Insurers press for competitive auto rates

Liberty Mutual Insurance Co. and two industry groups yesterday urged the state's insurance commissioner to establish a competitive rate-setting process for auto policies if the Legislature fails to act in the next two months.

The last time a commissioner authorized competitive rate-setting was in 1977. Rates skyrocketed for some young drivers and some in urban areas, prompting the Legislature to scrap the program and return to a system where the state sets rates.

A spokesman for Insurance Commissioner Julianne M. Bowler, whose boss, Governor Mitt Romney, has filed legislation creating a competitive system, said she would have no comment.

''The goal is to have auto insurance reform that addresses all of the problems in the marketplace. Competitive rating is just one component," said the spokesman, Christopher Goetcheus.

Liberty's appeal came at a hearing the commissioner held yesterday on whether to move to a competitive system. The competition hearing is held every year, but in the past Bowler and the industry have shied away from moving to a new system in the absence of broader legislative action.

Don Baldini, assistant vice president and legislative counsel for Liberty, said the company would prefer lawmakers to chart a course for the industry. But if the Legislature fails to act, he said, Bowler should do it on her own for 2007.

Officials with the Massachusetts Insurance Federation and the Property Casualty Insurers Association of America, which together represent most of the state's insurers as well as insurers that would like to do business here, voiced similar sentiments at the hearing.

The industry officials said now is an ideal time to move to a competitive system, in part because premiums fell this year and are expected to drop again next year.

The Legislature's Financial Services Committee is expected to develop and debate an auto insurance bill soon, but the panel is badly split on the issue.

Officials at Liberty expressed hope that, if the Legislature fails to act, Bowler could create a competitive system on her own while avoiding many of the mistakes made in 1977.

A top official at Commerce Insurance of Webster, the state's largest automobile insurer and an opponent of competitive rate-setting, said any unilateral move by Bowler would carry enormous risks.

James Ermilio, senior vice president and legal counsel at Commerce, predicted rates would rise dramatically for urban and youthful drivers, the same way they did in 1977.

He said rate chaos may be the goal of Liberty and the other companies pushing for competitive rate setting.

''They're trying to blow up the industry in Massachusetts so the Legislature would have to step in and act, eliminating the pro-consumer system we have in place," he said.

In testimony read by an aide at the hearing, Attorney General Thomas F. Reilly urged Bowler not to move to a competitive rate-setting system until a number of changes are made by the Legislature.

''The disparity between claims experience among some urban and suburban communities may be even wider now than in 1977, the last time competition was tried, and a shift to competition without systemic reform could result in similarly disruptive premium increases in urban areas," Reilly said.

Reilly also warned that the market is too concentrated (three companies write nearly half of the policies in the state), and the system for apportioning high-risk drivers that no companies want to voluntarily insure is ''unworkable."

Bowler last year tried to adopt a new system for apportioning high-risk drivers called an assigned risk plan, but the system was blocked in court by Commerce, which said she lacked the statutory authority to make the changes on her own.

That case is currently on appeal to the Supreme Judicial Court.

In the meantime, Bowler has changed the existing system for apportioning high-risk drivers to make it more equitable. James T. Harrington, executive director of the Massachusetts Insurance Federation, said his group still favors an assigned risk plan, but the changes pushed through by Bowler remove the biggest obstacle to moving ahead with a competitive system.

Bruce Mohl can be reached at mohl@globe.com.