The Rate Debate

Insurance companies shouldn't oppose lower premiums for some Maryland drivers.

AT A TIME when car insurance rates are rising even as Americans are driving less, Maryland's insurer of last resort is doing its part to put money back in the pockets of drivers. The Maryland Automobile Insurance Fund is proposing to reduce rates by 4.9 percent in response to high food and gas prices. Insurance companies say the plan is fiscally reckless and would bankrupt the agency -- a far-fetched forecast of doom. It's more likely that private insurers fear the rate cut would adversely affect their bottom line. Maryland Insurance Commissioner Ralph S. Tyler, who is expected to reach a decision in the next few weeks, shouldn't let their protests stop him from approving the lower rate. When insurance companies turn down drivers they perceive as bad risks, MAIF steps in; only drivers rejected by at least two insurance companies qualify. The agency underwrites 65,000 policies at an average annual rate of $2,400 -- less than drivers assessed as bad risks would pay on the open market.

Critics say the rate cut would drain MAIF's $170 million surplus to the point of insolvency, with private insurers being forced to bail out the fund. But the rate cut, which would save customers an average of $120 per policy, would deplete the fund by only about $6 million, MAIF officials said. It's true that the surplus has dwindled by about $20 million in recent years because of a combination of factors, including a sagging stock market. But the fund would have to lose 80 percent of its current value, or about $140 million, before insolvency would even be a possibility.

The dispute over the rate cut is part of a larger national debate about auto insurance rates. Americans drove 12.2 billion fewer miles in June than they did in the same month last year. This should lead to fewer crashes and lower insurance rates. In fact, as the New York Times reported, premiums have risen at a rate four times higher this year than for the comparable period last year.

In Maryland alone, the average auto insurance premium rose 21.5 percent from 2001 to 2005 -- nearly 6.5 percent higher than the national increase over the same period -- according to data from an insurance industry group. Maryland has the 14th-highest average premium in the country. The explanations that insurers give for the increases, which include uncertainty about inflation, aren't satisfactory. Maryland's private insurers should spend less time objecting to a worthy proposal that would save thousands of drivers money, and more time examining their own increasing rates.