Massachusetts Auto

Seen in Insurance Journal:

Overall, Fitch said it expects the new system will benefit both consumers and the marketplace. “Consumers will benefit the most from a wider choice in carriers, innovations in coverage and lower rates for the average consumer,” Fitch says.

However, Fitch maintains that Massachusetts insureds would benefit even more if underwriters were permitted to use credit scoring and other “actuarially significant pricing variables that are believed to adequately reflect risk and have demonstrated value in other markets.”

The state-imposed limits on so-called tiered pricing will discourage national carriers that do not now write in the Bay State from entering the market like they did in New Jersey, the report maintains. Until carriers are allowed to use sophisticated pricing models including credit scores, Fitch predicts that “the entrance of new participants will be more of a trickle than a flood.”

I agree the sentiment, but I suspect that Fitch doesn’t give sufficient weight to the political realities of the situation.

If Massachusetts had moved to complete deregulation without a phase-in, the market shock would have caused the same sort of public uproar which doomed the prior attempt at deregulation. And, considering the strength and attitude of Bay State consumer advocates, regulatory tolerance of features such as credit scoring would have lead to a legislative derailment of even this modest deregulation.

Yes, a fully deregulated marketplace would likely net consumers additional benefits…but any deregulation is better than failed deregulation.

…well, almost.

Seen in Insurance Journal:

The new managed competition auto insurance system being implemented in Massachusetts rewards many bad drivers and penalizes many good drivers based on certain supposedly-prohibited social factors, according to the latest charges by critics.

Many good drivers will pay more and many bad drivers will pay less under managed competition because premium discounts being offered indirectly incorporate credit score, homeownership, education level and other social factors that override the pricing impact of driving record, according to a new report.

The report, entitled ‘How You Drive’ Takes A Backseat to ‘Who You Are’: (Mis)Managed Competition in the New Massachusetts Automobile Insurance Market, was released by two consumer groups – the Center for Insurance Research and MASSPIRG.

I note that they don’t seem to take exception to other, long-accepted rating variables that are correlated to those factors. It seems to me, for example, that one’s income impacts the type of vehicle (or number of vehicles) one drives.

Or, what about the impact of one’s income on one’s ability to afford decent lawyers in the event of a traffic ticket? Heck, let’s not forget what the “driving while black” phenomenon could influence one’s driving record.

Let’s charge everyone the same rate! The middle aged driver driving a modest pickup in a rural area ought to pay the same premium as the teenager driving a sports car in an urban area.

After all, that’s the only way one can completely eliminate correlation between rating classifications and certain demographic attributes.

Folks, let’s have a little bit of sense here. Correlations are impossible to prevent unless there is one rate for all. Instead, in a fair environment, actuaries, underwriters, and product designers seek to pick and weight attributes in a manner that is least correlated to other, socially-frowned-upon and probably-not-predictive-anyway attributes.

And keep in mind, the finer we can slice-and-dice the pool of potential customers, the lower rates we can offer to more folks, partly as a result of the increased accuracy, and partly because of the increased competitive pressures arising from the healthy market.

It looks like the drought of players in the Massachusetts personal auto insurance marketplace might be ending. Progressive (PGR) appears to be entering the fray, according to Insurance Journal:

Progressive Insurance said it plans to begin selling personal auto insurance in Massachusetts starting May 1 if state regulators approve the company’s rate filings, which it submitted to the Bay State’s insurance department this morning.[...]

“We appreciate the work the Division has done to create a regulatory environment that allows companies to compete for customers,” said Wilton-Bransch. “We hope that come May 1, drivers will check out progressive.com and see what we have to offer.”

Progressive is the second company to enter the partially deregulated Mass Auto market, with Liberty Mutual’s Peerless Insurance having already submitted its initial filing.

Having a new entrant into the market, at a time when the existing players are encumbered by limitations on rate changes granted to existing customers, seems like an intriguing opportunity for some entertaining pricing chaos.

Progressive will apparently start off as an online-only writer, with telemarketers getting licensed and independent agents being appointed later.

One wonders how long it will be until the Gecko or Erin will begin to grace ads in/around Boston.

Insurance Journal has an article posted discussing Commissioner Burnes’ approving rate filings by Commerce and Safety over Attorney General Coakley’s protests.

