43-47 Newark Street
Hoboken, N.J. 07030
To The Editor:
Your article Mass. Auto Program Sparks Debate (5/24/93) about the innovative antifraud and safety program being piloted in Lawrence, Massachusetts, failed to do justice to this milestone in insurance reform. You missed several key points.
Foremost of these are the profound public policy implications of insurers proactively funding traffic and law enforcement efforts. Insurers are notorious for throwing their hands up and blaming the government for not enforcing traffic laws or cracking down on auto theft. At the same time, losses and premiums continue to rise, and illegal geographic underwriting is being practiced. The Lawrence program clearly establishes a profitable role for insurers as more than passive bystanders in loss prevention.
Under the Lawrence program, state insurers (through their trade association) provided the City of Lawrence with $480,500 to hire a 13-person squad dedicated to traffic enforcement over three years. The results: car thefts cut by 42 percent in two years, and losses reduced by $2.9 million. Good business investments by any standards. Add in a fact your article omitted about accidents being cut 14 percent in the first year alone and the community is safer too. Everyone wins.
But, there is more. The number of traffic citations jumped 191 percent in the first year, raising nearly $300,000 for town coffers. Unless the numbers have changed dramatically this year, it seems unlikely any town would walk away from that kind of revenue. Besides, one Lawrence official told me, massive auto thefts scare away business and visitors.
Sure, Lawrence had exceptional problems --second car theft rate in the nation-- but Massachusetts has the third highest theft rate nationally and has led the nation in accident frequency for years. This state, like dozens of others, is a good candidate for Lawrence-style insurer prefunded investment.
Although the NU article cites Sergeant Deyermond of Lawrence who suggests that the fraud problem has been displaced to neighboring cities, the numbers don't bear this out. In fact, in the area immediately surrounding Lawrence, the aggregate auto theft claims rate was not particularly affected in the first year (latest data) of the program. Actuarial data from the insurance department show that in the 11 communities surrounding Lawrence, only 69 additional auto theft claims were recorded (consistent with trends), while a drop of 214 was experienced in Lawrence. The net decrease for the area is 4.5 percent.
Needless to say, the failure to develop Lawrence-style programs on the grounds auto theft is merely being displaced is specious for two reasons. First, it ignores these programs' capacity to significantly reduce auto accidents and accompanying trauma. And, second, it relies on logic that in another circumstance, for example, would suggest New York State abandon its successful fraud reducing pre-insurance car photo inspections (Prevention the Key in Fighting Auto Ins. Fraud, N.U. 5/25/93) because neighboring states experienced a rise in fraud. Clearly such cost-effective programs should be expanded, not dismissed out of a metaphysical sense of hopelessness.
The NU article's assertion to the contrary, I would prefer to see insurers voluntarily expand Lawrence-style programs around the country. They could become the centerpiece to an industry effort to aggressively counter factors which contribute to high urban losses and stimulate redlining. The NAIC should recommend to the states that in their rate-making process regulators consider whether insurers have sought to reduce losses through a Lawrence-style program when considering rate increases.
At a time when auto insurance and many of our nation's cities are in crisis, insurers should be making a downpayment on safer communities and lower insurance costs. It is good public policy and good business.
P.S. The Center for Insurance Research, is an independent, nonprofit public policy organization based in Boston, MA.