City-run insurance firm loses Panel rejects plan to cut car premiums

May 20, 1992|By Michael A. Fletcher | Michael A. Fletcher,Staff Writer

The Schmoke administration has rejected a proposal to create a non-profit, city-run automobile insurance company, saying the potential liability to taxpayers outweighs the benefits of lower premiums for drivers.

The City Wide Insurance Coalition, which has a membership of 158 consumer groups, had proposed forming the insurance company that would offer car insurance at rates averaging 21 percent less than those charged by other insurers.

But the group's proposal, which was studied by the Schmoke administration for eight months, was panned in a three-page rTC report issued this week by the mayor's office.

The report will be the subject of a City Council hearing tomorrow night.

"This is too risky and potentially too expensive for taxpayers," Richard Krummerich, an aide to Mayor Kurt L. Schmoke, said yesterday. Mr. Krummerich led the administration task force that analyzed the proposal.

But the report said the coalition should explore the possibility of securing group automobile coverage that could be sold through community groups.

Mr. Krummerich said the coalition's proposal was not feasible in part because it called for the insurance company to be capitalized by $10 million in city general obligation bonds.

"If all the reserves were borrowed, the company would have a net worth of zero, which would not satisfy the licensing requirements of the Maryland Insurance Division," the report said.

But A. Robert Kaufman, coalition president, said his group had abandoned plans to capitalize the company with city bond money. Instead, the company could sell its own bonds at modest interest rates to private investors, he said.

He also said that trade unions and the business community could be invited to invest in the venture.

"Our position has been for a long, long, long time that we can do this without it costing city taxpayers money," Mr. Kaufman said. "They say the city can't afford bonds, and we never asked them for that. I don't know what's wrong with them."

According to a study prepared by the consumer groups and issued in late summer 1991, the proposed company could lower the cost of car insurance for city drivers by 21 percent, or an average of $250. City drivers now pay an average of $1,300 per car for insurance annually, the study said. Drivers in suburban counties often pay half that amount.

But to gain tax-exempt status, the company would need to be chartered as an agency of city government, the consumer-group study said. It remains unclear whether that would be allowed under the City Charter, however.

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