Auto and homeowners insurance discounts for hundreds of thousands of Massachusetts customers are scheduled to lapse in the new year without legislative intervention.
Insurance industry officials supportive of legislation (H 864) filed in January finally got an opportunity earlier this month to formally tell lawmakers that legislative inaction will leave 322,000 vehicles and 142,000 homes in Massachusetts without discounts, which usually range between 5 percent and 8 percent, according to state estimates.
Lawmakers on Nov. 18 ended formal sessions for 2015. During the six-week holiday recess, the branches meet in informal sessions, when bills require the consent of all present to move forward, and industry officials are hoping a bill will be sped through by year's end.
"People are going to lose their discounts" without legislative intervention, John Murphy, executive director of the Massachusetts Insurance Federation, told members of the Joint Committee on Financial Services on Dec. 1. He added, "We can't offer a discount that's not permissible by law."
"It will cause some turmoil in the market and distress for consumers when it's really not necessary," said Newton attorney Peter Roberson, representing the Property Casualty Insurers Association of America.
At issue is a law, which has been suspended 12 times over the years, that requires 35 percent of employees eligible for a group marketing discount, or credit, to participate in that plan within two years of the plan being organized by an employer, union or other organization and approved by state insurance regulators.
According to Murphy, group marketing discounts became popular in the 1990s when rates were set by the insurance commissioner as a method for insurers to compete against one another for customers. Such discounts have remained a competitive tool since 2008, when the state transitioned to a managed competition model.
Murphy said among states with similar requirements, the 35 percent threshold in Massachusetts is the highest in the nation. Only 5.4 percent of homeowner groups and 11 percent of auto groups would likely meet the requirement, based on a 2014 Division of Insurance report.
The group marketing law requires that the sponsoring organizations include at least 25 members, including 15 who are state residents.
At the hearing, Rep. Shawn Dooley of Norfolk wondered about the motive behind putting the 35 percent threshold in place and Murphy said he was not certain, but called the requirement "impossibly high." Roberson described the threshold as an "arbitrary and anticompetitive requirement that makes no sense."
After the hearing, committee co-chair Rep. Aaron Michlewitz of Boston said he had "not yet" reached a conclusion about the bill, which would repeal the 35 percent threshold. The legislation is sponsored by Third Assistant Minority Leader Rep. Susan Wiliams Gifford of Wareham and Bridgewater Republican Rep. Angelo D'Emilia.
In a December 2014 report, the Division of Insurance said it "stands ready to work with the legislature on legislative or administrative approaches that will continue to support group marketing plans in conjunction with increasingly competitive markets." The original 1973 law "was enacted to bring about lower insurance premiums for personal automobile and homeowners insurance policies," the report said.
In the report, state insurance officials wrote that "the primary purpose of group marketing credits is to attract and retain customers that have predictably lower servicing costs, while the primary function of standard rating factors is to ensure fairness as regards all policyholders based on their risk of a claim under the policy."
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