Burnes: four insurers eyeing deregulated Mass. auto market

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

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

Burnes spoke with Insurance Journal 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. By October, Burnes hopes to finalize the regulation with input from the public, the industry, lawmakers and others.

New Jersey deregulated in June 2003. Since then GEICO, State Farm Indemnity, Mercury General and Esurance have entered the state.

Burnes said she has spoken with 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 her state begins its transition.

According to a recent report from a gubernatorial task force, there are 19 insurers now writing in the Massachusetts private passenger auto 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. It bans insurers from using gender, marital status, education, occupation, national origin, religion and homeownership for either rating or underwriting.

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

While credit scores may not be used for pricing, the regulation as now written does not clearly prohibit their use for underwriting. 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.

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

For the first year, Burnes says she hopes that rates for “good drivers will go down” and “rate spikes” for drivers will be avoided.

She rejected a suggestion by some lawmakers 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.