Geico latest insurer to eye Mass.

For the backers of Massachusetts’ move to a more competitive auto-insurance industry last year, it’s the best news yet:
Geico Corp., the country’s third-largest car insurer that’s also known for have a gecko pitchman, has filed papers that would allow it to sell policies in Massachusetts as soon as May.
State insurance officials and others hope that Geico’s arrival in the Bay State will lower rates for consumers.
And it appears to signal that the state’s switch to a “managed competition” system in early 2008 has been successful in wooing back some of the major national companies that had refused to do business there because of the old, heavily regulated system.
Soon after scrapping the “fixed and established” rate system, under which the state’s insurance commissioner set an annual rate for insurance companies, Progressive – the fourth-largest insurer in the country, filed to sell policies.
Since then, seven other companies have entered the Massachusetts private-passenger auto insurance market, pushing the total number of auto insurers to 24.
The more competitive environment has led to an average cut in premiums of about 8 percent, according to the state’s calculations in 2008.
In an interview with Providence Business News, Insurance Commissioner Nonnie S. Burnes said the move to the “file and set” system – where insurers propose a rate and rating criteria and implement them unless the commissioner objects – has been a success.
Burnes noted that the number of uninsured motorists has dropped 13 percent in the last year to about 1 percent of Massachusetts motorists. Moreover, she said the number of auto insurance products has risen, such as “loyal” discounts for consumers who have a homeowner’s policy and a car policy with the same company.
Under the former system that was in place for decades, most products and discounts were prohibited.
“Now we’re seeing companies competing through products as well as rates,” Burnes said recently.
But not everybody is ready to declare managed competition a complete triumph.
Some consumer advocates have suggested that the average insurance rate might have dropped even farther last year under the former “fixed and established” system. And critics have asserted that the new rules have allowed companies to use socioeconomic factors – instead of driving record alone – to determine the insurance premiums of individual drivers.
In other states, insurers commonly use factors such as occupation, credit scores and income to set rates, but that practice is supposed to be forbidden.
But Stephen D’Amato, a consultant for the Center of Insurance Research, a nonprofit consumer advocacy group based in Cambridge, Mass., said the use of good-student discounts and offering lower premiums for people with homeowner policies water down the importance of good driving records and leave urban and lower-income drivers still paying higher rates.
“I’m not advocating for the old system,” D’Amato said. “But we could have taken the best of the old system and made it even better.”
Frank Mancini, president and CEO of the Massachusetts Association of Insurance Agents, said managed competition clearly has changed the landscape of the industry in Massachusetts.
Since going into effect, the new rules have forced some smaller agencies to either consolidate or close – a trend that Mancini predicts will continue through 2009.
Because for years all auto policies written in Massachusetts essentially were the same, many agencies only represented one auto insurer. Now, with competitive rates, agencies need multiple companies to attract customers. But many aren’t big enough to do that.
Not surprisingly, the association also is leery of the arrival of Progressive and Geico, both of which bypass agents to sell directly to consumers.
Mancini complained that, in a bid to attract more competition, the Mass. Division of Insurance has treated Web-based insurers differently.
He cited an instance in which Progressive’s Web site dispensed thousands of incorrect quotes of competitors’ rates at the end of last year. Mancini said Progressive has yet to be penalized.
“If that was one of my members, they could have lost their license,” he said.
In response, Burnes told PBN that Progressive itself brought the problem to the state’s attention, and that the quote feature on the Web site has been disabled in Massachusetts until the company can demonstrate that it has been corrected. Along with the change in the competitive landscape, there has been a shift in market share, too.
Commerce Insurance Co., in Webster, continues to write the most policies, but its market share has dropped to 29.66 percent in January from 30.1 percent a year ago, according to Commonwealth Automobile Reinsurers, an industry-operated reinsurance group.
In contrast, Boston-based Liberty Mutual Insurance Co.’s market share has been boosted from 9.2 percent to 10 percent year over year.
Progressive has written policies worth about $46 million in terms of premiums since last year, according to Cathy Wilton-Bransch, Progressive’s product manager in Massachusetts. She said that’s about 1.2 percent market share.
Mancini said auto insurance rates have been on the decline for several years, and he expects the pendulum to swing the other now, managed competition or not.
“Rate can only drop so long before it starts to catch up to you,” he said.
Burnes acknowledged that some of the most recent rate filings by auto insurers have sought to increase premiums. But she added that others are asking that rates be lower, and still other rates won’t change at all. Progressive said it is filing for an average 4 percent increase.
As far as Geico’s filing last month, Burnes isn’t saying much yet. She said her office will thoroughly review the documentation before publicizing what rates and products Geico will offer.
Geico, which is owned by billionaire Warren Buffett’s Berkshire Hathaway, generally offers low insurance rates by selling directly to the consumer. Massachusetts is the only state where Geico doesn’t write policies.
Geico isn’t saying much, either. A company spokeswoman acknowledged it has filed papers, but would not say anything else last week.
Burnes is optimistic other major companies – Allstate has long refused to do business in Massachusetts because of its previous regulations – will enter the state.
“There are a lot of companies circling,” she said. “I don’t know which ones are going to land.” •