Massachusetts independent insurance agents who oppose the use of credit scores, occupation and education level in auto insurance pricing by the insurance companies they represent are pushing to put a petition to ban such pricing on the state’s 2010 ballot.
The Massachusetts Association of Insurance Agents (MAIA) said it has filed with the Attorney General’s Office the 10 signatures required to begin the process of placing a petition on the 2012 ballot to prohibit insurance companies from using a person’s credit score, occupation, or level of education as factors in underwriting and rating of private passenger automobile insurance.
The group’s opposition to the pricing practices pits agents against some of the very companies whose policies they sell.
A trade group for insurers in the state said the agents are not happy that the state now has a competitive market and that if a ban is passed it would end many of the premium discounts drivers now enjoy.
MAIA’s petition mirrors legislation the group filed this session, Senate Bill No. 461, to prohibit the use of these socioeconomic factors.
“While we remain focused on passing this important bill through the legislative process, we felt it was essential to keep all avenues open to us,” said Frank Mancini, president of MAIA.
Auto insurance premiums, MAIA argues, should be based as much as possible on an individual’s driving record and years of driving experience. Currently, Massachusetts has only administrative regulations in place to prohibit the use of these socioeconomic factors.
Mancini’s group believes that without formal legislation to the contrary, the state insurance commissioner has discretion to amend those rules at any time after conducting a public hearing.
Mancini said that current Insurance Commissioner Joseph Murphy has indicated he does not intend to amend the regulatory prohibitions in place but agents do not want to leave the issue up to the discretion of any regulator.
“Using these factors to set auto rates is simply unfair, discriminatory, and unreliable,” explained Mancini. “Two people living in the same neighborhood with identical driving records should not be charged different rates because one lost their job or fell behind on their medical bills.”
MAIA insists that, contrary to what insurance companies contend, the use of education, occupation or credit scores to determine auto rates does nothing to discourage people from engaging in the risky behaviors that actually cause losses.
“A person who decided to become a plumber or carpenter should not have to pay more for their auto insurance simply because they chose not to go to college or obtain a graduate degree,” said Mancini. “There is simply no place for this type of class warfare in our auto insurance system.”
MAIA also argues that credit scores, occupation and education may all be used as proxies for rating factors that insurers are otherwise prohibited from using. Many low-income and minority consumers use non-traditional financial institutions, such as check cashing or rent-to-own stores that often do not report information to credit agencies. Many others rent rather than own their homes and do not make mortgage payments. According to MAIA, this absence of information can dramatically lower their credit scores.
“Allowing these factors to be considered will result in increased rates for those Massachusetts drivers who can least afford it,” said Mancini.
MAIA also insists that the use of credit scoring is unreliable, citing consumer group reports that 70 percent of credit reports contain mistakes of some kind.
“With so many questions surrounding the accuracy and effectiveness of credit scoring, it is simply bad public policy to allow insurers to rely on this information,” said Mancini. “We hope that by seeking to remedy this through the legislative or ballot initiative process, we will be able to better protect Massachusetts consumers.”
Insurers have defended the use of the rating factors cited by MAIA and have opposed bans in Massachusetts and in other states. This latest move has also run into insurer opposition.
The insurer group, Massachusetts Insurance Federation (MIF), called the action by the MAIA to try to place a referendum question on the 2012 state ballot “unnecessary, redundant and completely without merit.”
“This is political grandstanding pure and simple,” said James T. Harrington, executive director of the MIF, a trade association representing a majority of the companies writing auto insurance in Massachusetts. “And nothing better establishes that than the fact that the MAIA’s own parent organization, the Independent Insurance Agents of America (IIABA,) claims that regulation of credit information and credit based insurance scores are an effective , objectively verified and fair risk management tool.”
Harrington said agents’ beef is not really with pricing practices.
“No one should misunderstand the agents’ agenda here; this is about a specific interest group that is unhappy that auto insurance competition has finally arrived in Massachusetts and even more unhappy that it is thriving,” charged Harrington.
Harrington said that a legislated ban on the use of credit scores would send a “message to the industry nationally that Massachusetts is hostile to competition and don’t bother to invest here.”
He said that since the establishment of managed competition nearly four years ago, 13 companies have entered the Massachusetts market.
“Consumers should be aware as well that the agents’ move to ban occupational and educational factors will end hundreds of group discounts that individual companies have used, which are actually marketed by many agents themselves,” Harrington said.
“Massachusetts has finally got it right when it comes to auto insurance competition and now is the worst possible time to do anything that reduces competition or eliminates the discounts that are enjoyed by hundreds of thousands of consumers throughout the Commonwealth,” said the insurer group executive.