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Massachusetts Commissioner: Auto Insurance Reforms Delivering Competitive Market and Choice for Consumers

03/31/2008 —

BOSTON, March 17 – The Massachusetts personal auto insurance market is more competitive and offering drivers greater choice in the wake of recent reforms, Massachusetts Insurance Commissioner Nonnie Burnes told the Casualty Actuarial Society (CAS) Ratemaking Seminar.

In a keynote speech, Commissioner Burnes gave an overview of reforms passed last year that will allow personal auto insurers in Massachusetts to offer competitive rates as of April 1 – a move that will create a more open market for the first time since 1977.

Commissioner Burnes explained that for 30 years the Commissioner of Insurance had fixed and established the auto rates for the entire state. This led to a situation where good drivers were subsidizing the bad and fewer insurance products were being offered.

“In 1977, we had over 100 insurers writing private passenger auto in Massachusetts. From the early 1990s to 2007, 35 companies left the state. By 2007, there were just 19 companies writing private passenger auto, and I don’t think there is another state that comes close to that,” she said.

Commissioner Burnes noted that this was a dangerous situation for Massachusetts. “There were so few insurers and some insurers were amassing a pretty significant market share. This was not a good place for the Massachusetts consumer to be, to say nothing of the auto market itself.”

As a result, in July 2007 she decided there was sufficient competition to open the market without rates becoming excessive, inadequate, or unfairly discriminatory.

All companies that wanted to write policies as of April 1 were required to file their rates as of last November. “We had rate changes ranging from -2.2 percent to -15.5 percent – a huge range. These policies are now starting to renew,” she said.

“We also have one new insurer who has filed to write auto insurance starting May 1, so there is a lot of activity going on. Companies are competing for customers,” she added.

The Department of Insurance is also making an effort to give Massachusetts consumers as much information as possible, to better arm consumers who shop for their own auto policies. For example, Commissioner Burnes noted that the department has launched a web site where consumers can view sample rates from insurers writing in the state.

She explained that one of the most contentious parts of the reforms was the issue of whether or not to allow insurers to use socio-economic factors in the rating process. “We banned a lot of socio-economic factors from both rating and underwriting. That was very hotly contested. But the middle-ground was: here is a group you cannot use,” she said.

Turning to the coastal homeowners insurance market in Massachusetts, Commissioner Burnes outlined the challenges of the current market environment for consumers, insurers and regulators. “This is a problem for which I as a regulator have few strings to pull,” she noted.

The Commissioner said part of the issue is that “people just move to the higher risk areas” and that insurers have been managing their risk by reducing their exposure or withdrawing from the market.

She noted that there are a number of proposed solutions, including establishing a state catastrophe fund, revamping the state’s Fair Access to Insurance Requirements (FAIR) plan, and establishing a wind pool.

“None of these seem satisfactory in isolation and many of these solutions are outside the scope of my authority,” she observed, adding: “For the regulator this is a real conundrum. The consumers want low prices and high coverage but companies want to manage their exposure to risk. Meanwhile, the government wants availability and affordability for consumers and we want a healthy insurance market.”

The Casualty Actuarial Society fulfills its mission to advance actuarial science through a focus on research and education. Among its 4,500 members are experts in property-casualty insurance, reinsurance, finance, risk management, and enterprise risk management.

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