Quoting IJ:

Burnes dismissed the AG’s entire analysis, ruling in favor of the insurers on each provision. Burnes suggested that while the AG’s approach might have worked under the previous fix-and-establish system, it was irrelevant under the new managed competition system and that the AG “fails to recognize” that the rules have changed.

Burnes said that while the attorney general wants to challenge individual provisions of rates, as was done under the previous system, a competitive system requires a broader view.[...]

“It is not my task to look at aggregate industrywide data for the purpose of developing an underwriting profits provision that reasonably reflects the average financial needs of a mythical ‘Every Company,’ but is specific to none.”[...]

“It is neither my role, nor the role of the Attorney General, to decide what expenses a company should incur in a competitive insurance market provided no such expenses violate the law. Companies that unwisely spend money will enjoy less success in the market, and this experience alone will alter future conduct,” Burnes wrote.

As someone who’s been grilled a few too many times in difficult rate filings, that’s good reading.

For details on what actually was approved, check out the article.

Monday was the deadline for insurers to amend their rate filings ahead of the gradual deregulation of personal auto insurance in Massachusetts. Summaries of the revisions can be found at Insurance Journal and in the Boston Globe (here and here). For the most part, the revisions seem like modest tweaks to me, but feel free to disagree if you wish.

Meanwhile, some folks in Massachusetts seem to be holding on to the concept of state-promulgated rates as the state finally moves into the 1970’s in terms of auto insurance regulation. From a different Insurance Journal article:

Massachusetts Attorney General Martha Coakley is pressing auto insurers in the state to lower their 2008 rates, arguing that their initial filings last week included more than $200 million in extra profits and payments to agents that wouldn’t have been allowed under regulations that were relaxed this year.[...]

Coakley said the state’s average premium would have fallen 11 percent if the proposed extra profit and agent commissions were eliminated from the filings.

Of course, if part of the objective is to attract new carriers into the market, any deregulation scheme in Massachusetts needs to permit carriers to earn returns equivalent to that available in similarly-risky potential investments.

(And yes, risk of government interference is a factor in measuring and comparing relative riskiness.)

Insurance Journal has an initial summary of the first round of rate filings submitted for Massachusetts’ managed competition deregulation scheme:

According to rate filings submitted to the state by insurers on Nov. 19, from 70% to 80% of all drivers should see rate decreases beginning in April 2008 when the new managed competition system goes into effect. For the rest, rate hikes up to 10% are possible.

IJ summarizes the highlights of the top 10 carriers as follows:

The IJ article also includes highlights of what some of the new (to Massachusetts, anyway) discounts included in the filings are.

I haven’t seen anything yet about who will be seeing increases under the new algorithms, although those details will presumably be forthcoming.  Of course, all this could change somewhat in a week, as amendments to the filings are allowed after insurers have a chance to look over their competitors’ filings.

What really interests me is the possibility for some entertaining debate if/when consumer advocates start comparing the average decreases above with information from prior state-mandated rate changes

With the faint scent of the promise of future deregulation wafting through the Massachusetts personal auto insurance market, it seems that insurers are starting to prime the pump of policy bells and whistles, according to the Boston Globe:

Starting Jan. 1, Liberty will begin offering its 200,000 customers who have collision coverage better car replacement and rental car coverage. Currently, Liberty offers a Massachusetts customer whose new car is totaled or stolen the depreciated value of the vehicle minus the customer’s deductible.

The newly approved coverage matches what Liberty offers in most other states - full replacement value minus any deductible for a new car that’s stolen or totaled. The difference between the old and new coverage could be hundreds of dollars depending on the vehicle. Liberty defines a new car as one that is less than a year old and has less than 15,000 miles on the odometer. For an older car, Liberty offers depreciated value of the vehicle minus the deductible.[...]

For its part, MetLife has already added, at no extra charge, an identity theft resolution service to the policies of its 200,000 Massachusetts customers. The service directs customers who suspect something amiss with their credit to a company called Identity Theft 911, which will help them deal with the problem.

This should be a very early hint of some of the changes that could be coming to Massachusetts if the Commissioner has the political strength to see deregulation through. Mass Auto might start to resemble auto insurance in the rest of the country, as unthinkable as though that might have seemed a year or two ago.

It’s still probably too early to see any of the absent national writers enter the Massachusetts market. However, if deregulation pans out…maybe in a year or two.

(Disclaimer: I don’t work for one of those absent carriers. That’s just speculation on my part.)