Three of the state's biggest automobile insurers filed rates for next year that would overcharge customers by a total of more than $100 million, Attorney General Martha Coakley said yesterday.
In calling for state regulatory hearings on the rate filings, Coakley said Commerce Insurance of Webster, Premier Insurance of Worcester, and Safety Insurance of Boston inflated losses, padded profits, and tried to saddle drivers with expenses that previous regulators have disallowed.
The three provide coverage to more than 1.5 million drivers, or roughly 45 percent of the market. Coakley said she is still scrutinizing the filings of the state's other insurers and will decide by Monday whether to challenge them.
Officials at Commerce declined to comment. A Safety spokesman could not be reached for comment. Susan Scott, legal counsel for Premier, said the company stand behinds its rate filing.
"A competitive market is what will limit excessive rates," Scott said.
Massachusetts is moving from an auto insurance system where state regulators approve one set of rates for all companies to a system where each company sets its own rates subject to regulatory approval. Companies are currently awaiting approval for rates they filed for policies renewing after April 1.
Under the new regulatory system, called "managed competition," Coakley or officials at the Division of Insurance can challenge a company's rate filing by requesting a hearing before Insurance Commissioner Nonnie S. Burnes. The date of the hearings requested by Coakley has not been set yet.
The attorney general said in a phone interview that Commerce, Premier, and Safety were cutting their rates next year about 6 percent on average. She said the industry's rates would have fallen 10 to 11 percent on average if Burnes had continued to set all auto insurance rates herself.
Despite the big difference in rates, Coakley said she is not saying "competition or managed competition is a bad thing. We agree that if this is done correctly it would be good for Massachusetts. We are not anticompetition."
But the attorney general said "it's our job to make sure that the rates they want to charge consumers are not excessive."
In an information bulletin issued by Coakley, she cited three "glaring defects" in the rate filings of the three companies. She said the companies loaded in profits at higher levels than allowed in the last 25 years, attempted to pass on to consumers agent commissions that regulators have not allowed in the past, and claimed losses were increasing when they were actually going down.
Coakley also raised concerns about the rate filings of State Farm Mutual Insurance and Fireman's Fund, but did not request hearings on them. Coakley said the two companies together insure less than 1 percent of the state's drivers and her time would be better spent on insurers with larger market shares. The attorney general urged Burnes to scrutinize the filings of the two companies closely.
Kimberly Haberlin, a spokeswoman for the Division of Insurance, issued a statement saying Burnes welcomed Coakley's input. "We look forward to reviewing her concerns," she said.
Separately, the Division of Insurance on Friday notified Commerce, Arbella Mutual Insurance of Quincy, Liberty Mutual Insurance of Boston, and Electric Insurance of Beverly that their filings were not in compliance with department regulations.
Officials said the companies improperly based some of their discounts on the amount of bodily injury liability coverage a customer purchased. The officials also said Commerce improperly incorporated a discount offered to members of the American Automobile Association into its rates.
The Division of Insurance gave the companies until yesterday to change their filings or face a hearing.
Officials at Liberty and Arbella said yesterday they planned to drop the discounts tied to the amount of bodily injury liability coverage purchased by a customer even though their reading of the regulations indicated the discounts were in compliance. Commerce officials said they were still studying the division's notice. Officials at Electric could not be reached for comment.
Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge and a critic of managed competition, said the attorney general and the Division of Insurance are taking two very different approaches in scrutinizing the rate filings of auto insurers.
"The attorney general has focused on the big dollar issues, while the Division of Insurance has addressed two ancillary issues that have nothing to do with overall rate level," he said.
Bruce Mohl can be reached at mohl@globe.com.
