Insurance Regulator Seeks to Allow Competition Among Auto Insurers

By Sarah Shemkus, Cape Cod Times, Hyannis, Mass.

Sep. 21--BOSTON -- State Insurance Commissioner Nonnie Burnes wasn't sure yesterday how much she pays to insure her car.

And, because Massachusetts currently has a non-competitive auto insurance market, she's also not sure whether she's getting a good deal or not.

"I don't know," Burnes said. "I can't shop for it."

In August, Burnes proposed a system intended to rectify that situation by introducing managed competition into the state's auto insurance market.

Currently, the commissioner sets an auto insurance rate -- using input from insurers and other concerned parties -- and that rate is the maximum allowed in the state. Massachusetts is the only state with such a system.

Yesterday, close to 200 people gathered to hear testimony on draft regulations that would help change that system. The crowd filled two hearing rooms and overflowed into a waiting area where attendees could watch the proceedings on a television screen.

Many of the dozen consumer advocates, legal experts and insurance industry members who testified expressed concern that the proposed rules don't go far enough toward preventing insurers from considering a driver's social or economic status when determining rates.

As currently written, the new regulations prohibit the use of sex, marital status, race, creed, national origin, religion, occupation, income, education, home ownership, and age in the setting of rates.

Several speakers, however, suggested that insurance companies could still learn about an individual's earnings or social condition by considering other factors such as number of bank accounts, political and charitable contributions, or whether a vehicle is parked overnight on a street or in a garage.

This information could allow insurance companies to charge higher rates or to refuse coverage to lower income drivers.

"Low-income consumers should have the same access to (insurance) as more affluent consumers," said Birny Birnbaum, the executive director of the Center for Economic Justice, a national consumer advocacy group based in Austin, Texas.

Multiple witnesses recommended changing the way the guidelines are worded so that regulations name those factors that can be used, rather than those that cannot.

"Listing all the allowed factors is the only effective way to ban the factors listed in the regulations," said Stephen D'Amato, a consultant with the Cambridge-based Center for Insurance Research.

Such an approach, Burnes said, could prevent insurers from developing inventive new products.

"To really get the benefit to consumers, we have to give the companies some flexibility," she said, following the hearing. "It doesn't mean we're not going to be tracking what's going on."

The appropriate use of credit scores was another issue raised.

The proposed regulations prohibit the use of credit scores in setting auto insurance rates for one year. By state statute, however, credit information can still be used by insurance companies to determine whether or not to underwrite a policy, Burnes said.

Currently, drivers who are deemed too high-risk are insured through the assigned risk pool, in which the customer is assigned to an insurer.

Witnesses, including a representative from the state attorney general's office, argued that credit scores should never be used because they do not accurately predict whether a driver is likely to pose a risk to the insurance company.

"I am convinced that it is inherently unfair and arbitrary and defeats the public policy goals of insurance," said Birnbaum, who cited studies that he said showed lower credit scores are often correlated to race and income.

The transparency of the rate-setting process was also a high priority for many of the witnesses.

"At the very minimum, you must require insurers to file and disclose their underwriting factors," said Deirdre Cummings, legislative director for MASSPIRG.

Burnes will now consider the feedback on the regulations as proposed and issue the final rules, likely some time in October.

The new regulations are intended to take effect April 1, 2008.

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