Massachusetts Insurance Commissioner Nonnie Burnes announced she is ending the state's so-called "fix and established" system of auto rate-setting, and will allow each insurer to propose rates based on their true costs.
The move, she said, will introduce "managed competition" into the state's highly regulated auto market.
"I will, however, retain a strong yet supple regulatory oversight function to ensure that good drivers enjoy the benefits of such managed competition, regardless of where they garage their cars," she said in a letter to the state.
John Murphy, American Insurance Association regional vice president, likened the action to the tearing down of the Berlin Wall nearly 20 years ago.
"Massachusetts drivers will now have the opportunity to share in the choice and benefits of competition like their neighbors in the rest of the country," he said.
The commissioner also announced that she is turning the state's residual market into an assigned risk plan similar to those operating in numerous other states.
"My objective here is to strengthen an already robust system of independent agencies while ending the opportunity for system manipulation that currently exists by which not all companies in the market share equitably in the risk," she wrote.
Ms. Burnes noted there will at least one hearing before the system of managed competition is fully fleshed out.
"In substance and process, I believe these measures will help assure that we neither fully endorse the current overregulated market nor move carelessly to unfettered competition," she wrote.
Mr. Murphy said that what appeared in the offing is the so-called "file and use" system in which carriers propose their rates and wait 45 days to implement them during which time the state can raise objections.
He also noted that Ms. Burnes is actually invoking the provisions of a nearly 30-year-old law that allows a market-oriented approach when conditions permit.
Such an approach was tried in 1977 but was quickly abandoned when rates rose sharply, particularly for young and urban drivers.
"We can no longer be held hostage to the failed 1977 experiment," Ms. Burnes said.
That experiment took place during the administration of Gov. Mike Dukakis, the last Democrat to hold the office before the election of Deval Patrick last year, who then appointed Ms. Burnes.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.