Consumer Groups: Mass. Auto System Unfair to Many Good Drivers

February 28, 2008

The new managed competition auto insurance system being implemented in Massachusetts rewards many bad drivers and penalizes many good drivers based on certain supposedly-prohibited social factors, according to the latest charges by critics.

Many good drivers will pay more and many bad drivers will pay less under managed competition because premium discounts being offered indirectly incorporate credit score, homeownership, education level and other social factors that override the pricing impact of driving record, according to a new report.

The report, entitled ‘How You Drive’ Takes A Backseat to ‘Who You Are’: (Mis)Managed Competition in the New Massachusetts Automobile Insurance Market, was released by two consumer groups – the Center for Insurance Research and MASSPIRG.

Starting in April, auto insurers are being allowed to use their own rates but the state has said insurers can’t use factors relating to credit score, income, marital status, homeownership, education, age or race in establishing those rates that they then use to determine premiums.

Insurance Commissioner Nonnie Burnes has herself said the system is designed to emphasize driving record over social factors or geography in determining what drivers pay.

However, the consumer groups’ report claims that the state has allowed insurers to reflect those prohibited social factors in the premium discounts they are offering, which the groups say dilutes the effect of driving record on what drivers ultimately pay.

Many of the premium discounts being offered by insurers are not based on driving record. Instead the discounts are for having a homeowners’ insurance policy, being a good student, owning multiple vehicles, being licensed for several years, owning a hybrid vehicle, and being a loyal customer.

As a result, the report maintains, certain drivers with bad driving records — namely homeowners, college students and married couples – will benefit from these discounts compared to poorer drivers with perfect driving records.

The consumer groups argue that the state has allowed insurers a backdoor way to use credit scoring in pricing. Since the state currently permits insurers to use credit scoring in underwriting homeowners’ insurance policies, insurers can now offer discounts to those with a companion homeowners policy.

“This is an apparently permissible way to get around the prohibition on the use of credit scoring in auto insurance rating,” the report says.

In addition to not being eligible for these discounts, many good drivers will end up paying more so that others with bad driving records may get the discounts, the report maintains.

The report says that in all rating territories, many drivers with clean records will fail to receive the rate reductions promised them by officials.

“As predicted by consumer groups, the new insurance system will lead to higher rates overall than the old system would have produced, and to a slew of unfair pricing practices,” said Deirdre Cummings, Legislative Director of MASSPIRG and a contributor to the report.

The groups maintain that encouraging consumers to shop around does not solve the problems they cite.

“The range of options available to many good drivers is much worse than the range available to many bad drivers. No amount of shopping around can change that,” the report concludes.


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