Mass. Rejects Flex-Band Auto Rating

Mass. Rejects Flex-Band Auto Rating

NU Online News Service, Aug. 14, 3:30 p.m. EDT?The Massachusetts insurance commissioner has refused to change the state's private passenger automobile rating process to a "flex-band" approach favored by some insurers and insurer trade associations.

By law, each year the Massachusetts commissioner must assess the degree of competition in the state's private passenger automobile insurance marketplace.

The Indianapolis, Ind.-based National Association of Mutual Insurance Companies, among others, tried to convince Commissioner Julie Bowler, during hearings related to the competition assessment, to abandon the "fix-and-establish" rate-setting procedure in favor of a flex-band method.

Neil Alldredge, NAMIC's director of state affairs, explained that under "fix-and-establish" or "fixed expense" rating, auto insurers submit their expenses as part of their rate filing and the state Division of Insurance throws out the lowest and highest expense figures and averages the rest.

Under a "flex-band" approach, which Mr. Alldredge described as a form of flex rating, each insurer develops its expenses based on its own administrative costs, and those are the expenses that are used in calculating that insurer's rates.

"The current system forces all companies to use the same expenses regardless of their actual costs," Mr. Alldredge pointed out. "We are disappointed that the commissioner decided to take a status quo approach to rate regulation this year."

Mr. Alldredge added that under state law the Massachusetts commissioner has "a lot of authority" in respect to the insurance marketplace in the state and can "do almost anything without going to the legislature." But he noted that the commissioner may have refused to act in this case because she was afraid that her authority would be challenged in court.

"There were ambiguities in the law and divergent opinions about the commissioner's authority to adopt flex-band rating," said Chris Goetcheus, a spokesperson for the Division of Insurance.

Mr. Goetcheus added that the flex-band method was rejected because none of the legal opinions solicited during the hearings resolved how driver subsidies could be incorporated into the flex-band approach. He noted that such subsidies are available to inner-city and inexperienced (less than six years of experience) drivers, who typically pay the highest premiums.