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AG urges changes in auto insurance

Report faults way firms set rates under new system

By Robert Weisman
Globe Staff / December 24, 2009

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The state attorney general’s office yesterday issued a report contending that the managed competition auto insurance system introduced in 2007 so far has failed to bring down rates and protect the interests of consumers.

While the new system has attracted more insurance companies to the market, the report said, some have begun rating customers on factors linked to socio-economic status rather than driving records, with drivers who are young, senior citizens, lower-income, urban, or who don’t own a home often paying more.

It also faults the state Division of Insurance for not providing comparison data that would make it easier for drivers to shop around and save money on policies.

In a statement yesterday, Attorney General Martha Coakley said her office “is concerned that consumers may not, in fact, be getting the best rates and the protections they deserve.’’ She proposed several improvements, such as requiring insurers to justify the use of discount rating factors not related to driving records and creating an insurance website that provides side-by-side rate quotes for all carriers.

Coakley was not available yesterday to discuss the 58-page report or the recommendations, her spokeswoman said.

Barbara Anthony, undersecretary of the state Office of Consumer Affairs and Business Regulation, which oversees the Division of Insurance, sharply criticized the report, maintaining that statistics show auto insurance rates have dropped for the average Massachusetts driver. “We respectfully disagree with the findings and the assumptions in the report,’’ Anthony said.

The head of a trade group representing new and longtime carriers that write auto insurance policies in Massachusetts suggested the report, coming a month before the special election to fill the Senate seat of the late Edward M. Kennedy, may be an effort to boost Coakley’s campaign. “The timing of this certainly increases my curiosity,’’ said James T. Harrington, executive director of the Massachusetts Insurance Federation in Boston, which represents insurers such as Liberty Mutual Group, Geico, and Progressive Insurance.

Until 2007, Massachusetts insurance rates long had been set by state regulators, with policyholders charged based on driving records and where they registered their vehicles. Insurers were required to write policies for almost everyone, causing some companies to avoid doing business in Massachusetts, and there was little variation in prices from one insurer to the next. The new system allows insurers to set their own rates, use different criteria to formulate them, and reject more applicants.

The results have been at best, mixed for consumers, according to the report released by Coakley’s office.

“While prices have dropped overall,’’ it said, “consumers are currently paying more than they would have had the market not been deregulated. A variety of new insurance carriers have entered the market, but most of the new entrants have not offered lower rates overall. Moreover, the new insurers have not caused incumbent carriers to lower statewide prices.’’ Instead, it said, many insurance companies began boosting their auto rates in the state this year.

Frank Mancini, president of the Massachusetts Association of Insurance Agents, a Milford-based trade group representing independent agents who write policies for various insurers, agreed that the results of deregulation have been mixed.

The insurance division’s website has been inadequate for consumers, he said, but many consumers have gotten lower rates through agents, who write about 80 percent of state auto policies.

“The jury’s still out,’’ Mancini said. “Rates are probably going to go up because the business is cyclical, and that would have happened under the system we had.’’

Anthony, who oversees the insurance division, said “it’s not the job’’ of the division to provide comparison shopping. She noted that its website contains links to agents and insurers doing business in Massachusetts. She also cited a study of managed competition that concluded auto rates fell by an average of 8.2 percent for the year ending last April, a savings of $271 million for policyholders.

“Some people probably got rate increases,’’ Anthony acknowledged. “They may have been bad drivers, I don’t know. But a lot of people had decreases. . . . Thirty companies are competing for business in Massachusetts. Unless there’s some mega-conspiracy going on, I find it hard to believe’’ that greater competition has increased rates.

Anthony also said it was impossible to know whether rates would have dropped more if they still were set by the state.

Harrington, at the Massachusetts Insurance Federation, suggested Coakley was an opponent of managed competition who instead favored dual regulation, with her office having a voice in setting insurance rates along with the division of insurance. Some members of his trade group echoed that view in separate statements yesterday.

“The flawed report issued today by Attorney General Martha Coakley ignores the real and demonstrable benefits of managed competition to Massachusetts drivers and to the Massachusetts economy,’’ said Edmund F. Kelly, chief executive of Liberty Mutual Group in Boston.

“Liberty Mutual’s experience is that people do not want the government making decisions for them. They want to choose for themselves the company they do business with - based on the quality of the product, service, and price.’’

Robert Weisman can be reached at weisman@globe.com.