Mass. Agents Could Be Losers Under Competitive Auto Rating

July 31, 2007

Massachusetts insurance agents aren’t happy about the decision to introduce competitive rating into the state’s price-regulated private passenger auto insurance system. They enjoy the best market share (86 percent) in the country under the current system and don’t want to see that jeopardized. Their commissions are also protected under the current fix-and-establish system.

“This is going to have a big impact on agents,” Frank Mancini, president and CEO of the Massachusetts Association of Insurance Agents, said.

Mancini is worried that some smaller agencies, perhaps as many as 20 percent of agencies in the Commonwealth, might have to consider merging or even going out of business as a result of the move to a competitive system.

The Democratic administration of Gov. Deval Patrick, led by Insurance Commissioner Nonnie Burnes, has shaken up the agents and the industry with her surprise decision to end the fix-and-establish pricing system and reinstall a file-and-use system under which insurers gain more control over what they charge.

Burnes is introducing what she is calling “managed competition” beginning in April, 2008.

Under the revived file-and use system, insurers will be able to propose rates and rating criteria and put them into use unless the insurance department disapproves them.

Burnes plans on deveoping a regulatory framework, “which will include parameters within which insurers will be free to propose premiums, considering such factors as driving record, number and severity of at-fault accidents, and traffic violations.”

She has called for suggestions by Aug. 1 for this regulatory framework. She plans a public hearing in August and hopes to issue draft regulations in September.

Insurers will not be freed to price completely on their own. Burnes vowed that the state will retain a “strong yet supple regulatory oversight” to ensure that good drivers enjoy the benefits of managed competition, regardless of where they garage their cars.

She also indicated that she will limit the rating factors insurers will be permitted to use in pricing. “I will view with extreme skepticism any rate proposal that is based on socio-economic considerations such as education, occupation, home ownership or credit report or score,” she advised.

Mancini knows agents will be watching for the details of the process and plan, particularly as they relate to their commissions, which are now included in the fix-and-establish rating process.

There is one statutory quirk that could comfort agencies. The state has a law that guarantees that agent commissions will continue under state control, based on the previous year’s figures, for four years after any switch to competitive rating, according to Mancini.

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