Consumers know best on car insurance
SOME PEOPLE think drivers in Massachusetts are not smart enough to shop for car insurance -- and that the state should continue to mandate rates and policy features, depriving drivers of choice. Unlike every other state and the District of Columbia, which trust consumers to buy car insurance by choosing from among competing products and prices, Massachusetts has refused to loosen the command and control regulatory structure in place since the mid-1970s. As a result, consumers have fewer companies to buy from and fewer product and pricing choices than in all other states.
Fortunately, Governor Deval Patrick and Insurance Commissioner Nonnie S. Burnes have more faith in the people of Massachusetts and have signaled a willingness to introduce measured reforms intended to increase choice while preserving consumer protections and appropriate subsidies. We urge their prompt action. As the state's largest property and casualty insurance firm, Liberty Mutual will continue to compete for business in every Massachusetts neighborhood so that the benefits of reform will be available to every driver in the state -- urban or suburban, young or old.
Car insurance rates have fallen in each of the last three years, so it's easy to understand why some question the wisdom of changing things now. Yet every objective review of our auto insurance system, including the Governor's Task Force, has come to the same conclusion: Despite the shiny veneer, the system has serious cracks that need to be fixed.
Change can be threatening to those with vested interests in the status quo -- but if there were ever a time to introduce controlled competition in the car insurance market, it is now. Rates have come down because the number and cost of claims have fallen, and there is good reason to think this trend will continue.
This phenomenon is not unique to Massachusetts. It is a national trend. No one knows exactly what is driving it, but it is fair to give credit, in part, to stepped-up anti fraud efforts and to law enforcement. That is particularly true in Massachusetts where fraud had become rampant in certain cities. No credit for decreasing rates, however, goes to the state's regulatory system. Over the long term, the cost of insurance will be determined by claim costs -- whether the state moves to a more competitive model or not.
Massachusetts is not unique in other respects -- it is not unique in mandating car insurance, nor is it unique in having urban drivers and youthful drivers. Where it is unique is in addressing these concerns through the heavy hand of regulation. We at Liberty Mutual are sensitive to the cost of insurance in urban neighborhoods and believe that urban subsidies and a more flexible and competitive system can go hand in hand.
The benefits of reform will go well beyond rates. In a competitive market, insurance companies will offer policy features matched to consumer demand. For example, in every other state Liberty Mutual offers a new car replacement plan to protect our customers from depreciation risk when a new car is stolen or totaled. Since Massachusetts requires uniformity, policy innovation such as this replacement feature cannot be offered here. Again, it is the Massachusetts consumer who is deprived of market innovations as a result of our inflexible regulatory system.
There is a word for addressing a problem before it becomes a crisis -- leadership. The governor and the commissioner are exhibiting it. Liberty Mutual is committed to making the system work better for everyone.
Edmund F. Kelly is chairman, president, and CEO of the Liberty Mutual Group. 
