Driving costs

February 22, 2006

Maryland's low-income drivers can't catch a break. Private companies often refuse to insure them because of their poor credit histories. Their only option is to sign up with the Maryland Automobile Insurance Fund, the state agency that serves as Maryland's car insurer of last resort. But here's the catch: State law requires that a year's worth of MAIF premiums be paid in a lump sum. People living in poverty don't tend to have the money to pay that bill all at once. Enter the various premium finance companies that charge the equivalent of a 26 percent interest rate or higher to provide that service for the vast majority of MAIF customers.

Such a usurious system is, to put it bluntly, outrageous. Premium finance companies charge as much as $500 to MAIF customers each year. Yet their risk is slight: MAIF refunds premiums to the finance companies if the drivers ever default on their loans. But officials at MAIF can't do much about this injustice - unless the General Assembly is willing to change the rules.

Bills offered by state Sen. Lisa A. Gladden of Baltimore and Del. Marvin E. Holmes Jr. of Prince George's County would do just that. Their legislation would authorize MAIF to accept premiums on an installment basis beginning this fall. Officials at MAIF say the fund can certainly afford to provide this service - and save drivers hundreds of dollars each year in the process.

But many in the insurance industry are likely to fight this proposal. Premium financing is a lucrative business. Insurers are already up in arms over MAIF's recent decision to offer towing and rental insurance to customers. Such insurance - known as an add-on - is also available from certain private companies. But MAIF offers it cheaper. Bills pending in the legislature would strip away MAIF's right to sell this type of add-on - and ultimately raise prices for MAIF's customers.

Lawmakers need to decide whose interests are paramount - Maryland's drivers or the insurance industry and its horde of lobbyists in Annapolis. It isn't just poor people who are affected by these choices. MAIF insures 95,000 people across the state, including drivers who have been in accidents and recent immigrants with little driving experience. Urban drivers are hit particularly hard by high car insurance rates (they pay an average 60 percent more than their suburban counterparts). Allowing MAIF to offer a full range of services is one reasonable step lawmakers can take right now to spare drivers some of this expense.

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