Fate of group auto discounts uncertain

Price breaks may be banned under rules

Should drivers pay less for auto insurance simply because they maintain a checking account at a particular bank, graduated from law school, or work as surgeons?

Thousands of Massachusetts drivers receive these types of price breaks today, but it's unclear whether the discounts will continue next year when companies for the first time in 30 years will be allowed to set their own rates subject to state approval.

Insurance Commissioner Nonnie S. Burnes, concerned about higher prices for drivers who are less affluent or less educated, has proposed rules for auto insurance competition that would bar companies from using such socioeconomic factors as income, education, occupation, and homeownership in deciding how much drivers should pay for coverage or whether to insure them. She has also proposed a one-year ban on the use of a driver's credit history in setting rates, but not in deciding whom to insure.

Many companies appear to be using proxies for those factors today. Under the existing auto insurance system, where Massachusetts regulators set all the rates, companies are allowed to offer discounts on the state-set rates to members of groups or associations. Many of these groups fit targeted education, occupation, and income levels insurers believe have lower loss experience.

Safety Insurance of Boston, for example, offers a 5 percent discount to members of the Boston University Law Alumni Association. Liberty Mutual Group of Boston offers an 8 percent discount to members of the American College of Surgeons. And Commerce Insurance of Webster offers a 5 percent discount to customers of Citizens Bank who have a Circle Checking account, which requires a $5,000 combined balance with the bank to avoid monthly fees.

Companies could continue offering these types of discounts when they start setting their own rates April 1, but it's unclear whether Burnes will allow them.

Kimberly Haberlin, a spokeswoman for the Division of Insurance, issued a statement saying the agency would evaluate all group discount filings as required by law. "As we move to give drivers more choice and lower premiums through managed competition, we expect these discounts may become less and less relevant as a competitive environment creates lower costs for a greater number of people," the statement said.

Representative Robert Spellane, a Worcester Democrat and a former insurance agent, has filed legislation to prohibit group discounts from being offered to customers of banks. He said it was offensive that some people would receive a discount on their auto insurance simply because of the size of their bank account.

He acknowledged in an interview that other groups receiving discounts are targeted because the members have reached certain education levels or hold certain jobs. He said Burnes should review all of the groups to make sure they don't conflict with her prohibition on the use of socioeconomic factors.

Spellane also said it was hypocritical for companies such as Commerce, Arbella Mutual Insurance of Quincy, and Plymouth Rock Assurance Corp. of Boston to lecture lawmakers on the dangers associated with the use of socioeconomic factors while offering discounts to drivers who maintain accounts at banks.

Commerce has the Citizens group, while Arbella offers a 7 percent discount to members of Eastern Bank's Select Banking Club and Plymouth Rock offers a 7 percent discount to customers of Cape Cod Cooperative Bank who have CapeLife Accounts. The Eastern and Cape Cod accounts require combined balances of $5,000 and $15,000, respectively.

Paula Gold, a Plymouth Rock vice president, said there was no inconsistency in the company's position. She said Plymouth Rock believes premiums should be based primarily on driving record and not socioeconomic factors like credit history, income, education, or occupation. But Gold said Plymouth Rock will play by whatever rules are in place, as it does in other states where the use of socioeconomic factors is allowed.

"Whatever the system is, we will compete under the rules of the system," she said.

With the current group discounts, members of the group pay less for auto insurance but nonmembers do not pay more and are free to join a group open to anyone. Members of the American Automobile Association, for example, receive a 5 percent discount from Commerce.

Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge, said the controversy over group discounts is a small preview of what will happen once insurers start setting their own rates next year. He predicts insurers will use proxies for a customer's income, occupation, education, and credit history to set the rates the driver will pay, which will result in some drivers paying less and some drivers paying more.

D'Amato faulted Burnes for listing in her proposed regulations what factors companies cannot use in setting rates and deciding whom to insure. He said she should have listed those factors that companies can use, like driving record and experience, and ban all others. "The commissioner is essentially inviting insurers to take their ever-expanding list of proxies and use it to increase rates and to reject drivers," he said.

Burnes is scheduled to hold a hearing on her proposed competition regulations next week.

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