Urban drivers facing rate hikes, AG warns

Insurance would cost less overall with old system, she says

By Bruce Mohl
Globe Staff / December 13, 2007

Attorney General Martha Coakley raised new concerns yesterday about the rates the state's automobile insurers plan for 2008, saying that she fears many drivers, particularly in urban areas, will face unexpected increases.

On average, auto insurance should cost less next year. Based on documents the companies filed, Coakley said, the average decline will be about 6 percent for auto policies renewed after April 1.

In her fourth informational bulletin on auto insurance, Coakley described the planned rates as disappointing. She said rates overall would have fallen by double-digit percentages had state regulators continued to set them.

The attorney general also said that some of the bigger insurers actually raised their "manual rates," which the bulletin described as the ones used by agents to determine how much a policyholder will pay. She said Commerce Insurance of Webster and Liberty Mutual Insurance of Boston raised their manual rates 10 percent and then offered customers discounts off of those higher base rates.

Liberty has said that its discounts - for good students, long-term customers, people with high bodily injury coverage, and drivers who also have homeowner policies with Liberty - will reduce premiums for some drivers by as much as 35 percent.

Coakley's bulletin said some compa ny discounts will not be available in urban areas, although it didn't explain why. The bulletin said the average rate for someone in an urban area may end up being higher than the average rate in other parts of the state. The bulletin did not explain why.
"We are concerned that many consumers will experience unexpected rate increases in the next year," Coakley's bulletin said.

After 30 years with a system under which state regulators set all auto insurance rates, the Patrick administration is moving ahead with a system called managed competition that lets companies set their own rates, subject to regulatory approval.

The standards have not been established yet, although Insurance Commissioner Nonnie S. Burnes has issued a number of informational bulletins offering guidance to the companies.
Coakley, who represents consumers in the rate-setting process, has asked Burnes to hold hearings on the rate filings of Commerce, Premier Insurance of Worcester, and Safety Insurance of Boston.

Coakley has until next week to request hearings on other companies.

The attorney general's bulletins are a way for Coakley to communicate her concerns to all the companies at once. Yesterday's bulletin seemed to indicate she was having trouble verifying that drivers will receive the discounts the companies are promising.
Coakley declined to comment, as did Burnes. Officials at Commerce and Liberty also declined to comment.

Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge and a critic of managed competition, said Coakley is raising serious concerns.

"The way for drivers to get rate reductions under this new system is to qualify for these company discounts, and it's not so important to have a good driving record," he said. "In my opinion, most of the discounts are proxies for prohibited rating factors."

Burnes has prohibited companies from using such factors as a driver's occupation, educational level, income, and, at least initially, credit history, in setting rates because of the potential for discrimination.

Two insurance industry officials, who asked not to be identified for fear of alienating regulators, said they were surprised by Coakley's bulletin, because it criticizes a rate-setting approach the Division of Insurance had been telling companies to use.

The officials also said they've acknowledged all along that some drivers will see their rates go up under managed competition. When they filed their rate plans last month, most companies said premiums would fall for 70 to 80 percent of customers and rise for 20 to 30 percent.

Liberty, for example, said rates will fall for 82 percent of its customers and rise for 18 percent.

During the first year of managed competition, companies cannot raise the premiums of individual customers by more than 10 percent.

The restriction is designed to protect drivers perceived as higher risks from rate shock. But officials say the 10 percent cap means that other drivers, perceived by the companies as better risks, will pay slightly more than they would have if the cap had not been in place.

Bruce Mohl can be reached at mohl@globe.com.