AG, auto insurers clash over rates

Coakley calls for hearings on Hanover, Arbella

By Bob Kievra TELEGRAM & GAZETTE STAFF
rkievra@telegram.com

In a sign that the road to managed competition has grown bumpy for the state’s auto insurers, an industry trade group lashed out at Attorney General Martha Coakley yesterday, the same day her office said the Hanover Insurance Group Inc. of Worcester and Arbella Mutual Insurance Co. of Quincy would overcharge customers by more than $25 million in proposed 2008 rates.

Ms. Coakley called for state regulatory hearings on the two companies a week after she made a similar request for three of the state’s largest automobile insurers, including the Premier Insurance Co. of Worcester, which does business as Travelers of Massachusetts, Webster-based Commerce Group Inc. and Safety Insurance Co. of Boston. Ms. Coakley said the three, which collectively control 49.4 percent of the market, are seeking to overcharge customers by more than $100 million.

Massachusetts auto insurers are in a period of transition after state regulators scrapped the former system of establishing a single rate for all companies to charge. Instead, the state is permitting companies to establish their own rates, subject to certain conditions and regulatory approval by Insurance Commissioner Nonnie S. Burnes.

In the past week, Ms. Coakley has challenged the rate filings by five insurers, which sets in motion a hearing before Ms. Burnes. The first scheduled hearing is Jan. 9 for Commerce Insurance. A preliminary hearing on the Commerce filing will be held tomorrow.

In questioning the Hanover and Arbella filings, Ms. Coakley said that each filing included a variety of shortcomings, including inflated expenses and loss projections and a built-in profit provisions far greater than those permitted by previous insurance commissioners.

In an interview, Ms. Coakley said it remains unclear whether managed competition will result in lower rates for consumers or just bigger profits for insurance companies.

Had the old system remained in place, rates for 2008 would have likely been reduced by approximately 11 percent, she said. “This is not a slight on the Massachusetts insurers,” she said. “But keep in mind that we make people buy insurance in Massachusetts. Our job is to make sure that in this year of transition, the companies play fair.”

Ms. Coakley said the insurance commissioner will have the ultimate authority over the rates but said her job is to question the process, seek out information and promote transparency that assists the person buying insurance

Hanover and Arbella officials defended their rate filings.

Vincent V. Nieroda, president of Hanover’s personal lines group for Massachusetts, said the property and casualty insurer, with 3.6 percent of the market, was not surprised that a rate hearing was requested. Hanover’s proposal calls for an 8.2 percent reduction in automobile rates next year.

“The attorney general has targeted the major players in the market for hearings on this matter,” he said.

Arbella, the state’s third-largest insurer, with 9.3 percent of the market, is seeking rates that would reduce premiums by 7.7 percent.

The company, which insures 375,000 automobiles, said in a statement the attorney general “has inexplicably singled out companies who filed for the largest rate decreases, an action that appears to be anything but pro-consumer.”

Those comments were echoed by a statement earlier in the day from James. T. Harrington, executive director of the Massachusetts Insurance Federation, a trade group representing many of the state’s property and casualty insurers.

Mr. Harrington said the attorney general is using all of her resources to prevent managed competition from occurring, which gives pause to any national insurers who are contemplating entering the Massachusetts market.

“Regrettably, she has decided to focus on scaring consumers away from choice by making baseless and inflammatory claims relative to potential impacts,” Mr. Harrington said.

James A. Ermilio, executive vice president and general counsel at Commerce Group Inc., said the state’s largest auto insurer intends to mount a strong defense of its proposed premiums.

“I don’t want to get into the merits but the fact is we’re going to defend our rate filings vigorously,” he said. “We believe very strongly in what we have put forward.”

Susan K. Scott, senior vice president and general counsel at Travelers of Massachusetts, said the company’s rate filing is fair and reasonable and met all of the state’s requirements.

“We want our rate to be competitive,” she said. “We’re trying to grow our market share in Massachusetts and we hope we can have a just and fair and speedy hearing so that we can turn our attention to that.”

A spokeswoman for Ms. Burnes said the Division of Insurance will consider Ms. Coakley’s request for hearings and will schedule them as may be appropriate.

The Division of Insurance is also conducting its own review of the rate filings.