Advocates Want Installments for Maryland Automobile Insurance Fund Premiums

By Andy Rosen

For the third straight year, advocates are trying to get the General Assembly to allow the Maryland Automobile Insurance Fund to accept premiums by installment.

A bill in the House of Delegates would enable the state's auto insurer of last resort to break up customers' payments starting this year. Similar measures have failed during each of the last two legislative sessions.

MAIF, an independent state agency, is only allowed to take lump- sum payments on its premiums for a year of coverage. Nearly all of the fund's customers, who are not able to obtain coverage elsewhere, turn to "premium finance companies" to break up the payments.

This adds interest costs of between $200 to $300 to the price of an average policy, according to fund officials. Sandra Dodson, MAIF's legislative liaison, said customers would save money if the fund did not require full payment upfront because they would not be forced to a third party to finance the coverage.

As proposed, the legislation would allow up to 20 percent of MAIF policies to be paid in monthly installments starting in October. After 15 months, MAIF would be able to increase that percentage if the state insurance commissioner signs off on the move.

Dodson said the existing system "really does not benefit anyone at this point except for the premium finance companies."

Previous efforts to change the payment rules have faced opposition from the finance companies, whose lobbyists argued that the shift would increase MAIF's workload and operating costs. The lobbyists have also held that the change would eliminate a lending niche that the finance companies helped fill in MAIF's early days.

Dodson said MAIF needed to take payments upfront to keep itself in the black after it was formed in 1972. The fund does not receive state money, so it depends on customer payments for its livelihood.

However, MAIF is long past the beginning stage of its development and can offer more flexibility for its customers now, said Dodson, who noted that MAIF has maintained healthy surpluses since 1989.

"We can do this," she said, "and it's up to the General Assembly to decide if we should."

The legislation - House Bill 767 - is in the Economic Matters Committee. A hearing on the bill is scheduled for March 1.

Del. Curt Anderson, a Baltimore City Democrat, is a co-sponsor of the bill. He said the interest rates for premium financing, which range around 26 percent, are too high for the customers of an auto insurer of last resort.

Anderson said it is not fair to charge customers so much because they may not have other options. Customers who insure with MAIF were likely denied coverage by other companies, he said.

"I don't like the idea of them making money on the backs of the young and the poor," Anderson said.

The Maryland Insurance Administration released a report on car insurance rates in urban areas, including Baltimore and Prince George's County. One of the report's main recommendations was that MAIF be allowed to accept monthly installments.

According to the Final Report of the Automobile Insurance Task Force to Study Rates in Urban Areas, issued last April, the state could reduce insurance costs if it would "allow the Maryland Automobile Insurance Fund to accept installment payments from its insureds as they are the least able to afford the costs of premium financing."

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