Trouble is brewing in the state’s auto insurance industry.
Two years ago insurance company officials convinced the Patrick administration to let each firm set its own rates rather than having state regulators come up with one set of rates for all the insurers. Dubbed “managed competition,” the new approach has kept rates in check and attracted big-name insurers such as Progressive and Geico to Massachusetts.
But now industry officials are worried that Attorney General Martha Coakley is going to turn back the clock by proposing regulations to correct what she sees as deficiencies in the system. The comment period on her proposed regulations closes Sept. 22. Insurers haven’t said much publicly yet, but privately they are seething. If Coakley doesn’t back off, the fight is likely to get nasty. It could end up in court.
The automobile insurers say Coakley, after being overruled by Patrick administration regulators at the Division of Insurance two years ago, is trying to muscle her way into the regulatory picture with her own set of rules.
“It is simply intolerable and unworkable to have two dueling regulators,” said James Harrington, president of the Massachusetts Insurance Federation, in testimony on Coakley’s proposed regulations. “No industry can properly respond to two sets of contradictory and inconsistent demands from two different regulators with vastly different regulatory policy goals and regulatory perspectives.”
Coakley has never been a big fan of managed competition. Just before Christmas last year, she issued a report in which she said managed competition had been a mixed bag, with average rates dropping far less than they would have had the state continued to set rates. Coakley also charged that one-fifth of Massachusetts drivers, mostly minority and low-income residents, were paying higher premiums now than before regulation.
In her report, the attorney general said she planned to promulgate auto insurance regulations under the state’s Consumer Protection Act, but few thought Coakley, then in the midst of a US Senate campaign, would follow through. But she has. Coakley’s spokeswoman, Amie Breton, says the attorney general isn’t trying to establish a dual system of regulation but instead doing her job as an advocate for consumers.
One of the key points of contention is the rating factors that insurers use to decide how much to charge drivers for coverage. Under the old system, where the state set the rates, insurers could only consider factors such as a customer’s driving history, the type of vehicle, and the vehicle’s garaging location. Former Insurance Commissioner Nonnie Burnes, the architect of managed competition, opened the door to more experimentation. She barred the use of such potentially discriminatory factors as income, home ownership, and credit ratings, but she didn’t prohibit insurers from using other factors.
Coakley is concerned that factors like a customer’s payment history or their purchase of homeowners insurance could be proxies for income and home ownership. Her regulations would prohibit such practices, but insurers say her approach could snuff out most of the pricing discounts they are offering Massachusetts drivers and drive up premium costs.
“If these are approved, most of the discounts out there will be subject to repeal,” said Harrington. “This will cost good drivers significant sums of money.”
Burnes, who is now a senior fellow in the school of public policy at Northeastern University, said Coakley is butting in where she doesn’t belong. She said the Division of Insurance should set the rules and the attorney general should enforce them. “The companies need one person to tell them what the rules are,” she said.
Burnes says she has heard from a number of insurers who are upset about the attorney general’s proposed regulations. She said she worries that the gains that have been made may be wiped out. “People who made a major commitment to expand their business here or come in, this is not what they expected,” she said.