Costly High-Risk Car Insurance Resists Change in Md.

Accident-prone drivers and those with no record on the road always pay more for insurance. But in Maryland, the price of being a bad risk is especially steep -- as much as 30 percent higher than in other states.

That's because of interest and fees charged on what most high-risk motorists have to borrow to finance their premiums.

The system is written into state law: Maryland's insurer of last resort, an agency created 37 years ago and the only one of its kind in the country, is prohibited from allowing policyholders to pay in the monthly or bimonthly installments available to other drivers. They have to pay premiums upfront -- an average of $2,500 for full coverage in Montgomery and Prince George's counties -- or go without insurance. In case a policy is canceled early, almost 75 percent of the interest is due in the first five months.

Gov. Martin O'Malley (D) has denounced the system as an unfair burden on the 70,000 low-income and immigrant motorists forced into the pool after being turned down by other insurers. Senate President Thomas V. Mike Miller Jr. (D-Calvert) has called it "patently unfair." But the General Assembly, which has cracked down on payday loans and unscrupulous mortgage lenders, adjourned last week without taking action on a hard-fought bill to allow the Maryland Automobile Insurance Fund to accept installment payments and bypass premium finance companies.

For an 11th year, the industry fought off the legislation.

For more than three decades, lobbyists for this niche industry have been effective advocates for their cause, developing trusting relationships with lawmakers on the committees that vote on economic matters and with House Speaker Michael E. Busch (D-Anne Arundel) -- and donating to their campaigns. The 11 small companies with most of the business are home-grown, and their standing as local businesses has encouraged many lawmakers to support them.

"The lobbyists have been able to work the system," Miller said, describing the efforts of the Baltimore senator pushing a payment plan as "tilting at windmills."

Leading the charge to change MAIF is the agency's executive director, Kent Krabbe, an appointee of former governor Robert L. Ehrlich Jr. (R). Some lawmakers said Krabbe, whom O'Malley kept on as executive director, is pushing for installment payments so he can expand his base of policyholders, and they accused him of trying to build an empire with slick marketing and high-priced lobbyists unbefitting a state entity.

"If you put in a payment plan, MAIF would be the next Geico," said Bryson Popham, an industry lobbyist, describing his clients' fear that the insurer of last resort would start to look like a regular insurance company.

Krabbe said he is only looking out for the state's poorest drivers.

The industry's defenders also said that installments would put them out of business and that the lending system made MAIF solvent years ago.

MAIF was launched in 1972, as mandatory auto insurance became the norm. Other states covered high risks through assigned-risk plans that spread the business among for-profit insurers, a system that exists today in Virginia and the District. In Maryland, then-Gov. Marvin Mandel (D) hoped to bring down rates for everyone by having a state agency underwrite insurance for high-risk drivers. The system was capitalized by an industry set up to finance premiums, writing short-term loans at rates as high as 30 percent.