Mass. Doesn’t Know What It’s Missing In Insurance, State Official Tells Boston CPCUs

June 14, 2004

Massachusetts consumers and lawmakers are often unaware of the insurance advantages enjoyed in other states or the problems within their own system and need to be educated about what they are missing, according to the head of the Massachusetts research bureau of the Division of Insurance (DOI)

“Massachusetts people don’t understand what other options could be available to them,” said Kevin Beagan, director, State Rating Bureau, in remarks before the Boston CPCU Society last week.

The SRB serves as the division’s own rating and research arm. Its staff reviews rate and form submissions by the insurance industry and develops its own proposals for consideration.

Beagan cited the lack or awareness about how the Massachusetts insurance system really works as one of the reasons changing insurance laws and regulations is difficult in the state.

“You have to build consensus,” he said, stressing that this takes time and education of all parties.

The SRB chief said everyone has a complaint about a specific component, whether about rates or territories or surcharges, of the Massachusetts auto system but that very few people including lawmakers really understand the whole system.

“We’re trying to move away from specific complaints and make them aware of the entire system. We have at least gotten the lawmakers’ attention,” he added.

Beagan explained how insurance markets are “inter-related.” If insurers stay out of one market in a state, such as private passenger auto, they often stay out of others, such as homeowners, and further restrict consumers’ options.

The effect of market restrictions can be hidden from consumers and lawmakers, sometimes until it is too late, he warned. For example, he noted that Massachusetts is down to just 19 carriers writing private passenger auto, with the dominant carriers being local companies. This shortage of capacity is now affecting the state’s homeowners market, especially on the Cape and Islands, he noted, leaving the state without a large base of national insurers among which to spread the risk and leaving local companies exposed to potential losses major storms.

This lack of national carriers also affects the state’s ability to devise other solutions to homeowners insurance as well. “It limits the options,” he said.

As other examples of options available in other states but not in Massachusetts he cited flexibility in rating and the offering of discounts for consumers’ use of preferred body shops.

Commissioner Julianne Bowler has embarked upon a series of changes to the state’s private passenger auto market starting with the reinsurance facility and the safe driver plan. Beagan said these steps “may appear small but at least they are being taken,” adding that repairing the state’s property casualty markets will take a step-by-step approach in the state.

He said the goals of changes being considered are to increase the number of insurers writing business in the state and allow for “vibrant” product development.

“The markets work best when more companies compete,” he said.

He hopes the steps being taken also send the message that the “door is open” to change in the way Massachusetts approaches all property casualty insurance, including workers compensation and other commercial lines, not just auto lines.

“We can’t change it overnight. Change is slow; it takes time,” Beagan said. “It takes time and education and bringing people and ideas into the process.”

In keeping with Beagan’s message, House and Senate lawmakers agreed on a measure to deregulate certain large commercial lines.

The public hearing on changes to the safe driver plan, which was originally scheduled for June 11, was rescheduled for June 29.

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