Mass. Auto Insurers Hail Improved Market Since Reforms, Despite AG Criticism

A former Massachusetts insurance commissioner, Nonnie S. Burnes, then led an effort to move the state to a form of prior approval. Ms. Burnes argued at the time that the Massachusetts rating system was "ailing, and that some form of competitive rating is essential to attract and retain insurers to write this line of business in the Commonwealth."

The result, at least according to the industry, has been an improvement in the market–perhaps even an "historic step forward" for Massachusetts, according to Paul Tetrault, Northeast state affairs manager for the National Association of Mutual Insurance Companies.

He said the reforms have made Massachusetts "less unique" and less of an outlier, from a regulatory standpoint. Good drivers have seen savings, and competition has increased, according to Mr. Tetrault.

"It's all very beneficial to consumers," he added. "It has proven to be extremely popular [among consumers]."

Mr. Tetrault and Mr. O'Brien cited insurance industry polling indicating the regulatory changes to be popular among insureds.

In the past, Mr. Tetrault said, consumers unhappy with their insurance rate could do nothing about it. Now, he added, companies offer competitive quotes, and consumers can work with their agents to get advice on different available coverage options.

Mr. O'Brien said consumers in the state have access to the types of features people have had for years in other states–such as accident forgiveness and a variety of discounts. The residual market, he said, also has not exploded but rather maintained itself at an acceptable level.

For insurers, Mr. O'Brien said there have been some "teething troubles" with the system–specifically with operational issues for new entrants in terms of getting up and running in the state.

But he said there have been "far fewer troubles than anyone could have foreseen."

From a regulatory and legislative standpoint, Mr. O'Brien said there remains a "tendency to want to intervene" in the marketplace. But even on those fronts, he said the legislature has not done anything specifically to oppose the managed competition system, while the Division of Insurance, "from a 10,000-foot level, I think they've done a pretty good job."

Mr. Tetrault said approval of rates and forms will always be an issue for insurers when it comes to regulators, but he commended the division for how it has handled its new responsibilities during the transition to managed competition.

He said the division has had plenty of work to do with respect to reviewing rates, but it has so far been "nothing beyond their abilities."

Not all in the state are praising the new rating system, however.

In December 2009, Massachusetts Attorney General Martha Coakley released a report contending that consumers are not benefiting as much as they should under the system.

"While the long-term results of this new system remain to be seen, our office is concerned that consumers may not, in fact, be getting the best rates and the protections they deserve," Ms. Coakley said in a statement.

Deregulation, she contends in her report, "has produced more secrecy and less transparency. Insurers have omitted data and information from their public filings; as a result, the filed rates are unsupported, and it is impossible to adequately assess their accuracy."

She further argues that consumers have not shopped around for insurance, and therefore are not driving rates down, with rates actually increasing.

The report says that if the old system had continued through 2008, rates would have been reduced for essentially all consumers, with average rate reductions "much greater than those seen under deregulation." It also criticizes insurers for seeking higher profits since the new system was implemented.

Addressing discrimination against urban drivers, the report states: "Because insurers are no longer required to offer insurance to consumers they consider undesirable, many good drivers, particularly in urban areas, may be nonrenewed or denied coverage."

However, a survey of 4,500 drivers conducted by the Massachusetts Office of Consumer Affairs & Business Regulation in April 2009–with minorities and urban drivers "oversampled to ensure that their experiences were accurately reflected"–found that the number of drivers in the residual market is declining, "meaning that more drivers are able to find acceptable insurance premium and service options among competing companies in the marketplace."

The survey also found that average premiums per vehicle dropped 8.2 percent during the first year under managed competition, compared to a 5.2 percent decline the previous year under the former system.

Regarding Ms. Coakley's criticisms of the new system, Mr. O'Brien of PCI said the report has to be taken "with a very large, iceberg-sized grain of salt."

He said the attorney general and her staff have been "opposed to the managed competition system from day one," and are therefore predisposed to criticizing it.

Mr. Tetrault of NAMIC said Ms. Coakley's continued opposition to the system has "really been a head-scratcher," considering how successful it has been.

Most significantly, he said, the views expressed in the report do not match public perception and reaction.

Public perception, though, could change if there is a backlash over future rate increases, one observer warned.

John D'Agostino Jr., past president of the Professional Insurance Agents of New Jersey, spoke about changes in the marketplace after his state's major auto reforms in 2003, which opened New Jersey up to more insurance companies and increased competition.

If Massachusetts has similar experiences to New Jersey, Mr. D'Agostino said, consumers will initially enjoy a windfall, as new entrants underprice products to gain market share and build up their base of customers.

But once the new entrants hit certain numbers, Mr. D'Agostino predicted, they'll try to adequately price their products, which could lead to a backlash from consumers.

In New Jersey, Mr. D'Agostino said he lost accounts to new entrants, but now those customers are frustrated and are coming back. They had left a carrier they'd been with for years for a lower price, but then saw their rates increased later, he explained.

"So we are seeing frustration in the people that were jumping company to company," he said.

For Massachusetts' consumers, Mr. D'Agostino stressed that they should compare coverage in addition to price. Many New Jersey consumers, he said, made the mistake of switching for a better price, but they ended up with less coverage.

For agents, "it will probably be the busiest time that they can remember in auto sales," according to Mr. D'Agostino. Agents, he explained, should expect to receive many calls from new shoppers but should also make time for salvaging their own customers.

For insurers, Mr. D'Agostino said they will need to do their homework, understand where profits are coming from, and try to protect that group of consumers from being stolen by competitors.

He said in New Jersey, some regional companies that were used to a limited marketplace were slow to adapt to the influx of competitors. Others did not adapt at all and are no longer operating, he added.

Mr. Tetrault said he is not aware of any Massachusetts-specific companies that are "not up to competing." Even for regional carriers, he said competition is not foreign, and many of those insurers have competed in other insurance lines in the state.

Companies currently doing business in Massachusetts, according to PCI's Mr. O'Brien, have adapted well to the new system. "But, like new entrants," he said, "operating under new rules has meant that some things have worked; some not as well."

Looking forward, Mr. Tetrault said NAMIC would like to see the elimination of prior approval, as well as the removal of restrictions on rating factors such as credit, education and occupation.

But he said there is no immediate rush, and NAMIC is willing to take reforms one step at a time, with the understanding that there will likely be periods of adjustment.

As for adjusting to the current reforms, consumers in Massachusetts are still getting used to being able to shop for coverage, according to Mr. O'Brien, who said while there have been opportunities for consumers to access new entrants, so far most have tended to stay with their original carriers.

Both Ms. Coakley and the OCABR survey pointed to a need for better outreach and education about the new system.

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

The OCABR survey found that "not all consumers availed themselves of the new system in the first year. Some believed shopping around would be time-consuming, they were skeptical that they would save money, they found it difficult to compare insurance policies from different companies, and they believed they could not change insurance carriers before a policy had expired."