4 Insurers Said to Be Eyeing Mass. Auto Market After Deregulation

Massachusetts Insurance Commissioner Nonnie Burnes says four insurers not now writing auto insurance in the state have said they will enter if her plan to allow competitive pricing goes forward.

Burnes is not naming the companies but when asked if any insurers had signaled they would come into the state, she responded, “The number is now up to four.”

Burnes spoke with Insurance Journal the day after releasing her draft regulation governing the transition from the state’s strict fix-and-establish auto insurance rate system to a deregulated system giving insurers more pricing and underwriting freedom.

Under the plan, competitive rating would begin April 2008. Between now and October, Burnes hopes to finalize the regulation with input from the public, the industry, lawmakers and others.

New Jersey passed sweeping deregulation in June 2003. Since then GEICO, State Farm Indemnity, Mercury General and Esurance have entered the state and other carriers with plans to limit their business there changed their minds.

Burnes said she has spoken with regulatory officials from New Jersey and other states where auto insurance has been deregulated in recent years, although she cautioned that these other states “started in a very different place” from where Massachusetts begins its transition.

According to a recent report from a gubernatorial task force, there are 19 insurers now writing in the Massachusetts private passenger automobile insurance market. More than 60 percent of the business is written by companies that write either exclusively or primarily in Massachusetts.

Insurers now writing or considering entering Massachusetts, however, will face at least one obstacle they do not deal with elsewhere: a prohibition on using a host of socioeconomic factors in their pricing and underwriting.

The draft regulation makes years of driving experience, driving record and a vehicle’s model features as the primary rating and underwriting factors.

However, it bans insurers from using gender, marital status, education, occupation, national origin, religion, homeownership and other socioeconomic factors, some of which are already prohibited by Massachusetts law and others which she deemed violate public policy, for either rating or underwriting.

The regulation bans the use of credit scores in pricing but only within the first year. Burnes said she wants more time to study credit scoring and whether to lift that ban after the first year.

“I really don’t know yet,” she said of the future for credit scoring in the state. She doesn’t plan her own study but thinks that “there is plenty of time” to take a deeper look at it.

While credit scores may not be used for pricing, the regulation as now written does not clearly prohibit their use for underwriting. Whether and how credit scores can be used in the future may depend upon how underwriting is defined. Burnes said she thinks placing risks in various rating “tiers” or subsidiary companies using credit, or using credit for qualifying drivers for certain discount plans, might constitute rating, not underwriting.

The regulation does not deal with so-called “tiering,” although in recent testimony before a legislative panel, Burnes indicated she opposed the practice.

In her telephone interview, Burnes candidly acknowledged that the draft regulation does not deal with all issues and that she does not have all the answers.

“This is a process,” she said, adding that she expects the public review will answer many of the questions that the public and the industry have.

For the first year, Burnes says she hopes that rates for “good drivers will go down” and consumers across the state will be given “broader opportunities” to choose policies and services. She hopes to avoid what she termed “rate spikes” for drivers and aid her department will be closely monitoring the state’s residual market for signs of growth.

Burnes said she is familiar with the situation in Florida where homeowners are disappointed because their insurance rates are not going down as regulators and Gov. Charlie Crist promised following the enactment of legislation lowering reinsurance costs.

“I hope we will not oversell the savings,” Burnes said of her auto plan, stressing that her plan is not just about rates but it’s also about creating more options for consumers.

She rejected a suggestion by some lawmakers and consumer watchdogs that her regulation should list all factors insurers can use in setting prices, rather than offering a list of prohibitions.

Listing the factors insurers may use is “not a good idea” because “we are trying to deregulate this market for consumers and to identify only three or four factors could limit the competition and benefits for consumers,” she maintained.