Maryland Last-Resort Auto Insurer Intros Installment Payments

Maryland’s auto insurance provider of last resort—called the Maryland Automobile Insurance Fund (MAIF)—cheered the debut this week of a payment option allowing MAIF policyholders to spread out their premium bills interest-free over time.

It’s the first time since the MAIF was created in 1972 that such an option is available, fund officials said.

State law had restricted the MAIF from offering installment payments, meaning that motorists who turn to the MAIF when they are rejected from insurers in the private market had to pay their premium in its entirety or obtain a loan through so-called “premium financing companies,” which charge a fee or interest on that loan.

However, that restriction was lifted when lawmakers ratified SB 930 in May. M. Kent Krabbe, MAIF’s executive director, said that Maryland motorists “desperately wanted and needed” an installment payment option from the MAIF that could free them from the fees and interest that premium financiers often charge.

SB 930 was a consumer-minded piece of legislation that allowed the MAIF to introduce its installment payment plan option, according to Krabbe, who called the kick-off this week “monumental.”

The first MAIF policy bought through installments occurred online on Oct. 1, just hours after the MAIF launched the plan; that buy belonged to a resident of Laurel, Md.

“By making the process of buying a MAIF policy more convenient and less expensive for Maryland drivers, we reduce the number of uninsured drivers on Maryland roads and make our state safer for all drivers,” Krabbe said in a statement.

According to the MAIF, the average policyholder using the installment plan for a one-year policy will save $250 “compared to a premium finance agreement.”

“I am excited for this great opportunity for all of those in Maryland who find themselves in need of MAIF and can now get a policy at a reasonable rate,” Sen. Catherine Pugh (D-Baltimore), SB 930’s sponsor, said in a statement.

Fight For, Against Installment Option Goes Back Years

Sen. Pugh also said that introducing the MAIF installment option required “seven years of fighting,” but called the effort “worthwhile.”

The MAIF itself also said the years-long slog to SB 930’s passage took much effort. According to Krabbe, the push toward MAIF installment payments succeeded this year because “the political landscape and the level of consumer advocacy awareness aligned.”

Krabbe had long railed against the state prohibition on installment payments for MAIF policyholders. In an editorial letter to the Baltimore Sun, Krabbe called the now-defunct policy “archaic” and “foolish” and said it only benefitted premium financing companies.

“It is a disgrace that unlike other drivers, those using MAIF are not allowed to pay for their insurance through installment payments,” he wrote in the 2008 letter, which was in response a column in the newspaper that reviewed ways drivers could budget a likely rise in Maryland car insurance rates during the economic recession.

“[Combined] with the other up-front charges of the financiers, it exploits working families until, in disgust, some simply leave the insurance market,” Krabbe wrote about the premium financing industry.

Industry representatives had stopped other legislative efforts to relax the state law restricting the MAIF from offering installment payments. According to a state analysis of SB 930, lawmakers considered similar versions of the bill in the 2011 and 2005-08 legislative sessions.

The industry fought SB 930 in committee hearings again this legislative session, saying that it unnecessarily empowered the MAIF over private businesses that already offer MAIF policyholders the option of divvying up premium payments.

Maryland premium financiers ran afoul of the courts in 2011, when an appeals court ruled against eight of the state’s largest companies and said they had “front-loaded” loans for premiums at illegally high interest levels.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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