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Car Insurers: Competition Should Work

Jul 17, 2007

By Bruce Mohl, The Boston Globe

Jul. 18--Insurance Commissioner Nonnie S. Burnes's decision to introduce "managed" auto insurance competition next year won strong industry support yesterday, even from companies that have opposed competition in the past.

Attorney General Martha Coakley , several state senators, and consumer activists voiced concerns, but they adopted a wait-and-see attitude on the changes.

National insurers that have shunned the state for years because of its heavily regulated system applauded Burnes's decision but said they weren't ready to start selling policies here anytime soon.

Burnes, a Superior Court judge until Governor Deval Patrick appointed her insurance commissioner in late February, said Monday night that she planned to open the state's auto insurance market to "managed competition," starting April 1.

The commissioner offered few details, but said insurers would be allowed to set their own rates, subject to close supervision by the Division of Insurance. Burnes also said she would start randomly assigning drivers that no insurer wants to cover voluntarily to carriers.

The two initiatives are the most sweeping changes to the state's auto insurance system since 1977, the last time a commissioner approved competitive rate-setting. That experiment proved to be a disaster, as rates skyrocketed in some urban areas. Regulators scrapped competition after just seven months and began setting uniform rates that every company was required to charge.

Burnes now says she plans to scrap the state rate-setting process -- the only one of its kind in the nation -- dismissing concerns raised by Coakley, industry opponents, and consumer groups.

Coakley had said that auto insurance rates might rise, particularly in urban areas, if competition was introduced. She also warned Burnes that she would probably be sued if she tried to introduce competition administratively.

In an appendix to her decision, Burnes called Coakley's "doomsday prophecy" about rising rates "wholly unsupported." She also said the threat of litigation was not an appropriate basis for inaction.

Coakley yesterday issued a muted statement, saying she had concerns about whether the Massachusetts market was ready for competition but indicating she was moving on, gearing up to scrutinize company rate filings.

Commerce Insurance of Webster, the state's largest automobile insurer and in the past a fierce of opponent of change, indicated yesterday that it would not try to block the changes with a lawsuit. Company officials said they would focus on making money under the new system.

"We're fully on board with this. We will support the commissioner," said Gerard Fels , president and chief executive of Commerce, on a conference call with analysts.

Patrick administration officials met with five senators opposed to the changes and urged them to postpone any action until Burnes develops the regulatory framework for managed competition.

State Senator Dianne Wilkerson , a Democrat from Roxbury, said the changes ordered by Burnes were being implemented so out-of-state insurers could come into Massachusetts and make as much money as they do elsewhere.

Wilkerson said urban drivers will be the big losers under Burnes's managed competition. She said urban drivers, because of where they live and not because of how they drive, would be randomly assigned to carriers and denied the ability to shop for the best rate.

"People who live in cities will not be participating in competition," Wilkerson said. "We may be heading down a path where we turn our regulated system into a segregated system."

Burnes indicated she would not allow insurers to use socioeconomic factors such as credit scores, income, occupation, and home ownership status in setting rates.

But the Massachusetts Public Interest Research Group and the Center for Insurance Research in Cambridge said insurers would use those socioeconomic factors to decide whom to insure. The consumer groups predicted hundreds of thousands of drivers, possibly a million, would end up being randomly assigned to carriers, losing their ability to shop around.

Douglas Nadeau , a spokesman for Illinois-based State Farm Insurance, which refuses to write auto insurance in Massachusetts, called the Burnes decision "a positive step in the right direction." But he said the company was still concerned about the way experienced and suburban drivers in Massachusetts pay higher rates to subsidize the rates of young and urban drivers.

Cristy Cote , a spokeswoman for Ohio-based Progressive Group of Insurance Cos., which also shuns the state, said the company was encouraged by the changes. "We look forward to the day when we can offer our private passenger auto products to Massachusetts drivers," she said.

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