NU Online News Service, Dec. 28, 3:34 p.m.EST

Insurers challenged the results of a report from theMassachusetts Attorney General that questions the state'srelatively new auto insurance "managed competition" system.

Under the current system, Massachusetts insurers are allowed tofile proposed rates and the Division of Insurance has a certainamount of time to review the filings. Companies can use the ratesif they are not disapproved.

Prior to adoption of the current system in April 2008, the stateset rates that would be used by all auto insurers, the only statein the country to determine auto rates in this manner.

Massachusetts Attorney General Martha Coakley, though, releaseda report this month contending that consumers are not benefiting asmuch as they should under the system.

In a statement, Ms. Coakley said, "While the long-term resultsof this new system remain to be seen, our office is concerned thatconsumers may not, in fact, be getting the best rates and theprotections they deserve."

Ms. Coakley said the report notes that most consumers have notshopped around for insurance, and therefore are not driving ratesdown. She stated that rates are now actually increasing.

The report says that if the old system had continued through2008, rates would have been reduced for essentially all consumers,with average rate reductions "much greater than those seen underderegulation." It slams insurers for seeking higher profits sincethe new system was implemented, and says the system has led to"less transparency in the rate-setting process."

It also states, "Because insurers are no longer required tooffer insurance to consumers they consider undesirable, many gooddrivers, particularly in urban areas, may be non-renewed or deniedcoverage."

However, a survey of 4,500 drivers found that the number ofdrivers in the residual market is declining, "meaning that moredrivers are able to find acceptable insurance premium and serviceoptions among competing companies in the marketplace."

The survey was conducted by the Massachusetts Office of ConsumerAffairs & Business Regulation (OCABR) in April 2009–withminorities and urban drivers "over-sampled to ensure that theirexperiences were accurately reflected"–and one-on-one interviewswith over 50 insurance agents and executives.

The survey also found that average premiums per vehicle dropped8.2 percent during the first year under managed competition,compared to a 5.2 percent decline the previous year under theformer system.

Paul Tetrault, state affairs manager for the Northeast for theNational Association of Mutual Insurance Companies, criticized theattorney general's findings, saying, "The attorney general opposedthe transition to managed competition at every opportunity. Nowthat it has been remarkably successful for more than a year and ahalf, bringing not market disruption as critics predicted butrather lower prices for good drivers and more choices in themarketplace, it is incredible that the attorney general wouldcontinue to undermine that success."

Changing the system now, he added, would return Massachusetts toa system where rates would be "highly politicized."

Edmund Kelly, chairman, president and CEO of Liberty MutualGroup, also defended the results of the new system.

In a statement he said, "To better meet increased consumerdemand under 'managed competition,' we lowered our prices, addednew products and improved service across the state. As a result wehave thousands of new customers, and over 10 percent growth sincemanaged competition began last year. That tells us that competitionis working."

He added that Liberty Mutual is adding 400 new jobs in the stateas a sign of its commitment to the new system.

The OCABR survey and attorney general report found common groundin calling for better outreach and education.

The attorney general report said, "There is currently no easyway for consumers to determine what the market prices for insuranceare, what each company will charge a particular individual, andwhat discounts and special coverage options are available."

The OCABR survey noted, "Not all consumers availed themselves ofthe new system in the first year. Some believed shopping aroundwould be time-consuming, they were skeptical that they would savemoney, they found it difficult to compare insurance policies fromdifferent companies, and they believed they could not changeinsurance carriers before a policy had expired."