Attorney General Martha Coakley's Office Releases Comprehensive Report on Massachusetts Auto Insurance Market
Attorney General's Office suggest ways to improve rate-setting system
"When the Division of Insurance introduced the new deregulated auto insurance system nearly two years ago, they contended that this system would result in better rates for consumers," said Attorney General Coakley. "While the long-term results of this new system remain to be seen, our office is concerned that consumers may not, in fact, be getting the best rates and the protections they deserve. We hope that this report will serve as a roadmap to make the necessary changes to improve our auto insurance rate-setting system."
Until 2007, insurance rates were set by the state for use by all companies, although individual companies were permitted to lower their rates if they chose. Then, a policyholder was charged based on a vehicle's territory and the drivers' record. In addition, all companies were required to provide policies to almost any driver that applied for one. In 2007, the Division of Insurance introduced a new, deregulated system termed "managed competition." Under the new deregulated system, insurance companies are allowed to set their own rates, and use different terms and conditions. Insurers are also permitted to reject applicants.
The report notes that most consumers haven't shopped around for insurance, and therefore, are not driving rates down. In fact, rates are now increasing. The Attorney General's Office is particularly concerned that companies are now rating customers on several new factors more closely linked to socio-economic status, rather than to consumers' driving records. Many of these new factors cause certain consumers, including young drivers, lower-income consumers, senior citizens, urban residents and non-homeowners, to pay higher rates, even if they have never had a speeding ticket or accident. Other concerns outlined in the report include:
- Many consumers whose rates decreased paid more than they should have after the market was deregulated. Had the regulatory rate-setting process occurred in 2008, rates would have been reduced for essentially all consumers, with average rate reductions much greater than those seen under deregulation.
- Once 'managed competition' began, insurers instantly began seeking higher profit. In 2008, the Division of Insurance accepted target returns in the insurer rate filings that were over 150% of the 2007 regulated value for some insurers.
- Deregulation has resulted in less transparency in the rate-setting process. Insurers have omitted data and information from their public filings; as a result, the filed rates are unsupported, and it is impossible to adequately assess their accuracy.
- There is currently no easy way for consumers to determine what the market prices for insurance are, what each company will charge a particular individual, and what discounts and special coverage options are available. The website provided by the Division of Insurance does not solve these problems.
- In this market, some consumers have not been offered all discounts to which they are entitled, have had difficulty obtaining quotes from agents, and have received different quotes from different agents for the same insurers.
- Because insurers are no longer required to offer insurance to consumers they consider undesirable, many good drivers, particularly in urban areas, may be non-renewed or denied coverage.
- Insurers have created new policy provisions and rules that eliminate consumer protections. Some insurers increase prices for not-at-fault accidents, charge for excluded drivers or drivers who already have their own insurance policies, and have adopted problematic provisions related to cancellation, down payment, deductibles, installments, and rating factors. Many consumers are unaware of these changes.
- Most Massachusetts consumers purchase insurance through an independent agent, yet most agents typically cannot or do not provide price quotes for more than a couple of carriers.
The Attorney General's report addresses all of these issues, and makes strong recommendations on how to improve each issue. The report calls for more openness and transparency in insurance rating and regulations, and demands stronger consumer protections to ensure consumers are not overcharged or discriminated against. Some recommendations include:
- The requirement that insurance companies fully justify the use of any discount rating factor that is not related to driving record;
- The requirement that full and complete rate proposals be filed at the Division of Insurance, with supporting data for each component, including discounts and rating factors;
- The creation of an insurance website to provide real side by side insurance quotes for all insurers;
- The elimination of penalties for leaving an insurance company early;
- The prohibition of the collection of personal information not needed for rating; and
- The introduction of legislation to ban the use of credit score in insurance ratemaking.
The Attorney General's Insurance and Financial Services Division researched and prepared this report. It is available on the Attorney General's Office website file size 1MB.