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Car insurance tune-up heads for '08 collision

Dan Devine | 7/28/2009, 5:42 a.m.

If 2007 was any indication of what we can expect in the fight over car insurance rates, 2008 is sure to be a heavyweight brawl.

In one corner: former Superior Court judge Nonnie S. Burnes, appointed state insurance commissioner in February by Gov. Deval Patrick.

She inherited the task of implementing the recommendations of the Massachusetts Automobile Insurance Study Group, which called for the state to curb regulation and move toward a competitive structure and market-based rates.

In the other corner: state Attorney General Martha Coakley. Her office warned Burnes that allowing insurers to set their own market rates could mean higher price tags for drivers — especially those in urban areas.

The opening bell rang in July, when Burnes announced a decision to switch to a form of “managed competition” that would allow insurance companies to set their own rates. She made the call after conducting a lengthy review and a series of hearings featuring testimony from insurance officials, consumer advocates and representatives from Coakley’s office.

Burnes disputed the higher rates claim in a July interview with the Banner, saying that a state-hired consultant charged with estimating the impact on those neighborhoods came up with drastically different figures — in some cases, even decreases.

That disparity was just one of several major disconnects during a tumultuous year among legislators, consumer advocates and, particularly, Burnes and Coakley.

Two other key issues — how to define the criteria that insurers may use in making rate and coverage decisions, and whether insurers should be allowed to consider credit scores as one of those factors — dominated discussion as Burnes’ plan came under increased scrutiny.

On the first question, despite months of calls to reconsider her stance, Burnes remained unmoved.

A special state Senate panel in August relayed worries that Burnes’ plan didn’t include adequate protections against insurers using potentially discriminatory rate-setting and coverage criteria.

Burnes maintained she would only allow insurers to use socioeconomic factors if they demonstrated the criteria’s use didn’t lead to discriminatory practices. Critics countered by suggesting that Burnes should change the way factors are defined — rather than establishing a set of factors that insurers are barred from using, they said, the list should include only those factors explicitly allowed.

Burnes disagreed, saying “we want to be able to give insurers the flexibility to be innovative, entrepreneurial and creative in making opportunities for consumers.”
On that point, she stuck to her guns.

“Despite the urging that I received to state the factors that insurers may consider in proposing their rates … I have determined that such a structure would be too rigid to deliver to our consumers the opportunities that we seek,” Burnes wrote in an Oct. 5 letter announcing the final regulations.

Consumer advocate Stephen D’Amato, a consultant to the Cambridge-based Center for Insurance Research, told the Boston Globe that Burnes’ decision is just “pretending to protect the public without protecting the public.”

While Burnes refused to give in on the definition issue, her position on the use of credit scores did shift.

The draft regulations filed in August forbade insurers from using the scores or report information in setting rates during the transitional period between April 1, 2008, when changes go into effect, and March 31, 2009.

In a September interview with the Banner, Burnes explained that the prohibition was designed to give the Division of Insurance a chance to study the issue.

“We have heard loudly, and often from both sides, two different points of view — one that [credit scores as a criterion] are discriminatory and one that they are not,” Burnes said. “And because I don’t know, I don’t want to get it wrong.”

Burnes held a hearing on the draft regulations in September, where Coakley and several consumer groups argued against the use of credit scores not only in setting rates, but also in deciding whom to insure, or “underwriting.”

According to a published report, Burnes told a consumer advocate during the hearing that state law required her to allow companies to use credit histories in making that decision. But when the final regulations were released, Burnes had changed her tune.

“In response to what I heard at the hearing and read in the filed testimony, I am banning the use of credit information from a consumer reporting agency in underwriting, as well as in rating,” Burnes wrote in her Oct. 5 letter.

Though consumer advocates were pleased at the credit score ban, they balked at what they called “too many loopholes” in the final regulations that could be harmful to consumers.

In the two months since the regulations were finalized, Coakley has worked to ensure that no such harm is done.

While she has said she supports the onset of competition — a claim loudly disputed by insurance company officials — Coakley has issued several “informational bulletins,” raising concerns about potential problems with insurers’ rate filings. She has also triggered public hearings calling for several insurance companies to justify their proposed 2008 rates.

Hearings for five insurers are scheduled to take place next month — including Safety Insurance, one of the eight companies whose rates Burnes has already approved. The disagreement over Safety’s filing could set the stage for a high-stakes clash between the attorney general and insurance commissioner early in 2008 — perhaps a fitting continuation of a frequently combative 2007 in the Commonwealth’s auto insurance market.

EDITOR'S NOTE: In the Banner's Dec. 27, 2007, edition, the Banner incorrectly reported that the draft regulations for governing managed competition of the Massachusetts automobile insurance market did not preclude insurers from considering a driver's occupation or income in setting that driver's insurance rate or deciding whether to insure him/her. Those criteria are banned in both the draft and final regulations. The Banner regrets the error.