Md. commissioner OKs car insurance by territory

December 18, 1990|By David Conn Peter H. Frank of The Sun's Business staff contributed to this report.

Maryland's insurance commissioner yesterday approved the current system of setting auto insurance prices according to the territory in which a driver lives.

The ruling drew threats of a lawsuit from city and state officials and immediate calls for the commissioner's resignation.

The so-called "territorial rating" system, which results in higher insurance costs for drivers in Baltimore, Prince George's County and other more developed areas, is proper under Maryland's insurance law, Insurance Commissioner John A. Donaho said in a report released yesterday. He said that the legality of the practice was confirmed by three Maryland attorneys general over the years and that it adheres to actuarial standards of pricing insurance.

"The Insurance Commissioner rejects as meritless the allegations of territorial rating opponents" that his office has approved rates that do not conform to state law, the report said.

Instead, Mr. Donaho ordered all insurers in Maryland to submit a plan to his office "detailing the procedures they will take to market [private auto] insurance in all areas of Maryland." The TC goal of each plan, he said, must be "to make insurance available to all accident and violation free drivers regardless of residency."

John A. Pica Jr., head of the city's delegation to the state Senate, saying he was "both dismayed and disgusted" by the commissioner's ruling, called for Gov. William Donald Schaefer to ask for Mr. Donaho's resignation.

"We are sick and tired of delays, charades and ignorance on the part of the insurance industry," Mr. Pica wrote in a letter to the governor yesterday. "The insurance commissioner had every opportunity to recognize the unfair and arguably illegal practices of insurance companies but instead turned a deaf ear to the legitimate concerns of the people of Baltimore."

Mr. Pica said he planned to introduce legislation to the General Assembly that would:

* Make the insurance commissioner's job an elected position;

* Create a consumer advocate for insurance matters and a board designated to approve all rate requests;

* And revoke the insurance industry's exemption from state antitrust laws.

Paul E. Schurick, a spokesman for the governor, said Mr. Schaefer is "aware of Commissioner Donaho's report" and plans to meet today with staff and other officials to discuss the topic. But Mr. Schurick said the governor would have no comment on the calls for Mr. Donaho's resignation.

City Council President Mary Pat Clarke also called for Mr. Donaho to resign. She said that a private group she represents, Fair Auto Insurance Rates Inc., will challenge his ruling in court this week.

The commissioner "has just wasted a year of Baltimore City's time and the money of our drivers," Ms. Clarke said at a City Hall press conference. In January, Mr. Donaho started holding hearings on the subject around the state, and in recent weeks, Ms. Clarke and others had been pressuring the commissioner to release the report.

Yesterday, she questioned Mr. Donaho's statement that Attorney General J. Joseph Curran Jr. had agreed with two previous attorney generals' opinions upholding territorial rating.

Mr. Curran could not be reached for comment.

By approving territorial rating, Mr. Donaho said the law allows a system of pricing based on the number and cost of accident claims in each territory around the state. The law, which the General Assembly passed in 1972, says that "no rate may be based partially or entirely on geographic area itself, as opposed to underlying risk considerations, even though expressed in geographic terms."

Because the opinions of the attorneys general said that territorial distinctions are lawful, Mr. Donaho said he does not have the authority to disapprove those distinctions "if they are actuarially justified."

In a morning press conference, the commissioner said he considered testimony from insurers and the public and received expert assistance from an actuarial firm, Tillinghast, in determining whether territorial price differences can be justified by differences in claims costs and other expenses.

Industry data show, for instance, that from 1986 through 1988 in Baltimore there were 47 bodily injury claims per 1,000 cars, compared to 14.28 for rural Maryland. David F. Snyder, counsel to State Farm Mutual Auto Insurance Co., which sells the most private auto insurance in Maryland, said the average bodily injury payment is 2.5 times higher in Baltimore than in the rest of the state.

"In Baltimore it just so happens that the expense is much worse," he said in defending the territorial rating system. He noted that accidents in the city involving drivers from surrounding areas are charged to the territory where the driver at fault lives.

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