.

“So, it’s the Insurance Federation’s position then that it is actually morally sound and good business practice to discriminate against BIPOC communities, is what I’m hearing,” Owens asked Stark.

“It is not to discriminate against BIPOC communities,” Stark replied.