Mass. Attorney General’s Auto Reform Could Spur Legal Challenge

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June 25, 2010 Friday 03:52 PM EST

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Mass. Attorney General's Auto Reform Could Spur Legal Challenge

Al Slavin

BOSTON

Proposed administrative revisions to automobile insurance regulations in Massachusetts could spur a legal challenge as industry groups question whether implementing the measures will tilt the balance of regulatory power.

Massachusetts Attorney General Martha Coakley's office concluded two days of public hearings June 24 regarding consumer protection regulations designed to increase transparency and block deceptive business practices among auto insurance writers.

Frank O'Brien, vice president of state government relations for Property Casualty Insurers Association of America, attended the hearings in Boston and Springfield and described them as "well-orchestrated."

"It looked as if what they had done was send out letters to any disgruntled consumer or agent who had filed a complaint with them relative to any aspect of the insurance system, and invited them to this hearing to repeat their complaint for the record," O'Brien said.

Coakley said in an e-mail there was a great turnout at both hearings and written comments will continue to be incorporated into the record, which will close on Aug. 6.

"The consumer protections we have proposed and held hearings on this week, will among other things, enhance competition in the auto insurance market and improve consumers' ability to shop effectively for premiums," Coakley said.

But industry officials are questioning the need to revise the Bay State's managed competition system enacted by former Massachusetts Insurance Commissioner Nonnie Burns on April 1, 2008.

Paul Tetrault, Northeast state affairs manager for the National Association of Mutual Insurance Companies, said Coakley's regulations would largely limit the factors that insurers could use in rate-setting to an individual's driving record.

"In NAMIC's view, consumers benefit when insurers are able to use a wide range of factors, and we would advocate for the use of as many rating factors as possible," Tetrault said.

Tetrault said the measures, if enacted by Coakley, would increase litigation and costs.

"The market suffered in the past from having too much regulation," he said.

For the previous three decades, rates had been determined by the state -- a factor that drove 35 insurers away from Massachusetts since 1990 to leave just 19 as of 2009 (BestWire, April 6, 2009). Since the new rate system was announced, 11 new companies have entered the market, according to the state Division of Insurance website.

A report release by Coakley's office in December assailed the new system, alleging that rates are increasing -- a claim refuted by the Office of Consumer Affairs and Business Regulation, which oversees the Division of Insurance (BestWire, Dec. 24, 2009).

Among the reform measures that Coakley's regulation would implement are the following:

-- Protect consumers from insurance companies that use discriminatory factors or proxies for illegal factors in rating or underwriting auto insurance;

-- Require insurance rating practices to be fair and transparent;

-- Prevent insurers from issuing misleading advertisements; and

-- Ensure that consumers are made aware of discounts they may be entitled to in their auto insurance.

O'Brien said Coakley has resisted the managed competition system all along. He characterized the new regulations as a "Hail Mary pass designed to utilize the provisions of consumer protection law."

O'Brien said a potential consequence is that Coakley would theoretically supplant current Insurance Commissioner Joseph Murphy as the top regulator of auto insurance.

"That's an untenable position," O'Brien said. "No industry, whether it's insurance, banks or construction, can deal effectively with an uncertain regulatory environment, particularly where you have two conflicting regulators."

Both Tetrault and O'Brien said their organizations will keep their options open regarding a legal challenge.

"I'd hate to say it's a certainty, but it certainly seems like it," O'Brien said.

The top five writers of all private passenger auto insurance in Massachusetts in 2009 were: Commerce Group, with a 28.83% market share; Safety Group, with 10.88%; Liberty Mutual Insurance Cos., with 9.64%; Arbella Insurance Group, with 8.96%; and Plymouth Rock Cos., with 6.33%, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database.

(By Al Slavin, senior associate editor, BestWeek)

June 25, 2010

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