Can your car insurance premium be set higher than your neighbor’s just because he’s a college professor and you’re a WalMart worker? Because he has a Ph.D and you have a high school diploma? Because your credit score is 200 points lower than his?
The answer to all three questions is currently no, and the Massachusetts Association of Insurance Agents wants to make sure it stays that way. The Milford-based group has proposed a ballot referendum for the 2012 election that would make the use of socioeconomic factors in auto insurance underwriting-already banned by the state-illegal.
But organizations representing insurance carriers are pushing back, arguing the ballot measure would go further than the existing regulations, and might actually result in the majority of Massachusetts drivers paying more for insurance.
William McKenna, president of Healy Brothers Insurance Agency Inc. in Barre, sees both sides of the argument. On a philosophical level, he said, he wants socioeconomic criteria left out of the underwriting process.
“Why should a foundry worker from Orange pay more just because he’s a foundry worker from Orange?” he said. “I think it’s discriminatory.”
But, on an economic level, McKenna said, there’s no doubt the use of those sorts of criteria help predict the likelihood of a claim.
“Is there merit in it? Obviously there is,” he said. “The companies wouldn’t be asking for it if it didn’t work.”
Market In Flux
The state’s auto insurance market has been in flux over the past few years. Before April 2008, Massachusetts was the only state where auto insurance rates were essentially set by the government, based almost exclusively on individuals’ driving records.
Then, the Division of Insurance introduced “managed competition,” which let insurance carriers set their own rates. The division’s commissioner was charged with setting rules for the competition. So far, the people who have worn the commissioner’s hat-first Nonnie Burns and now Joseph Murphy-have banned insurers from using credit scores, professional status or education levels to deny coverage or set rates.
But McKenna thinks the issue is significant enough that it shouldn’t be left up to a single individual to keep or change the rules.
The agents’ organization tried last year to get a bill through the Legislature that would make those rules law, said Daniel J. Foley Jr., the group’s vice president of government affairs and general counsel. Since that bill didn’t make it, Foley said, the group is trying again this year with both a legislative measure and the ballot question.
Signature Deadline: Dec. 7
To put the measure on the ballot, supporters must collect close to 69,000 signatures by Dec. 7.
The Property Casualty Insurers Association of America is one of the groups lining up against the measure. Frank O’Brien, the organization’s Massachusetts vice president, said the referendum would not only enshrine the ban on socioeconomic factors into law, but also eliminate some practices that are currently allowed.
For instance, the referendum includes what O’Brien calls “very, very vague” language banning proxies for the disallowed socioeconomic factors. O’Brien said the wording could easily be interpreted to require the elimination of things like “good student” discounts or group discounts for alumni organizations.
Loss Of Discounts
“Consumers, should this pass, could very well be in a position that they would lose discounts,” he said.
That wouldn’t be such a bad thing, according to Deirdre Cummings, legislative director for the consumer group MassPIRG. Cummings said that, in many cases, discounts are designed to circumvent the state regulations. Good-student discounts for college students, for example, are obviously not available to a 19-year-old who gets a job right out of high school instead of continuing his education. McKenna said any change in the use of socioeconomic factors wouldn’t necessarily have an effect on his agency’s bottom line, but it would affect his relationships with his customers. He said a driver whose credit score has dropped because he had just been laid off is likely to react badly when he learns his insurance premium is going up too.
“Sometimes people feel a little violated that somebody’s looking into what they feel is a personal financial matter,” he said. “We’re the middle person that has to explain to them why they’re being penalized. It’s not exactly the kind of news you want to share with somebody.”
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