Payano Calls for Auto Insurance Formula Change to Reduce Costs in Urban Areas

Sen. Pavel M. Payano. (Courtesy photograph.)

State Sen. Pavel Payano, representing Lawrence, Haverhill and Methuen, wants to reduce auto insurance rates in urban areas by making the statewide average part of the rating formula.

Payano and other 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 Payano, who filed a bill that would change the rating formula to give no more than 75% weight to a person’s local area and 25% 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% 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% more, and experienced drivers with excellent records still paid 80% 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% 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 showed premiums in suburban and less diverse cities and towns rose no more than 3.4% as a result of the shift.

Frank O’Brien, vice president of the American Property Casualty Insurance Association, 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.

Sam Drysdale, State House News Service.

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