Lawmakers skeptical of new insurance plan

Steve LeBlanc

Gov. Deval Patrick’s plan to open the state’s auto insurance industry to more competition is coming under fierce scrutiny on Beacon Hill.

Members of a special Senate panel said Monday they’re worried the plan doesn’t include enough protections to guard against discrimination by companies offering insurance products.

“I think this is just the worst economic policy,” said state Sen. Dianne Wilkerson, D-Boston, a member of the panel. Wilkerson lives in a neighborhood with some of the highest insurance rates in the city and said she’s worried the plan doesn’t do enough to protect good drivers who live in urban areas.

Another panel member, Sen. Mark Montigny, D-New Bedford, also said that before opening up the market to more competition, the state needs to do more to block companies from discriminating against groups of drivers.

While the law already bans companies from using race or gender as a factor in determining insurance rates, state Insurance Commissioner Nonnie S. Burnes didn’t rule out allowing insurers to use other socioeconomic factors, like occupation or income, to set rates.

Burnes, however, said the insurers would have to show that those factors are legitimate and that they did not result in discriminatory practices.

“We’re going to be very cautious in allowing the use of socioeconomic factors,” she said. “We will make sure that rates are not discriminatory.”

Burnes said the current system is far from perfect. She said it has limited the number of companies offering insurance. She also said that some benefits enjoyed by drivers in other states — such as accident forgiveness — aren’t available in Massachusetts because of strict state regulation.

In the end, Burnes said, most drivers should see their rates drop because of the greater competition.

Rather than listing what factors insurers are barred from using when setting rates, critics said the state should instead come up with a list of only those factors that could be used — like driving records.

If not, critics said, insurers will find a way around the restrictions.

“They will find a way to game the system,” Montigny said.

Massachusetts is the only state where state regulators, not the market, set car insurance rates.

Attorney General Martha Coakley also has concerns about the new plan, according to Glenn Kaplan, chief of the insurance division in Coakley’s office. Under the current system, the attorney general plays a key role, recommending how much of a rate increase or cut should be allowed.

Coakley thinks the current system should be kept in place for at least another year, according to Kaplan, who said drivers would likely enjoy a 10 percent cut in rates under the current system.

The new system will also open the state up to lawsuits from insurers trying to force Burnes to allow certain factors, he said.

“It leaves room for uncertainty,” he said, adding that lawmakers may want to consider passing legislation to clarify the new plan and head off some possible lawsuits.

Even insurers are split on the plan.

Don Baldini, a vice president and senior legal counsel for the Liberty Mutual Group, said the company supports Patrick’s plan, adding that it’s time to bring Massachusetts more in line with the rest of the nation.

“What has been called the ‘brave new world’ here is the norm in every other state in the country,” Baldini said.

Baldini also urged lawmakers not to put too many restrictions on what factors insurers can use when calculating rates, saying that will force them to rely more heavily on geographic factors, something that infuriates many car owners.

John Kittel, senior vice president for the Arbella Mutual Insurance Company, said Patrick’s plan was a bad idea.

Kittel said trying to limit which socioeconomic factors insurers can use won’t work. He said insurers will just keep finding other factors to reach the same rate-setting conclusions.

“Any attempt to limit factors will be met with an aggressive attempt to find equally predictive factors,” said Kittel, who said the state should instead create a list of only those factors deemed legitimate — and bar everything else.

But Burnes said fears of the new plan are overblown. She also said the best time to change the system is while rates are already declining — rather than rushing through something when rates are on the rise.

“We expect that good drivers, wherever they are, will see their rates go down,” she said.

(Associated Press)