Credit history barred as insurers' tool

Insurance Commissioner Nonnie S. Burnes reversed course yesterday in issuing final regulations for next year's move to auto insurance competition, deciding companies should not be allowed to use a driver's credit history in setting rates or deciding whom to insure.

In draft regulations issued late in August, Burnes had placed at least a one-year prohibition on companies using a driver's credit history to set rates but allowed carriers to use credit in deciding whom to insure. At a recent hearing, Burnes told a consumer advocate that state law required her to let companies use credit histories in deciding which drivers to insure.

But yesterday Burnes changed her mind. She said concerns expressed at a series of public hearings had persuaded her to ban the use of a driver's credit history for any purpose, at least for a year until she can study the issue more thoroughly.

"There are those who assert that the use of this information is unfair and discriminatory," she said in a letter accompanying the regulations. "On the other hand, there are those who view the use of credit information as a valid factor in predicting risk in this market and that the use of this information benefits careful, responsible people wherever they live."

As for her earlier stand that state law required her to allow the use of a driver's credit history for underwriting purposes, she said further study of the law changed her mind.

"I'm persuaded that I do have the authority to do this," she said.

The state Division of Insurance currently sets all auto insurance rates, but under Burnes's regulations, companies will propose their own rates and the division will approve or reject them. Burnes asked companies to file rates for customers renewing next April by Nov. 19. For those renewing May 1 or later companies can file after Feb. 15. She said drivers who renew their policies in April probably will start shopping around for the best auto insurance deal sometime in February.

Burnes said many of the details for the transition to a competitive auto insurance market would be fleshed out in bulletins she plans to issue over the next few months. She and her staff have been holding weekly discussions with companies and other interested parties.

Two national carriers who currently do not do business in Massachusetts have been participating in those discussions. Industry officials and a consumer advocate said a representative from State Farm Mutual Insurance Co. had been participating and officials at the Division of Insurance said representatives of Progressive Insurance were listening in.

State lawmakers, particularly senators, have hinted they may file auto insurance legislation if they dislike the regulations issued by Burnes. Those lawmakers could not be reached for comment yesterday, but Burnes refused to budge on one issue of concern to them.

Burnes has listed a series of socioeconomic factors that insurers cannot use in setting rates or deciding whom to insure, including occupation, education, income, homeownership, and marital status. The senators and several consumer advocates had urged Burnes to list those factors that insurers could use, most of them dealing with driving records, and ban all others. The senators and consumer advocates have said insurers would come up with other factors as proxies for education, occupation, and income in setting rates or deciding whom to insure.

In her letter, Burnes said she decided to tell insurers what factors they cannot use so they would be free "to be innovative in the products and services that they offer."

Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge, said he was disappointed in the commissioner's decision. "It's pretending to protect the public without protecting the public," he said.

A spokeswoman for Attorney General Martha Coakley said she was pleased to see the ban on the use of credit history but needed more time to study the regulations.

Peter Robertson, Massachusetts legal counsel to the Property Casualty Insurers Association of America, which represents several Massachusetts insurers, said Burnes had clearly listened to the consumer advocates. "We're just glad this is done. Let's move into implementation," he said.

The regulations maintain for at least one year existing subsidies paid by suburban and rural drivers in order to keep the rates of urban drivers reasonable. The regulations also require companies to disclose how their rates differ from this year's rates for certain consumer profiles to make shopping for a policy easier.

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