Three Insurers Settle With Mass. AG Over Overcharging Riders

Publish Date: 
Feb 5, 2010

THREE INSURERS DOING business in Massachusetts have agreed to pay an $11.1 million settlement in a case brought by Attorney General Martha Coakley’s office, which accused them of overcharged consumers on premiums by overstating and failing to depreciate motorcycle values.

Safety Insurance Co., Liberty Mutual Insurance Co. and Quincy Mutual Fire Insurance Co. are part of the settlement agreement, which will return $11.1 million to consumers, according to Coakley’s office.

The AG’s office launched the investigation more than a year ago, after a consumer filed a complaint with the office’s Insurance & Financial Services Division.

“These cases certainly underscore the importance of transparency in auto insurance rating. Both consumers and regulators need to have access to information showing how premiums are to be calculated so that consumers can be protected and are not overcharged,” Coakley said.

Auto insurance companies are required to calculate premiums by following the rules in their rating manuals. The settling insurers’ rating manuals required the insurers to use current motorcycle book values to calculate the collision and comprehensive premiums charged to consumers. However, rather than using current book values to calculate premiums, the settling insurers in many cases allegedly used motorcycle values that were inflated and out of date.

For example, one of the settling insurers calculated premiums for a 1999 Harley Davidson Road King Classic based on a $20,000 value in each year between 2003 and 2008. In fact, the insured motorcycle’s book value was significantly less than $20,000 in 2003, and by 2008, the motorcycle’s value had depreciated to less than $12,000. Still, the consumers were being rated in 2008 as if their motorcycle had a $20,000 book value.

Under the terms of the settlements filed in Suffolk Superior Court, it is expected that Safety will return $7.2 million to policyholders; Liberty will return $3.1 million; and Quincy will return $800,000. The three insurance companies will also make payments to the state totaling $510,000. The settlements cover alleged overcharges going back to 2002 and require the insurers to pay 6 percent interest to consumers on the alleged overcharges. Average refunds to consumers are anticipated to be approximately $300 with some consumers receiving thousands of dollars. Tens of thousands of policies are believed to have been affected.

These cases were handled by Investigations Supervisor Arwen Thoman, Mathematician Burt Feinberg, Economist Bryan Lincoln, and Assistant Attorney General Glenn Kaplan, all of Attorney General Coakley’s Insurance & Financial Services Division.

Posted by Holly Wagner