State Insurance Commissioners, depending upon how they carry out their role, have a significant impact on consumer budgets and can be key forces for consumer protection. And there is currently an excellent opportunity in one state—Maryland—for that power to be used for the better. Recently Maryland Insurance Commissioner Kathleen Birrane announced that she plans to resign effective June 30, 2024, leaving the position vacant and open for Governor Wes Moore to fill.
Why is this important? Because these Commissioners lead the insurance departments that have the power to ensure that insurance is reasonably priced and accessible, stop abuses and unfair discrimination, and protect consumers from company insolvencies and market failures. Governor Moore has repeatedly stressed that he wants to build a Maryland for all its residents, help the least fortunate among them, and that he is committed to leaving no one behind, and with this appointment of an Insurance Commissioner he can work to achieve that goal.
In a letter to Governor Moore, thirteen consumer advocacy organizations, unions, civil rights groups and other nonprofits, including the Consumer Federation of America (CFA), urge him to seize this opportunity and appoint an Insurance Commissioner who will make protecting consumers a real priority. The advocates note that “the Insurance Commissioner oversees Maryland’s auto, homeowners, life, and health insurance markets, including rate-setting and pricing, claims handling practices, consumer complaints, and other aspects of an industry that charges Maryland consumers and businesses about $40 billion in premiums each year…. A pro-consumer Insurance Commissioner should work to reduce insurance costs, stop unfair discrimination, and make sure that insurance is available and affordable for everyone.”
In Maryland, insurance costs are rising, and unfair discrimination is widespread. In 2021 CFA and its partner organization Economic Action Maryland compiled a report and found that ZIP codes with a majority Black population pay significantly higher premiums compared to ZIP codes with a majority white population.[1] In Maryland ZIP codes where less than 10% of residents are Black, the average annual auto insurance premium was $988. But in ZIP codes where 70-80% of residents are Black, the average premium was $1,962—over a thousand dollars more.
The use of consumer credit information in auto insurance is especially harmful. CFA’s research found that Maryland drivers with a perfect driving record and excellent credit pay on average $805 annually for auto insurance. But if those same Maryland drivers have fair credit their average premium rises to $1,116—a 43% increase. And if those drivers have poor credit, they pay on average $1,422 for auto insurance—a 77% penalty compared to drivers with excellent credit, just because of their credit information.[2] Notably, Maryland has acknowledged the unfairness of the use of credit history in insurance markets, since, for homeowners and tenants, it is one of only three states that prohibit insurers from additional surcharges for those who have worse credit histories. The next commissioner can help demonstrate why the protection in homeowners insurance must be carried over to car insurance.
When we have reviewed pricing differences for drivers with unblemished driving records, Black, Latino, and low-income consumers are disproportionately negatively impacted, and this is especially true for residents of Baltimore. In addition to working to eliminate the socio-economic factors that insurance companies use for pricing, one important task for a new Commissioner is to require that insurers conduct algorithmic bias testing on their pricing models and other practices. But even after the ugly biases in the insurance market are eliminated, other pathways to affordability must be opened to make sure that low-income Marylanders can comply with the state’s mandatory insurance law. One path would be to create a low-cost auto insurance program for good drivers, which would make affordable auto insurance policies available for the tens of thousands of Maryland drivers who can’t afford private auto insurance, even though they have a clean driving record.
Additionally, skyrocketing homeowners insurance premiums are driving up costs for Marylanders, putting homeownership out of reach and threatening affordable housing. This is due in part to climate change, which is causing stronger and more frequent extreme weather and natural disasters, as well as due to unrelentingly high prices on the unregulated global reinsurance market that homeowners insurers use to hedge their risk.
A new, pro-consumer Insurance Commissioner can tackle these problems. Reducing insurance costs and eliminating unfair discrimination will require implementing and ensuring the effectiveness of structural changes The letter urges Governor Moore to appoint a Commissioner who will do the following:
- Implement testing of insurance companies’ use of algorithms and big data to stop unfair discrimination
- Implement stronger enforcement of existing laws against abuse and price-gouging, along with in-depth examinations of market conduct
- Ban the use of unfair socioeconomic factors in auto insurance, and the creation of a low-cost auto insurance program for certain drivers
- Provide guidance on how to reduce insurance risk and require companies to offer discounts to consumers who undertake mitigation measures
Of course, these reforms are not just for Maryland—they should be pursued nationwide. Every Insurance Commissioner should make protecting consumers and reducing insurance costs a top priority. Insurance is regulated at the state level and for too long most states have adopted a hands-off approach to insurance oversight. They have failed to hold companies accountable for wrongdoing, to attack unfair discrimination and bias in markets, or to sufficiently scrutinize rate increases.
American consumers are living with the results, to the point where many are struggling to pay premiums or even find affordable insurance.
This status quo is unsustainable and Governor Wes Moore, by appointing a pro-consumer Insurance Commissioner, has a chance to change it. He should seize this opportunity.
[1] “Maryland Consumer Rights Coalition and Consumer Federation of America Release Report Showing the New Redlining—How Zip Codes Unfairly Affect Auto Insurance Premiums in Maryland.” Consumer Federation of America. March 2, 2021. Available at https://consumerfed.org/press_release/maryland-consumer-rights-coalition-and-consumer-federation-of-americarelease-report-showing-the-new-redlining-how-zip-codes-unfairly-affect-auto-insurance-premiums-in-maryland/.
[2] “The One Hundred Percent Penalty: How Auto Insurers’ Use of Credit Information Increases Premiums for Safe Drivers and Perpetuates Racial Inequality.” By Douglas Heller and Michael DeLong. Consumer Federation of America. July 31, 2023. Available at https://consumerfed.org/wp-content/uploads/2023/07/Official-CFA-Credit-Score_2023-FINAL-REPORT.pdf.