Chesto: Auto insurance agents push consumer protection

For a couple of months there, it looked like insurers might be able to use your credit scores to help figure out how much to charge you for auto insurance.

This was two years ago, when then-insurance commissioner Nonnie Burnes was shifting the state into a competitive system for the first time in three decades. Insurers wanted to use consumers' credit scores - like they do in many other states - and Burnes was only willing to approve a one-year ban on the practice here.

Burnes eventually backed down following an outcry from insurance agents, lawmakers and consumer advocates. In the end, Burnes' rules to jump-start "managed competition" included a full ban on using credit scores as well as other socioeconomic factors such as a driver's occupation and education level.

But Frank Mancini, president of the Massachusetts Association of Insurance Agents, is worried these consumer-friendly bans might not survive under another commissioner. That's why his organization testified on Thursday at the State House in favor of legislation that would make the ban on using these socioeconomic factors part of state law.

A commissioner can't change the rules overnight. But cementing these bans in law - alongside bans on using sex, race or religion for insurance underwriting and rating - would certainly give them more permanency. It's a heck of a lot easier to rewrite regulations than it is to change a state statute.

Agents who belong to Mancini's organization believe consumers' insurance premiums should be based on just three things: their driving records, where they live and the number of years they've been driving.

This was the way it worked under the old, highly regulated system - when the state insurance commissioner set a series of rates for all auto insurers.

Most states, Mancini says, allow insurers to consider education, occupation and credit scores. But Mancini says that doesn't make it right. He cites an example of a plumber who lives next to a college professor. If their driving records are the same, Mancini says it would be unfair to give the professor the better deal on auto insurance.

The Massachusetts Public Interest Research Group would like to see the legislation go a step further. MassPIRG's Deirdre Cummings says insurers can find ways around the ban on socioeconomic factors by using "proxies" for those factors.

For example, Cummings cites discounts given to alumni associations as a way for insurers to charge less for college-educated drivers. She says giving big discounts for having a home ownership policy along with an auto policy with the same insurer can single out poorer drivers who can't afford their own homes.

MassPIRG supported group discounts before the shift to managed competition, but Cummings says that was when the commissioner set a specific ceiling on what drivers could be charged. Under the new system, Cummings says insurers could simply charge drivers without the discounts higher rates to make up for the costs of the discounts.

She says the Legislature should close these "loopholes" in the system, but she concedes it's unlikely lawmakers will adopt MassPIRG's proposal anytime soon. Most consumers aren't particularly unhappy with their auto insurance, as rates have trended downward recently, and lawmakers might be reluctant to take away insurance discounts from their constituents. The agents' association also isn't pushing for MassPIRG's reform.

The changes are opposed by many of the major insurers, who argue that the system has worked relatively smoothly since it took effect in April 2008 and doesn't need legislative tinkering. They also say the regulations are still among the most restrictive in the country.

Perhaps what's most important about what happened when managed competition took effect is what didn't happen: Unlike the time in 1977 when state officials disastrously experimented with a competitive system, urban and young drivers didn't see their rates skyrocket this time around. Burnes wisely built brakes in the system that require insurers to raise rates gradually.

It's hard to know how much insurance premiums have dropped, if at all, due to managed competition. Sure, prices have gone down, but the industry trend was headed that way anyway.

But the more competitive system has succeeded with its main goal: drawing more insurers into the state's auto market. We had 19 at the time managed competition took effect. Now, the Division of Insurance says we have 30 - including big national names such as Geico, Allstate and Progressive.

The switch to managed competition hasn't been flawless. Burnes nearly killed an important board that handles independent appeals of accident surcharges. And shopping around can be a daunting process, especially for consumers who aren't used to the range of choices.

No one said the road to competition was going to be a completely smooth one. At least the ban on socioeconomic factors provides some level of stability, a bridge from the old system to the new. Whether it's spelled out in regulations or codified in law, hopefully it will remain a part of the system for a long time to come.

Jon Chesto, business editor at The Patriot Ledger, may be reached at jchesto@ledger.com.