Stephen D’Amato, a consultant to the Center for Insurance Research in Cambridge, made a good point regarding credit scoring at the September 20th DOI hearing.
He warned that even if Comm. Burnes prohibited the use of credit scoring in the new managed competition environment, carriers might implement tiering (see post below) or they could also use many things as proxies for credit.
As you may or may not know, the current statutes allow carriers to use insurance scores for underwriting private passenger auto risks. That’s right. Carriers can use it the same way as it’s used for underwriting homeowners risks.
It seems that this surprises a lot of people. It’s true that the Commissioner clearly is trying to eliminate the use of socio-economic factors (i.e. credit scoring) for rating purposes in the new competitive auto market.
And even though the existing state statutes allow credit scoring for underwriting purposes specifically, this doesn’t mean carriers won’t find different means for using credit for rating purposes.
My fear is that if all the National Companies come in, they will offer lower prices but not the same coverage’s and our office Staff will spend their day quoting and just trying to keep the business on books.
I believe that it is not only price but the service you offer clients that will keep them in your agency. The clients that shop for price will do it all the time and is that the business you really don’t want.
My thoughts on managed competition are mixed. On one hand I am excited that the automobile market is changing and there will be some great opportunities to make some money. On the other hand managed competition will bring in new competitors into the market place that we have never seen before. The top 3 auto markets in the country spent over 1.3 billion dollars in marketing their product last year. It will be very hard not only as an agent, but for our companies to keep pace with the marketing programs of the GEICO’s of the world.
As an urban agent I have concerns as to the effect the changes planned for the MA Auto Market will have. I sense that managed competition at a broad glance could benefit many MA residents for premium pricing. However, I am concerned for the urban residents located in higher territories. A closer look poses a threat for increasing premiums to these areas. It has been said that the lower rated suburban and rural territories subsidize the higher territories. With a competitive market these credits could be lost, raising prices in already outrageously priced territories.
Although we are still waiting on the final regulations from the DOI and carrier rate filings, there are a couple rating things you should know about:
In the upcoming MA Auto rating world, carriers will be able to provide rate classes above and beyond the ones we’ve all been accustomed to. This means that one carrier might assign a different rate class to a certain driver than another carrier. As a result, just asking for a Rate Class will no longer work.
Instead, we’ll ask for a small amount of additional information such as Years Driving, Age (to determine senior discount), and some driving history. Based on those few fields, WinRater will do the hard work of assigning the Rate Class for that driver and for each carrier.
Just a quick heads up to let you know that WinRater will be ready when the new managed competition marketplace begins.
Some of the things we are doing:
* We have reviewed the proposed auto regulations thoroughly. Based upon this review as well as lengthy discussions with carriers, agents, CAR, vendors, DOI, etc., we are very confident that our comparative auto rating program (which has been used to rate CT and RI policies) will be able to handle the forthcoming rating changes.
Is it purely coincidental that Massachusetts will throw open the gates to managed competition in the auto insurance marketplace on April Fools’ Day? It’s something to ponder.
But what is certain is that any agency in the formerly sleepy world of Mass. auto insurance would be foolish not to start preparing for the changes that will take place April 1, 2008.
I can’t help but feel for the agents, who are often referred to as the most important players in the distribution game, but always the last ones invited to the table. Commissioner Burnes often cites the strength of the agent system and recently said in an interview with The Standard that “I think the agents are going to do just fine”.
10/05/07
Boston Software meets with agents to discuss project scope, rating workflow, and suggestions.
Milford Daily News, August 30, 2007
Editorial voices concern that Burnes’ proposal may not go far enough to produce significant savings and that pressure from urban legislators will tilt the benefits away from those who live outside the city.