Mass. Study Says Good Drivers May Pay More Under New System

February 29, 2008

A new study indicated that safe drivers could pay more under the state’s new competitive auto insurance system because a motorist’s driving record is not given as much weight in pricing as factors unrelated to driving, such as credit rating and marital status.

According to the report, detailed in The Boston Globe, a 27-year-old single woman with a perfect driving record could see her insurance premium increase an average of 5.2 percent this year. But an older married couple who each had major at-fault accidents every three years could have their premiums decrease by nearly 14 percent.

“Under this new system, how you drive is less important than who you are,” said Stephen D’Amato, a consultant to the consumer advocacy group Center for Insurance Research, which conducted the study with the Massachusetts Public Interest Research Group.

But Kimberly Haberlin, a spokeswoman for the state Division of Insurance, called the report “baseless and misleading.”

“The Division has reviewed all company filings to certify that rates are fair and that drivers’ premiums are based on how well they drive and not who they are. The fundamental premise of this report is flawed,” she said in a statement.

The state is switching to the new system, called managed competition, after 30 years under a system in which auto rates were set by the state Division of Insurance.

The new system allows insurers to set their own rates, with division oversight. Proponents say it likely will attract new auto insurers, increasing competition and lowering prices. That state says managed competition will generate a 7.8 percent overall reduction in rates.

But various consumer advocates, including Attorney General Martha Coakley, have contended the new auto insurance system lacks safeguards to ensure pricing is fair.

The debate revolved around whether insurers can use socio-economic factors, such as age, income and marital status, in setting rates. Insurance Commissioner Nonnie Burnes prohibited the use of such demographic and financial information to set rates, and a motorists’ driving record is supposed to be the biggest consideration.

The report to be released contended that insurance companies are using other factors that substitute for the prohibited data. For instance, Commerce Insurance Co. gives a 5 percent discount to people who buy hazard insurance from them. Since those who buy hazard insurance are almost all homeowners, they are likely to have higher incomes and better credit scores than those who do not purchase home insurance, D’Amato said.

“It’s time for everyone to stop pretending that the new system emphasizes driving record and ignores socio-economic status,” D’Amato said.

Insurance industry officials say there’s a difference between rates and discounts. They said rates were set using complex data sets, then discounts come after, for everything from drivers of hybrid vehicles to owners of multiple cars.

James Harrington, executive director of the Massachusetts Insurance Federation Inc., said “the authors of this paper have been antagonistic to reform since Day One.

“This is just an eleventh-hour attempt to discredit managed competition,” he said.

Source: The Boston Globe,

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