Does it seem fair that inner-city drivers with spotless records pay higher insurance premiums than their suburban counterparts, simply because of where they live?
You’re not alone. One state senator from a Gateway City feels the same way, and wants to do something about it.
Pavel Payano, a Lawrence Democrat who also represents 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 lessen the impact of a resident’s ZIP code 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,” Payano told Haverhill’s WHAV (97.9) Radio. He’s 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 lowering the rates in urban areas.
Payano based that formula on 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.”
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.
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.”
In that example, it seems experienced, safe drivers in urban areas already subsidize problem suburban motorists.
Frank O’Brien, vice president of the American Property Casualty Insurance Association, explained that Massachusetts does not allow rating factors 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.
Using that rationale, and given the obstacles they’ve overcome, urban drivers who maintain clean driving records should receive a considerable discount, not a penalty, for that responsible behavior.
We feel Sen. Payano’s frustration with the current insurance rating system. However, he also must realize insurance companies can’t use race or economic status in determining a motorists’ insurance bill.
As the insurance company vice president pointed out, more densely populated urban areas statistically generate more car accidents because that congestion extends to the roadways.
It just happens that the state’s minority population tends to live in our cities, like Lawrence, Lowell, Fitchburg, and Lawrence.
However, we do believe the senator’s rating adjustment proposal merits serious consideration.
Spreading the risk also factors into Insurance companies’ rating system.
At present, a disproportionate degree of that risk appears to fall on conscientious drivers who just happen to live in urban areas.
But painting everyone in a particular locality with a broad brush comes right out of the insurance industry’s playbook.
Assigning more of that risk on problematic suburban motorists would be a more equitable way of calculating everyone’s insurance premiums.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.