THE PATRICK administration's "managed competition" plan for the state's auto insurance industry is off to a slow start. It could hardly seem otherwise, when the reduction in the average statewide premium is expected to be less than it would have been under the state's old, much demonized system of "fixed and established" rates.
Drivers who renew their policies beginning in April should receive an average reduction of 7.8 percent, according to the state Division of Insurance. But that reduction would have been about 11 percent under the outgoing system, in which state regulators set auto insurance rates, according to state attorney general Martha Coakley. While companies were touting loyalty discounts and other come-ons, Coakley was delving into recent rate filings under the new system. She found more than $200 million in extra profits and payments to agents that would not have been allowed by regulators in earlier years. Insurance commissioner Nonnie Burnes should examine the filings with an equally sharp eye.
Massachusetts residents paid onerously high auto insurance rates for many years. But recent safety initiatives and successful crackdowns on auto insurance fraud have led to rate reductions of roughly 20 percent over the past three years. That was possible even under a system that flattened rates for young and urban drivers who might otherwise have taken to the road without any insurance at all. It wasn't a perfect system, but it was a fair one. How people drive, not who they are, largely determined the cost of insurance.
That's no longer the case. The new system allows rates linked to non-driving factors; discounts go, for example, to students with good grades and customers who buy lots of insurance for their plentiful assets. Consumer advocates worry with good cause that such factors will be used as proxies for the kind of socioeconomic data, including income and occupation, that Burnes expressly forbids in the process of choosing customers and setting rates. The good driver who anticipates a discount of 25 or 30 percent should be prepared for a big disappointment. In the world of auto insurance, good drivers are not synonymous with good risks. In that same world, young and urban drivers fare especially poorly.
Part of the purpose of managed competition is to entice national insurers, like Geico, into Massachusetts. So far, no new companies have jumped in. But the administration should be careful what it wishes for.
"If you strip away enough consumer protections, you can get any insurer to enter the market," says Stephen D'Amato of the Cambridge-based Center for Insurance Research. "But attracting new insurers is worthwhile only if it produces lower and fairer rates."
Many residents remember lofty promises of lower rates during electricity deregulation. It seems we've been down this road before.
