Romney Auto Reforms Hit Roadblocks from Mass. Agents and Court


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When the chief executive officer of the Independent Insurance Agents and Brokers of America spoke before the Virginia Big “I” recently, he snuck in several digs at liberal-leaning Massachusetts, at one point expressing disapproval of a state where government sets auto insurance companies’ rates and-unbelievably-agent commissions.

He and his audience just shook their heads in disbelief-that could never happen in Virginia.

IIABA CEO Robert Rusbuldt and other agents must be shaking their heads in astonishment now that the Big I’s Massachusetts affiliate has come out against a plan to replace the Bay State’s state-controlled system with a competitive rating system. Most insurance people would consider competitive rating to be as “American as apple pie,” which is how Rusbuldt describes incentive-based compensation.

Just one day after a court struck a blow to his administration’s reforms of the state’s auto insurance residual market, Gov. Mitt Romney lost the support of the powerful independent agents’ lobby, the Massachusetts Association of Insurance Agents, for his competitive rating plan.

Romney has proposed a number of reforms to curb fraud, discourage lawsuits and reward good drivers. But the controversial part of his plan would phase-in competitive rating by permitting auto insurers to set their own rates while capping some increases at 15 percent. That’s where he and the agents part company.

“While MAIA does and will support many aspects of Gov. Romney’s auto insurance reform legislation, such as an increase in the tort threshold, limitations on certain medical services, anti-fraud measures, enhanced driver education programs and glass coverage deductibles, we will not support the provision of his bill that would institute competitive rating for private passenger auto insurance,” Frank Mancini, president and chief executive officer of MAIA, wrote in a position statement.

How can a group of free-enterprise loving independent agents come out against competition?

Many observers chalk it up to the complexity of moving from where the system is now to a different place and to the intricacies of special interest politics.

But for MAIA, the answer is simple.

“Agents believe that the system we have now is a good one for their clients,” explained Mancini when asked why Bay State agents oppose the competitive rating portion of Romney’s overhaul.

Mancini said he has heard from members since the position statement and while not all agree with it, many do, including some of the largest agencies that would most likely fare the best if the system were changed.

Independent agents might not publicly admit it but there is some self-interest in their position in favor of the status quo: the system they say works for consumers works well for them, too.

According to IIABA’s own research, Massachusetts independent agents and brokers write 78.8 percent of the Massachusetts personal lines market, well above the share enjoyed by agents in the most states. Maine, Vermont, Connecticut and Ohio agents and brokers follow with between 50 and 61 percent of the market share. In 17 states, independent agents write only 20 percent to 30 percent of the personal lines market.

Romney has made no secret of the fact he wants to alter the status quo to attract outside companies to the state. These might include State Farm, Progressive Direct, GEICO-in short, competition for the market share now firmly held by independent agents.

Romney has also cited the additional objectives of rewarding good drivers and reducing fraud but those can be achieved without tinkering with the rating system, according to agents.

MAIA’s Mancini said that rewarding good drivers could be done using good driver rate deviations and bad driver penalties in the Safe Driver Insurance Plan, an approach that produced competition for good drivers in the 1990s.

The Massachusetts rating system provides premium subsidies for urban, inexperienced, youthful and senior drivers. Whereas a true competitive system that handed insurers control over pricing would likely eliminate these subsidies, MAIA wants to retain them.

“Is there a corresponding benefit for those drivers who pay a little extra to maintain affordable premiums for the subsidized drivers- drivers, who in many cases, may go uninsured if premiums became unaffordable? MAIA believes there is,” MAIA asked and answered.

MAIA noted that partly as a result of these subsidies, the state has among the lowest uninsured motorists populations and premium.

According to MAIA, the most pressing problem in the state’s auto program is not the rating system but the “unfair and archaic” residual market.

But efforts to change the much-criticized residual market plan are in limbo following a Superior Court decision that Insurance Commissioner Julianne Bowler exceeded her authority last December when she ordered the creation of an assigned risk plan known as the Massachusetts Assigned Insurance Plan to replace the current reinsurance facility known as Commonwealth Auto Reinsurers. Commerce Insurance, Arbella Mutual, the Center for Insurance Research and a handful of insurance agents brought the suit that scuttled the Bowler plan.

The court found that the legislature never intended to give the commissioner authority to establish an assigned risk plan and that, in fact, the state intentionally moved away from such a structure when it created CAR in 1973. Bowler, backed by Attorney General Tom Reilly and proponents of the new plan, had argued that a 1983 law amending the original 1973 CAR legislation permitted her action. But Judge Ralph Gants dismissed that notion.

The court did not rule on the specifics or wisdom of Bowler’s MAIP plan but only on her authority to impose it without legislative approval. No decision has been made whether to appeal the court ruling.

Romney has anticipated opposition along the way.

“Some well-connected companies will fight with everything they have to keep the status quo, the Soviet-style system,” Romney said. “There are some enormous special interests so be prepared for some creative reasons on why things shouldn’t change.”


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