The Massachusetts Association of Insurance Agents was one of 22 groups yesterday to make the deadline for filing a petition for the November 2012 ballot. Petition No. 11-18 “An Initiative Petition for An Act Banning the Use of Certain Socio-Economic Factors for Insurance Underwriting and Rating of Motor Vehicle Insurance seeks “…to prohibit insurance companies from using a person’s credit score, occupation, or level of education as factors in underwriting and rating of private passenger automobile insurance.”
The purpose of the proposed law is to prevent auto insurers from using credit scores, occupation or level of education as factors in underwriting and rating private passenger automobile insurance. Massachusetts has long banned auto insurance companies from refusing to issue automobile insurance policies based upon “age, sex, race, occupation, marital status, or principal place of garaging the vehicle…” The proposed initiative seeks to require a General Law to regulate what automobile insurers can use in establishing and applying their individual rate filings under the competitive rating statute.
The petition mirrors Senate Bill No. 461 An Act banning the use of certain socio-economic factors for insurance underwriting and rating of motor vehicle liability insurance which the MAIA filed earlier this year and which is currently referred to the Joint Committee on Financial Services. Frank Mancini, MAIA’s President, explained the organization’s decision to file the ballot initiative in addition to the existing legislation. “While we remain focused on passing this important bill through the legislative process, we felt it was essential to keep all avenues open to us.”
Currently in Massachusetts, there are only an administrative regulations that the Division of Insurance has issued for competitive rating of automobile insurance which incorporate the statutory prohibitions and add the additional prohibitions against using “creed; national origin; religion (sic); income; education; and homeownership” as rating factors for underwriting decisions. In addition, there are competitive rating regulations that specifically prohibit the use of a “consumer report obtained from a consumer reporting agency” for rating or underwriting automobile policies. Without formal legislation to the contrary, however, the MAIA contends that the state insurance commissioner has total discretion to amend those rules at any time after conducting a public hearing. While the current Insurance Commissioner Joseph Murphy has indicated it is not his intention to amend the regulatory prohibitions in place, the MAIA believes that a statutory prohibition would be a safer long-term solution.
In any case, it is important to note that this initiative petition does not, however, affect rating or underwriting in the Massachusetts homeowner insurance market where credit scoring is presently allowed.
Opposing parties have quickly responded to the MAIA’s actions. In a release this morning, the Massachusetts Insurance Federation’s Executive Director James Harrington called the MAIA’s actions “…political grandstanding pure and simple… No one should misunderstand the agents’ agenda here; this is about a specific interest group that is unhappy that auto insurance competition has finally arrived in Massachusetts and even more unhappy that it is thriving.” He went further stating, “As a regulatory matter, the Insurance Commissioner already bans the use of credit scores and other underwriting factors commonly used in other states. But this group wants a statutory DO NOT ENTER sign that send the message to the industry nationally that Massachusetts is hostile to competition and don’t bother to invest here.”
Frank O”Brien, vice president state government relations for the Property Casualty Insurers Association of America also weighed in. “The Property Casualty Insurers Association of America (PCI) is disappointed that the Massachusetts Association of Insurance Agents (MAIA) is pursuing a ballot initiative to prohibit insurers from considering certain underwriting and rating factors they are already prohibited from considering. Given the current prohibition on these tools and Insurance Commissioner Murphy’s position on keeping the prohibitions in place, MAIA’s ballot petition is unnecessary.”
The MAIA’s argument is that auto insurance premiums should be based as much as possible on an individual’s driving record and years of driving experience. As the MAIA sees it, insurers charge higher rates to policyholders who display risky behaviors in order to discourage those behaviors and minimize loss. Using education, occupation, or credit scores to determine auto rates does nothing to discourage people from engaging in the risky behaviors that actually cause such losses. Moreover, the use of socio-economic factors like credit scores, occupation, and education may all be used as proxies for rating factors that insurers are otherwise prohibited from using. Many low-income and minority consumers use non-traditional financial institutions, such as check cashing or rent-to-own stores, that often do not report information to credit agencies. Many others rent rather than own their homes and do not make mortgage payments. According to MAIA, this absence of information can dramatically lower their credit scores.
“A person who decided to become a plumber or carpenter should not have to pay more for their auto insurance simply because they chose not to go to college or obtain a graduate degree,” argues Mancini. “There is simply no place for this type of class warfare in our auto insurance system.” Moreover, Mancini continues, “Using these factors to set auto rates is simply unfair, discriminatory, and unreliable. Two people living in the same neighborhood with identical driving records should not be charged different rates because one lost their job or fell behind on their medical bills.”
The MAIA also cites a report by MASSPIRG which states that 70% of credit reports contain either serious errors or other mistakes of some kind. Credit scores also can be subject to wild and unexplained short-term swings and can vary greatly depending upon the bureau that supplies the information to the insurer. As a result, in the MAIA’s opinion, consumers end up at the mercy of the credit bureau that an insurer decides to use.
“With so many questions surrounding the accuracy and effectiveness of credit scoring, it is simply bad public policy to allow insurers to rely on this information,” says Mancini. “We hope that by seeking to remedy this through the legislative or ballot initiative process, we will be able to better protect Massachusetts consumers.”
Now that petition has been filed, the Attorney General will then review whether the initiative petitions meet certain constitutional requirements in order to be certified to file with the Secretary of State. If accepted, the deadline for certification is Wednesday September 7, 2011. Following certification, proponents of a petition are required to gather and file the signatures of 68,911 registered voters by December 7, 2011 to put the initiative on the November 2012 ballot.
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