The Massachusetts Association of Insurance Agents just filed a proposed ballot question that would make the state's insurance commissioner's ban on the use of socioeconomic factors – credit scores, education and occupation – a state law. The ban as it exists now is a regulation, but it isn't permanent or strong enough to satisfy agents’ association.
The ballot question mirrors a bill that the agents have actively pursued on Beacon Hill, and the group would still prefer legislative approval to a ballot campaign.
By proposing a ballot question debate, the agents are potentially pitting themselves against a well-funded opponent – big auto insurers. While agents sell insurance policies on behalf of insurers, the two groups don’t always see eye-to-eye on public policies. And they certainly don’t agree on this one.
Former insurance commissioner Nonnie Burnes hoped to quell the debate, once and for all, four years ago. That’s when she crafted an intricate system to shift the state’s highly-regulated auto insurance industry into a more loosely-controlled competitive market – “managed competition,” as she liked to call it.
Consumer advocates were upset when Burnes initially didn’t include a formal ban on using credit scores in her plan. So Burnes made sure it was there by the time she had the final draft done.
The agents’ group says an insurer should base its coverage and premium decisions on a person’s driving record, not socioeconomic status. The association argues it would be unfair, for example, to give a Harvard graduate a better deal on car insurance than someone who doesn’t have a college degree if both customers had similar driving histories.
Dennis Murphy, a lobbyist who represents the agents’ group, says the amount of errors that pop up in credit reports – and the difficulty in getting them fixed – should be reason enough to strengthen the ban. Most states, meanwhile, allow auto insurers to use credit scores.
While the agents support Burnes’ credit score ban, they’re not satisfied with it. Dennis Murphy says an actual law could prevent another commissioner, in a future administration, from reversing the ban.
Then there’s a bill being pushed by House Majority Leader Ron Mariano, the Quincy Democrat who previously presided over the Legislature’s financial services committee. Mariano’s bill would lift the existing ban on using credit histories, but would also put some restrictions in place for how insurers could use those scores. The agents’ group expects both bills will be aired at a public hearing in October.
Most agents either own their own shop or work for a small business. Even after pooling their resources, the state’s insurance agents would have a hard time outspending the big insurers – the Geicos, Progressives and Liberty Mutuals of the world – in this fight.
The decision to seek a spot on the ballot apparently took those big insurers by surprise. Frank O’Brien, a vice president with the Property Casualty Insurers Association of America, says he doesn’t understand why the agents feel the need to get this ban embedded in a state statute. The Legislature has shown no sign that it’s in a rush to adopt Mariano’s bill, and the current ban is in no imminent danger of going away.
O’Brien concedes that its members support the use of credit scores in rating and underwriting. In fact, O’Brien argues that the overall rates in Massachusetts might actually go down if credit scores were used, because people in this state tend to have better credit histories than the national average. Some good drivers could still be penalized, but O’Brien says the majority might enjoy some savings on their premiums.
A similar insurer group, the Massachusetts Insurance Federation, was quick to blast the agents’ efforts to put the credit score ban on the ballot. MIF portrayed the ballot question as a backlash to this new, more competitive system – one that’s attracted a couple of big-name national insurers to the state that often sell policies directly to consumers.
That said, the state’s incumbent insurers have done a good job of keeping Progressive and Geico at bay for now. Neither company was selling auto policies here before managed competition opened the gates in April 2008. By the end of 2010, they still hadn’t made much headway: Progressive had a 3.4 percent market share, while Geico was at 1.7 percent. MIF argues that a statutory ban on socioeconomic factors would be one more deterrent to persuading the national insurers to invest here.
Peter Robertson, the group’s outside counsel, also asserts that the wording of the agents’ ballot question could jeopardize popular existing discounts for factors such as being a good student or belonging to an alumni association. He says that’s because the agents’ bill would also ban insurers from using information that could act as a proxy for a driver’s education level, occupation or credit score.
Joe Murphy, the state’s current insurance commissioner, says he has no plans to reverse the ban his former boss created as long as he’s in charge. At a time when many consumers feel like their financial fates are out of their hands, he says lifting that ban would just add to that helplessness. However, he hasn’t taken a formal position on the agents’ proposal.
With this ballot question in the works, the agents can be guaranteed an attentive audience when they plead their case on Beacon Hill this fall. Lawmakers, meanwhile, shouldn’t act surprised to see this land on their desks again. They must have learned by now that they can’t make a controversial issue go away, just by deciding not to make a decision.