At the end of December 2009, Massachusetts Attorney General Martha Coakley released a comprehensive report criticizing Massachusetts managed competition system for the deregulation of auto insurance. Prior to the managed competition system being introduced in 2007, auto insurance rates were set by the Massachusetts Division of Insurance for all insurers. For additional background information on Massachusetts’s transition to managed competition, see our blog posts here, here and here.
The report, titled “Automobile Insurance: The Road Ahead” (the “Report”), states that while “prices have, in many instances, decreased, they have decreased significantly less than they would have under the regulated pricing structure, effectively representing an increase in prices for the driving public.” The Report bases this statement on the fact that rates declined on average by about 7% and the expected decrease was at least 10%. The Report also found that approximately 20% of consumers had their rates increased. The Report notes that failure of most consumers to shop around for lower rates has played a role in not driving down rates as expected.
In order to rectify these findings, the Report recommends the following:
- Requiring a profit provision in the rates that is fair to both insurers and policyholders;
- Ban the inclusions of contingent commissions and inappropriate expenses in premiums; and
- Allow proper regulatory review of rate filings and the rejection of rates that are unsupported.
Other issues noted in the Report are lack of transparency, the importance of driving records, barriers to competition and meaningful consumer choice, and the erosion of consumer protections. The Report provides several recommendations to address the Attorney General Office’s concerns in these areas including:
- 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; and
- The introduction of legislation to ban the use of credit score in insurance ratemaking.