Commissioner tells senators she'll keep rein on insurers

Massachusetts Insurance Commissioner Nonnie S. Burnes yesterday told state senators nervous about the introduction of automobile insurance competition for the first time in 30 years that she would keep a very tight regulatory rein on companies.

Burnes, who has ordered that "managed" auto insurance competition will begin on April 1, said she would use her powers to keep rates in check, to maintain urban subsidies, and most likely to bar companies from using socioeconomic factors like credit history, occupation, homeownership, and education in deciding whether to insure customers and how much to charge them.

"We are going to let the insurers compete, but this is not the wild, wild West," Burnes said.

Several senators on the Legislature's Financial Services Committee sat in on yesterday's hearing to learn Burnes's plans, to voice their concerns to her, and to gauge whether they should push for legislation that would restrict her authority.

"At any point, we can decide to step in and change the rules," said Senator Stephen J. Buoniconti, Democrat from Springfield and cochairman of the Financial Services Committee.

Under the state's current auto insurance system, regulators set all auto insurance rates. Under managed competition, insurers will file their own rates with state regulators, who must approve them. Burnes, a former Superior Court judge who became the commissioner in February, said she was required to move to competition under her interpretation of state laws dealing with auto insurance.

In most other states where competition is allowed, insurers can set rates using socioeconomic factors in determining the risk associated with a particular driver.

For example, someone with a good credit background, who owns a home, has a white collar job, or a college education would be considered less likely to file a claim. The theory is that someone with those attributes is more responsible and less likely to drive irresponsibly.

Burnes told the senators that she had not seen any actuarial evidence of a link between the socioeconomic factors and driving behavior, although industry officials say the link is well established.

The Federal Trade Commission last month said credit scores are valid predictors of auto insurance claims, although they tend to penalize African-Americans and Hispanics more than whites and Asians. Burnes said she was skeptical of the data used in the report and the report's conclusion.

"I'm going to be cautious, very cautious, in the use of socioeconomic factors, if they are used at all," Burnes said. She added that, even if insurers can demonstrate a link between socioeconomic factors and the likelihood of filing a claim, she may not allow their use "because they may be discriminatory."

Burnes, who plans to issue draft rules for competition this month or early next month, said she would most likely identify socioeconomic factors that insurers would not be allowed to use. Under current law, she said, insurers are barred from using gender, marital status, and age in setting rates and are prohibited from using age, gender, race, occupation, marital status, and garaging location in deciding whom to insure.

Senator Mark C. Montigny, a New Bedford Democrat, urged Burnes to spell out those socioeconomic factors that insurers could use and bar all others. Otherwise, Montigny said, insurers will figure out a way to obtain the same information using other factors. For example, officials from Arbella Mutual Insurance Co. of Quincy told the senators that firms could use the amount of insurance purchased by a driver as a proxy for income, since more affluent drivers tend to buy more insurance.

Burnes also indicated she would not allow insurers to set up multiple subsidiaries charging different base rates. In other states, companies assign drivers considered better risks to a subsidiary with lower rates and drivers considered higher risks to a subsidiary with higher rates.

"We have some of that happening in the homeowner's insurance market," Burnes said. "We don't want it to happen in the auto market."

Glenn Kaplan, chief of Attorney General Martha Coakley's insurance and financial services division, estimated the state's average premium would have dropped 10 percent next year if the commissioner continued to set the rates. Donald Baldini, assistant vice president at Boston-based Liberty Mutual Group, predicted rates will drop more under competition.

Burnes made no prediction about rates. "I expect they are going to go down," she said. "If they're not going down, I'm going to be very suspicious."

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