4 auto insurers faulted on rates
Pricing plans violate rules on discounts, state regulators say
The state Division of Insurance yesterday notified four automobile insurers, including three of the state's biggest, that portions of their proposed rate filings for next year violated department regulations covering acceptable discounts.
Commerce Insurance of Webster, Arbella Mutual Insurance of Quincy, Liberty Mutual Insurance of Boston, and Electric Insurance of Beverly were given until Monday to decide whether to come into compliance or appeal their cases at a regulatory hearing later this month.
A Commerce spokesman declined to comment. An Arbella spokesman said he was not aware of any notice from state regulators. Officials at Electric could not be reached for comment.
Liberty spokesman Glenn Greenberg said the company would review its filing "to make sure that it is in full compliance with the commission's rate filing guidance."
For the first time in 30 years, Massachusetts is moving from an auto insurance system where regulators set rates for all the companies to a system where each company sets its own rates, subject to regulatory approval.
The insurers filed their rates last month for policies renewing on April 1, and regulators are beginning to demand changes in those filings. State regulators are continuing to review the filings of all the companies. Separately, Attorney General Martha Coakley is expected to begin releasing her analysis of the findings next week. Rates will go up if the companies make the changes requested by the Division of Insurance.
One state official close to the review process said Insurance Commissioner Nonnie S. Burnes would use her regulatory authority to make sure consumers are protected.
"There will be zero tolerance for companies that attempt to operate outside of the division's rules," the official said. "When concerns arise, the commissioner will not hesitate to step in to address and correct them."
In their rate filings, Commerce, Arbella, Liberty, and Electric all said they intended to charge drivers different rates based on the bodily injury limit coverage the driver purchased. In one of its bulletins on auto insurance competition, the Division of Insurance said that type of pricing would be prohibited during the transition to competition, which runs from April 1, 2008 to March 31, 2009.
The minimum amount of bodily injury coverage required by state law is $20,000 per person per accident, or $40,000 overall per accident. Many of the companies that received notices yesterday were offering double-digit discounts to drivers who purchased significantly more coverage, as much as $100,000 per driver per accident and $300,000 in aggregate coverage.
State officials, who asked not to be identified because they had not been authorized to speak on the record, said it wasn't clear to them why someone who bought more bodily injury insurance coverage should receive lower rates for various coverages.
Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge, said the bodily injury coverage limit is a proxy that many insurers use for income.
"It seems to me to be a clear proxy for income," D'Amato said of the discounts tied to bodily injury coverage. "But if they're not banning it for that reason, it's not clear why they are banning it."
Insurance Commissioner Nonnie S. Burnes has prohibited companies from specifically using income as a rating factor because it would discriminate against lower-income drivers.
Commerce and Electric were also told that they could not roll discounts that they previously offered to specific groups into their rates. Commerce did that in its filing with members of the American Automobile Association, and Electric did it with employees of its own company and General Electric Corp.
Industry officials say the two companies incorporated those discounts into their rates so they could pick and choose which members of those groups would be offered coverage. The Division of Insurance said the group discounts must be offered separately from the company's rate filing and all members of a group must receive the discount.
Bruce Mohl can be reached at mohl@globe.com.
