Over the last ten years, states have been moving, albeit slowly, to deregulate automobile insurance. Supporters of deregulation often cite the high premiums, distorted rates and lack of choices that drivers experience under a regulated system. They argue that in states that rely on markets to set rates, neither prices nor profits are excessive. Massachusetts and New Jersey were often held out as examples of excessive state regulation: higher premiums, fewer insurers, less choices and greater reliance by consumers on the residual market. In 2003, New Jersey deregulated its auto insurance business and subsequent studies have shown more variation in price and service levels as more insurers compete for consumer dollars.
Massachusetts is now moving in a similar direction with proposed Regulation 211 CMR 79.00 (Private Passenger Motor Vehicle Insurance Rates), which aims to gradually introduce competition into the auto insurance business. Some of the goals of the new regulation include promoting price competition among insurers so as to provide insurance rates that are responsive to competitive market conditions and protecting the interest of policyholders during the transition from a fixed and established market to a competitive market.
A key feature of the regulation bans the use of socioeconomic factors for setting rates or underwriting. Insurers will instead rely on of applicants’ driving records, and vehicles’ model and safety features. The regulation also establishes a transition period of one-year beginning April 1, 2008, during which time insurers are banned from, among other things, using credit reports or scores in setting rates. Under the plan, insurers will be able to set their own rates as of April 2008.
While some in the industry expressed disappointment that the regulation does not go far enough in creating a truly competitive system, others have reacted positively, noting that the current proposal represents progress. A public hearing on the regulation will be held September 20, 2007, and a final version will be issued in October.
Click here for further background information about Massachusetts’ State Insurance Market. InsureReinsure.com will monitor this and other developments.
