Battle brewing on auto insurance

The battle over the future of the state's $3.9 billion auto insurance market has trapped Governor Deval Patrick in a political crossfire between his insurance commissioner, who is signaling she wants to overhaul the rate-setting system, and his allies in urban legislative districts, who fear the changes would lead to sky-high premiums for their constituents.

Patrick's insurance commissioner, Nonnie S. Burnes, has made comments both privately and publicly that have convinced industry officials, consumer advocates, and legislators that she is ready to introduce some level of market-based competition to the state's highly regulated auto insurance market and overhaul the system that deals with high-risk drivers.

Massachusetts is the only state that requires the insurance commissioner to set auto rates. This system was established decades ago and is designed to ease the disparity in insurance rates between cities and suburbs. A high-risk pool provides coverage for drivers who cannot get coverage in the regular market.

Allowing insurers to have more control over rates could lure some large companies back to Massachusetts, such as Liberty Mutual, a strong financial supporter of Patrick and other Beacon Hill leaders.

But for urban voters, one of Patrick's core constituencies, it brings back memories of the 1970s, when a brief effort to introduce competition left some city residents annually paying more for car insurance than their vehicles were worth.

"I think this is potentially the worst, negative economic policy decision that faces this governor during his tenure," said Senator Dianne Wilkerson, a Democrat of Boston and an early Patrick supporter in last year's gubernatorial campaign. "This would be a disaster."

Patrick, the state's first African - American governor, runs the risk of being accused of turning his back on drivers in minority communities. Wilkerson said the proposed changes are, in effect, "auto insurance redlining" -- referring to discriminating marketing practices that target urban neighborhoods, which Patrick battled as chief of the US Justice Department's civil rights division in the Clinton administration.

"This would be a most egregious form of 21st-century state-sanctioned insurance redlining," she said. Wilkerson said she is confident that Patrick's experience would influence the outcome.

But, by introducing a market-based overhaul, Patrick would make strides in his effort to show a friendly face to the corporate world, including auto insurance companies, many of whom left Massachusetts to seek more profitable, less regulated markets.

Patrick's aides maintain that, while the two sides have presented their case to the insurance commission, no decision has been made. They did not respond directly to Wilkerson's statements. "Any speculation that a final decision has been made or that the administration is leaning in any direction is just that -- speculation," said Patrick's press secretary, Kyle Sullivan.

Wilkerson, Senate majority leader Frederick E. Berry, and Senator Joan M. Menard met last week with Patrick to press their case after Burnes refused to meet with them, saying she faced potential conflicts, according to the senators. Burnes and Daniel O'Connell, economic development secretary, met with the senators many days later in Berry's office.

Burnes is a former superior court judge. She is scheduled to sit down with several of Patrick's aides next week as the governor and his staff try to prepare for what could be an explosive decision, if the state's past history is any guide. Her decision is expected by July 15.

The debate pits the so-called domestic insurers -- mainly Commerce Insurance and Arbella Insurance, which dominate the auto insurance business in the Bay State -- against those firms, led by Liberty Mutual, that have abandoned Massachusetts but would be eager to return if they can set their own rates.

Attorney General Martha Coakley has raised a number of questions about implementing a competitive market-rating system, providing Wilkerson and other opponents with strong fodder. Her insurance division has warned that rates in Boston could jump 20 percent and by as much as 35 percent in Roxbury and Dorchester. Other urban areas in the state would see hikes of between 15 and 20 percent, her staff said.

A group of insurers, which includes Liberty Mutual and calls itself the Fairness for Good Drivers Coalition, has proposed a compromise that would implement a form of competition by allowing companies to change their overall rates, up or down, 5 percent next year. Under the proposal, individual driver rates could not rise more than 10 percent. The group also said it supports the current system, in which suburban car owners subsidize lower rates for urban owners.

John Cusilito, Liberty's spokesman, said history in other states, such as New Jersey and Connecticut, shows that urban communities are not hit with higher rates when competition is introduced. "We support the continuance of subsidies for high - risk drivers in high-risk territories to help avoid rate-sticker shock," he said.

The group's proposal reflects many of the recommendations of a task force the governor created earlier this year, which called on Burnes to "examine alternative moves toward competitive rating."

Wilkerson said the push for a competitive rating system is based on the companies' quest for profits, not what is best for consumers. The profit margin for auto insurers in Massachusetts, she said, is about 40 percent below the national average. In 2005, the profit by Bay State companies was 5.7 percent, while the national average was 8.1 percent.

With a decision on the horizon, the insurance industry, which floods the State House hallways with high -paid lobbyists and pads political campaign accounts with donations, is drawing on its years of cultivating support.

Commerce Insurance, Arbella, and Plymouth Rock Assurance Corp. -- which are fiercely guarding their dominance of the Massachusetts market -- lead the fund-raising. Campaign finance records show that the firms' executives and lobbyists donated $154,000 in the 2005-2006 election cycle. Menard picked up $40,000 from the insurers; Wilkerson, $14,000; and Berry, $33,000.

Meanwhile, the Globe reported last week that Edmund F. Kelly, Liberty Mutual's president and chief executive officer, co-hosted a fund-raiser for Patrick on June 18 that produced more than $25,000 in donations for the governor. Kelly's fund-raising focus on the Democratic governor is occurring after several years of directing donations to former governor Mitt Romney, who had pushed for dismantling the current rate-setting system.

(Correction: Because of a reporting error, a story in Sunday's City & Region section about possible changes in the state's auto insurance rate-setting system incorrectly characterized Liberty Mutual's status in the Massachusetts market. The insurance company does provide auto insurance to Massachusetts drivers.)