Steve D’Amato, the former director of the State Rating Bureau in the Massachusetts Division of Insurance, who has emerged the past few years as an unofficial consumer advocate on insurance issues in Massachusetts, is questioning whether competition will bring much relief to the state’s auto insurance customers.
D’Amato, his designation as consumer advocate official as he assumes duties as the new executive director of the Center for Insurance Research, the Cambridge, Mass.-based nonprofit advocacy group, says he’s not anti-competition. But he also does not believe that the efficiencies and cost savings under competition are very significant for consumers.
“There are some mild benefits of controlled competition and I could support that,” he says. But most of the competition in auto insurance comes in risk selection, not in pricing, he maintains.
Gov. Mitt Romney and his administration have expressed interest in reforming aspects of the state’s tightly-regulated private passenger auto insurance system to open it up to more competition and to attract more insurance companies to the market. Romney’s proposals include revamping the state’s high risk pool, Commonwealth Auto Reinsurers, tinkering with subsidies between good and bad drivers, and introducing some pricing flexibility for insurers.
D’Amato has no major problem with eliminating the “incentives and games” within the state’s residual market, Commonwealth Auto Reinsurers, but he thinks that many other proposals to spur competition are off-base.
He thinks any move to change CAR to an assigned risk plan is “short-sighted” for the industry because an assigned risk plan within even a modestly competitive rating system would require a separate ARP rate, raising issues about which drivers must be charged an ARP that are not raised under CAR’s operation.
D’Amato sees some benefits to minimum and maximum rate bands if applied across the board to all coverages, rather than varying by coverage. Similarly, while some product differentiation can be good, some of it misleading, in his view. He feels it’s best if all insurers are required to offer the same product variations. The idea behind this uniformity in price and product differentiations is to make it possible for consumers to compare.
In addition to not believing competitive rating will help consumers all that much, he also doubts that changing the rating system in Massachusetts will attract new capital and new insurers as many proponents hope.
“Competition does not depend on the rating system,” as much as it depends on the perceived adequacy of the rates, he maintains. He points to the period in the late 1990s when insurers in Massachusetts competed by offering discounts to good drivers rated at Step 9, even though the state still fixed-and-established rates.
“To attract companies you need to do more than change the rating system. Companies also want stability. To do that in Massachusetts, you’d almost have to create a word without history,” he said.
For more on D’Amato’s views on insurance issues, see the April 19 issue of Insurance Journal East.
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