State issues proposed rules for insurance competition

Massachusetts Insurance Commissioner Nonnie Burnes today proposed opening the state's regulated auto insurance market to greater competition, but she wants to bar insurers from using socio-economic factors such as marital status and education in setting rates.

A draft regulation written by the appointee of Democratic Governor Deval Patrick also forbids insurers from using data from credit reports in setting rates during a one-year transition to the new market.

"I have repeatedly expressed my extreme skepticism about socio-economic factors and my belief that prohibiting their use is good public policy and beneficial for consumers," Burnes said. "Using credit information for rating and underwriting purposes affects multiple lines of insurance -- not just auto -- and therefore requires further study."

The regulation will be discussed at a Sept. 20 public hearing before Burnes issues a final version in October. The market transition is expected to begin next April and be completed by March 31, 2009 -- a period when the issue of using credit scores will be studied.

Under the shift to so-called managed competition, companies would file their own rates with regulators, who would review them.

Burnes, a Superior Court justice since 1996, was appointed by Patrick in February. The next month, a panel appointed by Patrick recommended moving toward competition.

Nineteen insurers currently write auto insurance policies in Massachusetts -- far fewer than in most states, and nearly half the number that participated in 1990. Massachusetts in the only state where state regulators, not the market, set car insurance rates.

Decreasing claims have led to reduced rates in recent years, but critics have said rates would have been cut further had the state eased regulation.

Burnes introduced a plan to shift to a more open market last month, and has since been working on details. Tuesday's proposal comes two weeks after members of a state Senate panel expressed concerns that her plan wouldn't include enough protections to guard against potential discrimination by insurers.

Burnes said in an interview that she believes she has addressed all those concerns.

Laws already ban companies from using race or gender as a factor in determining insurance rates and deciding who to cover. Burnes' proposal would ban additional factors in rate-setting including income, marital status, education, occupation and homeownership.

Insurers would be limited to considering a motorist's experience and driving record as primary factors in setting rates.

Insurance companies have welcomed the shift toward a more open market, but some have opposed strict limits on which socio-economic factors they can consider. They argue that such factors can offer a sound basis for determining how likely a driver is to file an accident claim.

James Harrington, executive director of the Massachusetts Insurance Federation, a trade association of insurers, said Tuesday that Burnes' proposal takes "a responsible and measured approach."

Burnes said her proposal is "based on the principles of managed competition: reducing rates for good drivers regardless of where they garage their cars; sustaining a low number of uninsured drivers; maintaining stability in a small residual market and ensuring fairness for all drivers through bans on the use of socio-economic factors."

Burnes didn't offer a prediction on how many additional insurers might return to the Massachusetts market under her proposal, but said some have already expressed interest in coming back.

Attorney General Martha Coakley -- who plays a role under the current system in recommending how much of a rate increase or cut should be allowed -- has said the industry might not be ready for an open market. She wants the current system kept in place for at least another year.

Patrick's predecessor, Republican Governor Mitt Romney, proposed overhauling the state's regulated market, saying it drove away many discount insurers. Unlike Burnes, Romney had wanted to allow insurers to use certain factors such as marital status and credit scores in calculating individual rates. (AP)