Commerce makes Mass. U-turn, now supports competitive rating

One of — if not the — most influential industry opponents of competitive rating for the Massachusetts private passenger auto insurance system for years has changed course and says it now fully supports the Patrick Administration’s plan to introduce competitive rating by April 1 of next year.

Commerce Insurance even supports the new assigned risk plan which last year it went to court to block.

Commerce, which has flourished under the current fix-and-establish rates and unique residual market rules to become the state’s number one auto writer with about 32 percent of the $3.9 billion market, says its years of opposing change are behind it.

“That’s all history,” Gerald Fels, chief executive officer and president of the Webster, Mass.-based company, said during a teleconference with Credit Suisse. “We’re going to go forward.”

According to Fels, Commerce “fully supports” the decision of Commissioner Nonnie Burnes to introduce “managed” competition. He even applauded her “courage” in issuing her decision, calling it a “bold” move which along with the assigned risk plan will actually give his company more control over its own destiny.

“We totally support the Patrick Administration. We feel we got a fair decision here and we’re ready to do business.”

Fels seemed unfazed by the prospect of direct or online sellers like Geico, 21st Century or Progressive making inroads. He said his company competes with direct writers elsewhere and will compete in Massachusetts with its independent agents by supplying them with the best products. Commerce does not offer an online quoting service for buyers.

He cited a big market advantage for Commerce: it’s arrangement with the AAA Southern New England under which it insures more than 500,000 of the state’s more than 1.2 million AAA members. The program is marketed through independent agents who represent Commerce. The agreement was extended for a minimum of 20 years last December.

“It’s a tremendous opportunity for us,” Fels noted of the move to more competition.

Now that it is on board with Burnes, Commerce will be among the many waiting to see the details — how she plans to transition from the current fixed prices with subsidies for urban and youthful drivers to a system where insurers set their own prices within certain regulatory parameters and state laws.

Commerce Executive Vice President James Ermilio said the company still supports subsidies that help make insurance affordable for urban and youthful drivers and was happy to see Burnes reference these in her decision.

Fels said he thought the Massachusetts approach to deregulation would be more controlled than what he termed the “free-for-all” in New Jersey several years ago. He also said he thought insurers have learned from the Bay State’s own failed attempt in 1977. Finally, he said he thinks it is “unlikely” that state lawmakers would reverse the course Burnes has chosen.

Burnes called for ideas for regulations and set Aug. 1 as the submission deadline. She said she would hold a public hearing this month and issue draft regulations in September.

Her decision was endorsed by her boss, Gov. Deval Patrick. “It neither affirms the status quo nor jumps headlong or without controls into the Wild West of competition,” the governor said during a news conference. “The idea is to advantage good drivers and make sure we are not harming good drivers wherever they are.”

The move to turn the pricing over to insurers comes after several consecutive years of rate decreases. For 2007, the state cut auto rates by 11.7 percent. Rates were cut 8.7 percent in 2006. Industry insiders have been suggesting 2008 would see another drop of as much as 10 percent.