Insurance Commissioner Nonnie S. Burnes’ efforts to revamp the private passenger automobile insurance market in Massachusetts extends far beyond matters relating to auto appraisals and the safety and cost issues associated with after-market parts, and involves a gradual transition from state set rates to “managed competition.” 

In July, Commissioner Burnes issued two decisions; one involved the gradual transition from fixed rates to managed competition, and the other involved residual market and assigned risk plans. On Aug. 28, Burnes issued a proposed regulation intended to serve as the basic framework under which the new managed competition system will operate. The proposed rules also establish guidelines for rating and underwriting methodologies as well as procedures for the first year of transition from state set rates to rates that are competitively determined.

Managed competition involves reducing rates for good drivers regardless of where they garage their cars, sustaining a low number of uninsured drivers, maintaining stability in a small residual market and ensuring fairness for all drivers through bans on the use of socioeconomic factors.  As Burnes stated in an Aug. 28 press release, “it incorporates significant consumer protections and benefits, safeguards to ensure a smooth transition and prevent market disruption, and measures to retain (her) supervisory role in the new process.”

Proposed regulation 211 CMR 79.00 is generating a good bit of controversy because it establishes a driver’s experience and driving record as the primary rating factors and permanently bans insurers from using sex, marital status, race, creed, national origin, religion, occupation, income, education, home ownership, age and other socioeconomic factors in the rating process. The draft regulation also expressly forbids insurers from using information from credit reports or scores for rating during the transition period.

The proposed new rule also prohibits insurers from using age, sex, race, occupation, marital status or principal place of garaging in underwriting and from considering education or home ownership in the underwriting process. 

A public hearing was held Sept. 19 on the proposed managed competition regulations .  A spokesperson for the Massachusetts Office of Consumer Affairs said Sept. 24 that Burnes will review the testimony and input that was received and issue a final regulation in October.  Managed competition is expected to take effect on policies that renew beginning April 1.

Some commentators view managed competition as the wave of the future. Others deride Commissioner Burns's consumer-oriented approach as contrary to the principles of a free market system. Which side of the argument do you support?