Insurance Commissioner Proposes Guidelines for Managed Competition
Draft regulation will ensure smooth transition to new system to bring lower rates, greater benefits to more Massachusetts drivers
The regulation provides for a one-year transition from April 1, 2008 through March 31, 2009 and establishes a basic framework under which the new system will operate. Commissioner Burnes will hold a public hearing on the guidelines on September 20, 2007 and will issue a final regulation in October.
"This regulation is based on the principles of managed competition: reducing rates for good drivers regardless of where they garage their cars; sustaining a low number of uninsured drivers; maintaining stability in a small residual market and ensuring fairness for all drivers through bans on the use of socioeconomic factors," said Burnes. "It incorporates significant consumer protections and benefits, safeguards to ensure a smooth transition and prevent market disruption, and measures to retain my supervisory role in the new process."
The proposed guidelines establish a driver's experience and driving record as the primary rating factors. It permanently bans insurers from using gender, marital status, education, occupation, homeownership and other socioeconomic factors, some of which are prohibited by statute and others which are deemed to violate public policy, for rating and underwriting. The draft regulation also expressly forbids insurers from using information from credit reports or scores for rating during the transition period.
"I have repeatedly expressed my extreme skepticism about socioeconomic factors and my belief that prohibiting their use is good public policy and beneficial for consumers," said Burnes. "Using credit information for rating and underwriting purposes affects multiple lines of
insurance - not just auto - and therefore requires further study. I fully expect that banning credit scores in rating during the first year will give us the time we need to examine and address a number of important and complex issues."
Additionally, the proposed regulation preserves a number of existing subsidies to protect urban drivers, gives consumers the opportunity to comparison shop among companies for the lowest premiums and establishes procedures for the commissioner to use her regulatory authority to disapprove excessive and discriminatory rates and suspend rates already in effect, if necessary. Specifically, the regulation:
- Sets forth the number of years a driver has been licensed, the driver's accident and violation record and other discounts related to the vehicle's use and safety features as the primary rating factors.
- Prohibits rating on the basis of sex, marital status, race, creed, national origin, religion, occupation, income, education, homeownership or age, except to produce the reduction in rates for drivers age 65 years or older as required by law.
- By statute, insurers may not use age (except for the over 65 discount), sex, race, occupation, martial status or principal place of garaging in underwriting. The draft regulation also bans the use of religion, education and homeownership in underwriting.
- Prohibits the use of credit information in rating for policies with effective dates during the transition period.
- Prohibits insurers from using drivers' accidents or violations to raise premiums for more than five years.
- Establishes procedures to prevent rate shock and preserves provisions that benefit urban drivers, such as the low mileage discount for annual mileage under 5,000.
- Preserves the 2007 subsidies across territories to protect urban drivers for policies with effective dates in the transition year.
- Provides that 2007 rating territory definitions may not change for policies with effective dates in the transition year.
- Requires companies to establish a voluntary rate for all risks even though those risks may be eligible for insurance through the residual market.
- Requires companies to file forms that describe the overall percentage change from the 2007 premium on a vehicle-by-vehicle basis to facilitate competitive shopping by consumers.
- Mandates providing information to consumers. Requires insurance companies to provide coverage and price information on their websites or by telephone.
- Establishes procedures for the Commissioner to disapprove rates that are excessive or inadequate or unfairly discriminatory.
- Establishes procedures for the Commissioner to suspend rates that are in effect, if necessary.