Maryland bill would restructure state work group focused on auto insurance affordability

A Maryland bill would restructure a state work group focused on the affordability of auto insurance by adding two representatives from a nonprofit research or consumer advocacy organization. 

The bill, SB 865, was filed earlier this month by Sen. Alonzo Washington (D-22). 

According to the bill, the two representatives would have demonstrated expertise in automobile insurance rating practices and affordability. 

The work group is already required to have:

• • Member of the Senate Finance Committee
  • Member of the House Economic Matters Judiciary Committee
  • Maryland insurance commissioner or designee
  • Executive director of the Maryland Automobile Insurance Fund or designee
  • Representative from the insurance industry or trade association
  • Consumer advocacy group active in auto insurance
  • Representative of private auto insurance producers

It would also require the work group to develop legislative recommendations driven by data to reduce premiums, including specific recommendations regarding the use of territorial rating and other rating factors that may contribute to disparate impacts. 

The group would be required to submit an updated report on its findings and recommendations that includes the required recommendations, the bill says.

The Consumer Federation of America (CFA) submitted written comments in support of the bill, noting that at a time of rising auto insurance costs, the work group would be structured to make recommendations on reducing auto insurance premiums, including recommendations regarding insurers’ use of socioeconomic rating factors in pricing Marylanders. 

Jordan Hendler, Washington Metropolitan Auto Body Association (WMABA) executive director, said that from the collision repair professionals’ perspective, support for the bill extends beyond efforts outlined by CFA. She said it is not just about insurance rates. 

“It is about the integrity of the repair process and the safety of the consumer,” Hendler said. “Premiums rising is an easy out for the insurance industry, using it as an excuse to negate required operations and reimbursement rates.

“When insurance companies prioritize ‘excess profits’ and ‘socioeconomic rating factors’ over fair claim settlements, the pressure often falls on the repairer to use substandard parts or methodology to meet artificial ‘affordability’ metrics set by the carrier. The slanted market level dynamics are currently harming consumers, and changes only come through visibility and advocacy.”

CFA’s comments point to a state requirement that makes drivers maintain auto insurance. 

“Therefore, the state has a responsibility to make sure coverage is affordable for safe drivers and that consumers do not experience unfair discrimination,” CFA says in its comments. “ But rising premiums and auto insurers’ use of socioeconomic factors have made auto insurance expensive and often unaffordable for many Marylanders. Premiums have gone up while — and perhaps in part because — auto insurers in Maryland have earned above average profit returns from 2014 to 2023.” 

Auto insurers also have below-average loss ratios in Maryland compared to the rest of the country, the CFA says. Yet, Maryland consumers face the eighth-highest average auto insurance expenditure in the country, according to National Association of Insurance Commissioners (NAIC) data, the comments say. 

Lower-income consumers face higher prices partly due to non-driving rating factors, the comments say. This includes credit-based insurance scores, job title and occupation, education level, age, gender, marital status, homeownership status, ZIP code or territory, and prior insurance coverage. 

“These Marylanders would struggle to comply with the state’s insurance mandate even without being targeted for socioeconomic status penalties by insurance companies,” the comments say. “A 2021 joint policy brief by CFA and Economic Action Maryland found that Maryland drivers pay dramatically different rates for auto insurance based on their ZIP code, and residents of ZIP codes with majority African American populations pay far higher premiums compared to residents of ZIP codes with majority white populations.” 

For example, the average premium for neighborhoods where the population was less than 10% African American was $988. Neighborhoods that are 70% to 80% African American paid an average premium of $1,962. 

When comparing credit information, CFA found that drivers with excellent credit paid an average annual premium of $805, while drivers with fair credit paid $1,116, and those with poor credit paid $1,422. 

“A 2015 study by Consumer Reports found that Maryland drivers with poor credit and a perfect driving record paid an average annual premium of $2,904, but Maryland drivers with excellent credit and a drunk driving conviction paid an average premium of $1,268,” the comments said. “In this case, safe Maryland drivers with poor credit paid $1,636 more than convicted drunk drivers with a high credit score.”

CFA says they recommend multiple reforms, including requiring insurers to justify their rates and pricing models. 

“The Workgroup should recommend legislation that will shift market oversight of rates and rating rules to a prior approval system that requires insurers to justify their rates and pricing models to MIA before going to market with them,” the comments say. 

The MIA should also restrict the use of socioeconomic rating factors pursuant to its authority to prohibit unfair discrimination and seek legislative reforms, requiring insurance companies to demonstrate that the models they use throughout the insurance lifecycle, from marketing, underwriting, and rating to claims handling and fraud fighting, do not perpetuate or create discrimination in the market. 

CFA also urges the state to create a low-cost auto insurance program for low-income, safe drivers who cannot afford private market premiums. 

“The Workgroup should look to the success of California’s low-cost auto insurance program for safe, low-income drivers and recommend the adoption of a similar program to provide bare bones coverage for good drivers,” the comments say. “This low-cost program would allow qualifying drivers to buy coverage below the minimum required limits as a way to avoid becoming (or remaining) completely uninsured.” 

CFA says that SB 865 would encourage the legislature to further consider these reforms. It adds that the composition of the workgroup would be changed, and this would help ensure that the consumer voices are heard and the workshop is not solely dominated by members of the insurance industry. 

“At a time when auto insurance costs across the nation have increased by 55% since February 2020, and the insurance industry is now earning record profits, Maryland drivers need relief and real reform so they can get the coverage they need,” the comments say. “We thank Senator Washington for his sponsorship of SB 865 and urge a favorable report on this bill.”

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