Mass. Surviving Bumps in the Auto Insurance Road

Burnes Rules Out Permitting Insurers to Use Credit Scores; Goes Slow on Property Market Issues

Massachusetts Insurance Commissioner Nonnie Burnes has presided over the biggest shakeup in the Massachusetts’ personal auto insurance market in generations. Over the last year, she’s led the charge to scrap the 30-year-old, rate-setting mechanism for insurers, overhaul the system for apportioning high-risk drivers and welcome new auto insurers to the Bay State. Meanwhile, what had been the state’s largest personal automobile insurer – Commerce Insurance Group, of Webster – was purchased by a Spanish conglomerate. In this exclusive interview with Insurance Journal’s Ken St. Onge, Burnes gives her appraisal of the changes and what she sees in the year ahead for Massachusetts insurance industry.

We’re about six or seven months into the auto insurance managed competition process. What’s your sense of how it’s going?
Burnes: Well, I’m very pleased with the way it has rolled out. It has not been without its bumps in the road, I would say. What we really are seeing are great benefits for consumers. We haven’t been able to analyze it, across the system yet, it’s only six months, and the carriers only have data for a couple of months. We are hearing wonderful stories for consumers; there are a lot more choices and much better rates.

IJ: Has it gone better than you expected?
Burnes: Well, I think that the response of the insurers was much more aggressive than I expected, and that the benefit to the consumers was much more immediate than I thought it would be.

Since the managed competition switch was made, a number of insurers have come back into the Bay State. What’s the prospect for other insurers coming in? Have you had any inquiries?
Burnes: We have had inquiries. My rule of thumb is until they come in and file their rates, they’re not there yet. We have had inquiries and while we’re not out looking for them, when they come and talk to us, we want to provide them as much support as we can so that it will be a smooth entry.

What are some of the upcoming tests for this system?
Burnes: I think the hardest thing is really endurance. There are many little increments that we will have to go through to make this successful. This was a long time building up this system, and it’s going to be a long time making sure that we make this a good new system. So there are little tweaks that we do all the time, and we try to communicate them as we’re doing them. But some of them are kind of complicated, so we want to make sure we do them right.

Has there been change in the market share for different auto insurers in the Bay State? What kind of role some of the new players have had in that change?
Burnes: Let me say at the outset, we haven’t done any analysis of the market share. I am assuming that there’s a lot of moving around, and I’m sure that the new players have had something to do with that.

We’ll have to see at the end of the full year who’s moved around. Maybe some carriers who were losing some customers in the beginning are gaining them back because they’re making better offerings – we really don’t know how that’s going to play out.

How do you think the purchase of Commerce Insurance Group by Mapfre Insurance Group will affect the climate of insurance in the Massachusetts?
Burnes: I have seen exactly no effect from that. Commerce is a big player. Commerce is a very skillful company. The whole premise was this was going to be Mapfre’s entry into the U.S. I have not seen any of that on the Massachusetts market. Commerce is still very aggressive, and they’re still a very big player.

One of the issues you have previously vowed to revisit was credit scoring. What are your thoughts now on credit scoring? Can we expect that in Massachusetts?
Burnes: I would think you can’t expect that in Massachusetts. [laughs]. I think it’s really fairer to talk about this as “score of financial responsibility.” But it does have this very bad name to it of “credit scoring.” In this market, I think there’s just no way that we could introduce this even if it were to be good for consumers.

I think there are ways that it could be good for consumers, that it could show people are responsible, where the assumption might be that they are not. I don’t think that this is something, in this particular environment that we are going to try to do. We have lots of other things to do to make the market better before we get to that.

Some independent agents have taken issue with some of the tactics used by Progressive (Insurance Co.) on its auto insurance Web site. In your opinion, has there been any violation? Have you met with any of the agents to discuss their concerns?
Burnes: There have been, as I had said, some bumps in the road as we have done this rollout, and I think Progressive has found some bumps in the road, too. They certainly responded extremely quickly, once the error was drawn to their attention. They have responded. We have talked to (The Massachusetts Association of Insurance Agents) about trying to make sure that what Progressive is doing is fully within the law, and I believe that it is.

New England’s been pretty fortunate this year in terms of avoiding hurricanes. What’s your sense of the homeowners market and any progress being made in terms of disaster preparedness, hurricane mitigation or any of those issues?
Burnes: Well, I think we are seeing a little – a very little – easing of the homeowners market. We have a couple of new companies. What we are seeing, quite interesting, is a benefit to consumers on their homeowner’s rates, through auto reform. Insurers want to write the whole package for a consumer, so a lot of consumers are getting a benefit on their homeowner’s rate. But that doesn’t necessarily mean we have more capacity yet, which is what we really need.

We are seeing a little decline in the FAIR Plan; not dramatic. I have actually been talking to a lot of people here about ways that I might encourage more insurers to come in, or encourage our insurers to write more in the coastal areas. It’s a very difficult problem. I think we will only solve this in increments, trying to make the market better.

Is there something in particular that you think should be done first – or should be a very high priority – to get that to happen?
Burnes: I am leery of making any big step. I mean, there are all sorts of suggestions, such as having a catastrophe model commission. I think that might make it less contentious. I don’t know that will actually improve the market. There are ideas for wind pools, and things like that. I am leery about putting the state or even our insurers on the hook for that. I think we would really like to develop a solid market in this area, and I think we are only going to be able to do that incrementally.

A big issue on everyone’s minds is AIG. What impact do you think AIG’s problems will have on the market in Massachusetts?
Burnes: Well, we do not have a domestic AIG insurer, but AIG is a very big player in our insurance market. I think it is extremely important to keep the distinction between the holding company, which is the company that is being bailed out, and the underlying insurance companies… The message is so far that the insurance companies are sound. They have plenty of capital to pay their claims. We expect that they will be paying them on time both in the property and casualty and the life area. We are going to be watching that very carefully to make sure that remains the case.

You came to the insurance commissioner’s post as a former judge. Drawing on your judicial experience and your experience in the legal world, do you see any changes that could be made in the regulatory structure and the way that regulators approach their day-to-day jobs?
Burnes: Well those are two pretty different questions. I would say what I have brought to the division is an ability to ask a lot of questions. “Why do we do it this way? Can we do it better? What is the reason that we are doing this, whatever it happens to be?” I think that helps us get a more, neutrally structured regulatory system.

On the hearing side, I would say I think my judicial experience can be very helpful. Administrative agency hearings have a tendency to go on and on and on. Although we had some in the auto area, we haven’t had a rate hearing on the FAIR Plan since I got there. There was one going on when I arrived. But I think it is important to make them more expeditious, so that the information doesn’t get stale and people get answers quickly. We get decisions out quickly. If we look at a hearing like that in the future, I think you will find that it will be more efficient and more expeditious.

You are about a year and a half into your position as insurance commissioner. Are you happy you made the jump?
Burnes: I had a wonderful job – I loved being a judge and it is an incredibly important position. But this is completely fascinating and very interesting, and I know that what I do affects everybody in the Commonwealth, so that is a little daunting and humbling. But I am really enjoying the job.

Topics Carriers Auto Massachusetts Homeowners Market AIG