Attorney General Martha Coakley is urging the state's auto insurers to lower their 2008 rates, saying the companies were including more than $200 million in extra profits and payments to agents that would not have been allowed by regulators in previous years.
Coakley said the state's average premium would have fallen 11 percent had the companies not factored in unjustified profit and commissions into initial rate filings they submitted to the state last week. That's nearly the same as the 11.7 percent reduction approved by the state insurance commissioner for this year, which resulted in an average premium of $899.
Based on company rate filings last Monday, Insurance Commissioner Nonnie S. Burnes said the average premium reduction for 2008 would be 7.7 percent. But the attorney general says the actual number is 6 percent. Coakley said Burnes lumped discounts for members of groups and associations in her calculation, resulting in an apples-to-oranges comparison with the previous year's rates.
Insurers have until noon today to amend their initial filings, which cover policies that must be renewed by April 1. Some companies have already said they plan to cut their rates.
After 30 years under a system where state regulators set all auto insurance rates, the Patrick ad ministration is transitioning to a system in which companies would set their own rates subject to regulatory approval. The administration calls the system "managed competition" and says it will reduce rates for good drivers and usher in policies with increased benefits. Auto insurance rates in Massachusetts are among the highest in the nation.
The attorney general's office by law and regulation represents consumers in the rate-making process. Currently, the attorney general scrutinizes the industry's filing and recommends appropriate rates to the state insurance commissioner. Under managed competition, the attorney general will scrutinize individual company filings and recommend changes to the commissioner.
Coakley was traveling and unavailable for comment yesterday, but her office issued a statement that said she was gathering information as part of her watchdog role as the state moves to managed competition.
"At this stage, it is too early to make a determination about whether managed competition will advantage or disadvantage consumers," Coakley said in her statement.
Kimberly Haberlin, a spokesman for the insurance commissioner, said Burnes "takes her role as a consumer advocate very seriously and will ensure that the division holds insurers to the highest possible standards."
Haberlin said it was premature to get into a debate over the average premium. She said insurers are likely to file lower rates today, lowering the average premium. She also said the average premium may drop further once consumers start shopping around for the best deal on auto insurance next year.
Coakley's comments were in an informational bulletin she sent to automobile insurers on Wednesday. The comments came to light yesterday when the Massachusetts Public Interest Research Group and the Center for Insurance Research, two consumer groups opposed to managed competition, sent copies of the bulletin to reporters.
"The bottom line here is that Massachusetts drivers are paying a lot for this new 'managed competition' auto insurance system, which was sold as a way to lower our rates," said Deirdre Cummings, legislative director for MassPIRG.
In her bulletin, Coakley said she was concerned that auto insurers appeared to be guaranteeing themselves greater profits by overstating their cost of capital, a practice not allowed previously. She said she was also concerned that insurers were rolling the cost of contingent commissions, which are essentially profit-sharing arrangements with agents, into their rates.
Coakley said previous insurance commissioners in some rate decisions have barred the profit-sharing arrangements from being incorporated into auto insurance rates because they don't benefit policyholders. She also said the arrangements had the potential "to create troubling conflicts of interest" by encouraging agents to steer policyholders to insurers that offer the agent - not the consumer - the best deal.
Frank Mancini, the president of the Massachusetts Association of Insurance Agents, said it was an exaggeration to suggest the profit-sharing arrangements would result in conflicts of interest. He said the benefits of the profit-sharing arrangement hinged on customers generating profit for the insurance company by filing fewer claims, which an agent would not know in advance.
Coakley's bulletin also noted that four of the state's largest insurers - Commerce Insurance of Webster, Safety Insurance of Boston, Arbella Mutual Insurance of Quincy, and Travelers of Massachusetts in Worcester - filed average rates that varied by only three-tenths of a percent.
Coakley called the minor variations "a surprising coincidence given the differences in the companies' losses and expenses." She said the companies in their rate filings appeared to be overstating their losses and expenses.
Officials at the companies either declined to comment or could not be reached for comment last night.
Coakley also raised other concerns. Insurers currently are prohibited from using such factors as occupation, education, credit history, and homeownership in setting auto rates, but Coakley said she feared that insurers might be using proxies for those banned factors in their rate filings.
Her bulletin did not get into specifics, but consumer advocates have raised concerns that companies may be violating the prohibition on use of home ownership by offering discounts to customers who also insure a home with them.
Of the 19 companies that filed rates last week, only Liberty Mutual Insurance of Boston and USAA of San Antonio had average reductions greater than 10 percent. USAA serves only military personnel and their families.
Doug Bailey, a spokesman for Arbella, said the company plans to file new rates today that will increase the company's average premium reduction of 6.2 percent. He also said the industry's overall average rate should drop.
"I don't know if it will drop enough to satisfy the attorney general," he said.
Bruce Mohl can be reached at mohl@globe.com.
