Fraud in the MA Auto Insurance Industry

Three Massachusetts insurance companies agreed to issue $11.1 million in refunds to settle allegations they overcharged customers for motorcycle insurance over the past eight years.

Read the story here:

Eight years of overcharging consumers for insurance. You've got to ask yourself how the Division of Insurance allowed that to happen under their watch. And you can expect more stories like that under the new de-regulation rules. It's one more link in the chain of fraud in the auto insurance industry here in the Commonwealth.

Here is another one. Last week we recovered a copy of a letter that revels still another link in that chain of fraud within the MA auto insurance industry. And it makes the 11.1 million look like pocket change.

The letter was forced from the hidden files of former Commissioner of Insurance Ms. Nonnie Burns, under the provisions of the Freedom of Information Act and access to public records. A complaint had to be filed against former Insurance Commissioner Burnes with the Office of Public Records, Secretary of State's Office to force the release of the devastating letter.

Some Background:
For years, body shops have complained to the Auto Damage Appraisers Licensing Board (ADALB) on the failure of insurance companies to pay a reasonable cost to consumers for paint and materials used in the repair of damaged vehicles.

On November 5, 1997, the ADALB issued an Advisory Ruling that an industry accepted, impartial reference guide SHALL BE USED to determine the cost of paint and body repair materials. The intent was to level the playing field by requiring insurers to pay a fair amount for repair materials, based on fair and impartial cost accounting guides, while preventing shops from overcharging consumers with exorbitant pricing for paint.

For the next ten years, all insurers continued their old ways and refused to acknowledge the use of any paint and material guide, or to use it properly. As a result, consumers received a scant minimum of what was necessary for a proper repair.

Complaints continued to pour into the ADALB about insurance company's refusal to pay a fair amount for paint costs, which were skyrocketing in price. Paint was increasing in cost at the rate of 20-30% some years, and insurers were using reimbursement rates that were 20 years old.

The letter released under the Freedom of Information Act, shows why Commerce Insurance Company (CIC) and other insurers were so dead set against the use of the guide, and explains clearly why they refused to comply with state regulations mandating its use.

The letter is from the law firm Finnegan, Underwood, Ryan & Tierney of Boston and was sent to William Galvin, Secretary of the State on behalf of CIC. In it, they reference a study on how much money it would cost them, and the insurance industry together, had they paid claims according to the rules and regulations adopted by the ADALB.

The Commerce Insurance study found: "In 2005, the one year studied, Commerce performed 165,471 initial appraisals on repairable vehicles. Had the Mitchell Refinishing Guide or other acceptable industry manual been used on every one of those appraisals, the study concluded that Commerce would have had to pay Consumers approximately $9,046,299 in additional money.
"Extrapolated industry-wide, insurers in Massachusetts would have had to pay between $25,000,000 and $30,000,000 in additional money for paint and materials had the Mitchell Refinishing Guide been mandated." (it was mandated!)

As part of the same study, "Commerce performed 87,527 supplementary appraisals on repairable vehicles and similarly had the industry manual been required Commerce would have been required to pay Consumers an additional $4,785,101.09 in paint and materials just on those of repairable vehicles."

The secret internal report concluded that "Industry wide, that translated roughly to between $10,000,000 and $12,000,000 of additional money on paint and materials."

So let's see. Let's take CIC's low figures of 25 million in 2005 for the initial appraisals, and their figure of $10,000,000 for supplemental appraisals. According to Commerce, that's $35,000,000 in just one year insurers would have been required to pay their policyholders, consumers and body shops had they been forced to follow Massachusetts regulations and rules put forth by the Auto Damage Appraisers Licensing Board.

If you go back just ten years, that's $350 million that was due Massachusetts consumers and body shops. And according to the ADALB and the Dept of Revenue, paint material is taxable.

So in summation, consumers and the body shops that serve them failed to collect $350 million dollars in claim payments from MA insurance companies due to the failure of the ADALB to enforce the very regulations it is empowered to enforce. In addition, there are consequential losses of millions of uncollected tax dollars that are also lost to the state.

The revealing document is only the tip of a very large political iceberg of fraud and corruption in which consumers in Massachusetts get short changed in favor of big business and political favors.