Comptroller Henry testified before Chairman Hon. C.T. Wilson and the Economic Matters Committee of the Maryland State Legislature Jan. 20 on behalf of HB 57, "Motor Vehicle Insurance - Rate Filing - Trade Secrets and Factors Used to Establish Rates," which if inacted would require insurers to calculate automobile policy rates more equitably and fairly, and with a greater degree of transparency. Along with presenting before the committee, Comptroller submitted written testimony for the official record. 

Dear Chairman Wilson:

I am writing to express my support for HB 57, “Motor Vehicle Insurance - Rate Filing - Trade Secrets and Factors Used to Establish Rates.”  HB 57 will be heard by the Economic Matters Committee on Thursday January 20, 2022.  This bill will require insurers to calculate automobile policy rates more equitably and fairly, and with a greater degree of transparency.  This in turn will likely result in lower rates for my constituents in Baltimore City, who are currently burdened with some of the highest auto insurance rates in the state of Maryland.

Maryland law mandates that all drivers have auto insurance. Yet over 600,000 Marylanders actively drive while uninsured because they can’t afford it. This is due to the fact that Maryland state law allows insurance companies to use non-driving factors when underwriting insurance premiums. Factors such as zip code, credit history, income, and education- none of which are related to an individual’s driving ability- are factored into the calculation, sharply raising the rates for lower-income communities of color.

The Baltimore-Towson metropolitan region, the largest metropolitan region in Maryland, was found to have the highest racial disparity in auto insurance premiums in the nation, with average premiums in predominantly African-American zip codes being nearly double, or 94% higher, than the average premiums in predominantly white communities within the region, according to the Consumer Federation of America.

Most of Maryland’s top insurers use zip codes as a primary factor in setting auto insurance premiums. The Maryland Insurance Administration (MIA) currently allows that some form of territorial rating be used in setting rates, but lining territories up by zip code - instead of larger geographical divisions, like congressional districts or multi-county regions - leads directly to a form of redlining.

More troubling, when a driver files an auto insurance claim after an accident, the claim is held primarily against the zip code where the accident occurred - not the zip code where the driver lives. As such, multiple bad drivers from an outside area can directly raise the overall insurance costs for all drivers in a specific zip code. Those with no driving history fare worse under this system.  Michigan has banned the use of zip codes altogether; Maryland should follow suit and opt for a broader territorial rating, as House Bill 57 promotes.

Currently, consumers are blocked from knowing exactly how much non-driving factors such as their zip code and credit history cost them.  Because of this, consumers have no real means of combatting excessive rates as they aren’t allowed to ask what the basis is for a potentially exorbitant price quote. House Bill 57 will also add transparency to the rating models for all drivers.

The unaffordability of Maryland’s auto insurance — driven by the state’s high-cost minimum liability limits and use of non-driving related factors — has created a population of Marylanders that cannot afford to drive insured. The high cost of auto insurance criminalizes poverty; individuals who cannot afford car insurance yet continue to drive to obtain work or remain employed risk costly fines, fees, or even jail. In 2019, 14.1% of Maryland drivers were driving without insurance. The cost of uninsured drivers is passed on to consumers through higher premiums - driving up the cost for everyone.

As Comptroller of Baltimore City, I am committed to protecting our community’s financial interests, which includes ensuring equity in access to transportation.  Not only would the proposed legislation sharply reduce the cost of auto insurance in lower-income black and brown neighborhoods - where residents are charged nearly double what the residents of white neighborhoods are charged, regardless of their actual driving records – it would also allow all of Maryland’s consumers to know what their insurance costs are actually based on.

As someone who supports fair pricing and the elimination of redlining in auto insurance, I respectfully request that the Committee issue a favorable report on HB 57. Thank you for your time and attention.  

Sincerely,

Bill Henry, Baltimore City Comptroller