Massachusetts Insurance Regulations Tweaked for Managed Competition

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

Oct. 6--Insurance Commissioner Nonnie Burnes yesterday released the final version of the regulations that will govern the transition of the auto insurance system to managed competition.

"I hope and expect that this will provide better rates for good drivers, wherever they are," Burnes said. "They'll get better service and better products -- the kind of products that people in the 49 other states are offered."

Under the current system, the commissioner sets auto insurance rates, making Massachusetts the only state without some form of competition.

Several insurance companies refuse to offer auto policies in Massachusetts, citing dissatisfaction with regulators. Only 19 insurance companies offer auto coverage in the state.

The new regulations are scheduled to be effective for policies issued on or after April 1, 2008.

Consumers should be able to start shopping for competitive rates in late winter.

In response to widespread consumer concern about the draft regulations, Burnes said, she chose to prohibit insurance companies from using consumers' credit histories to set rates or decide whether to offer coverage to a driver.

In the initial version, insurers were allowed to use credit information to determine whom they would cover, though not to set rates.

Many consumer advocates feel that credit history is not an accurate predictor of risk and that it tends to discriminate against minorities.

The ban on using credit information does not have an expiration date, but the commissioner will assess whether the prohibition is appropriate during the one-year transition to the new system.

The regulations also specify that insurers are not allowed to consider a driver's sex, marital status, race, creed, national origin, religion, occupation, income, education, home ownership status, credit information or age when setting rates or determining who they will cover.

In addition, the location in which a vehicle is garaged cannot be used to determine whether to offer coverage.

During public hearings on the proposed regulations, this approach caused alarm among consumer advocates who contended that insurers could still find information about a driver's social or economic status 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.

These witnesses argued that the regulations should list the information that insurers are allowed to use, rather than naming the prohibited factors.

Burnes said that she considered this feedback but simply wasn't convinced.

"This one really did not persuade me," said the commissioner. "I did not want the market to be so rigid that the consumer wouldn't get the benefit of competition."

Stephen D'Amato, a consultant with the Cambridge-based Center for Insurance Research, said yesterday he is not pleased with the commissioner's decision.

"The regulations are designed to make it look like they're protecting the public," said D'Amato.

"But they're not really protecting the public because they're allowing proxies for all the factors that are prohibited."

While the new regulations open up the insurance industry to more competition, the commissioner will still review proposed rates to ensure that they are not excessive, inadequate or discriminatory.

Burnes said that she is confident the new system, will provide sufficient protection for consumers.

Throughout the process of creating the regulations, said Burnes, some companies that do not currently write auto insurance in Massachusetts have expressed interest in starting to offer coverage in the state.

"We have heard from some," she said. "Whether they come or not, I don't know."

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