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Direct Writers Reconsidering Massachusetts

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It’s finally happened: Geico is entering the auto insurance market in Massachusetts.

Insurance Commissioner Nonnie Burnes confirmed in a statement earlier this month that the nation’s third-largest auto insurer has filed to begin selling insurance in May. The Warren Buffet-owned Geico would become the second major national insurer — Progressive being the other — to enter Massachusetts since the state moved to a “managed competition” system for auto insurance.

The entry of Geico into the state’s insurance market comes nearly a year to the day after the Division of Insurance launched sweeping reform of the Bay State’s auto insurance system, eliminating the old structure by which the state set all insurance rates. That system has been replaced with a “managed competition” regime, under which insurers set their own rates within guidelines established by regulators.

Until last year, Massachusetts had been the last state where car insurance rates were set by regulators. Burnes trumpeted Geico’s decision to file a rate plan as proof the managed competition is bringing more choices to consumers in the state.

Days later, Insurance Journal reported that Esurance, a San Francisco-based personal auto insurance direct writer, has taken preliminary steps to obtain a license to sell auto insurance in Massachusetts — although the company says it has no immediate plans to enter the Bay State market.

According to the state Division of Insurance, Esurance has filed papers to obtain a foreign company license. However the company has not filed a rate plan, which would be the key step in setting up a sales operation in the state.

Esurance relies on its Web site as its primary tool for selling auto insurance direct to consumers.

In an e-mail to Insurance Journal, Esurance said it has no immediate plans to enter the state’s personal auto market.

“We’re not currently planning on selling products in (Massachusetts),” said Spokeswoman Kristin Bewe. “We regularly explore states where we’re not writing business, and often take the steps to get licensed in them.”

Bewe said Esurance, which writes in 30 states, also holds company licenses in other states where it does not write insurance.

Esurance is a subsidiary of Bermuda-domiciled White Mountains Insurance Group Ltd., which is also a corporate parent of Canton,. Mass.-headquartered OneBeacon Insurance Group.

It’s unusual for an insurer to take the steps to obtain a company license in Massachusetts without submitting a rate filing.

“That would be rare,” said Jason Lefferts, spokesman for the Division of Insurance.

One notable exception: Geico, another Web-based direct writer, which until last month had held a company license in Massachusetts for years without making a rate filing.

Frank Mancini, head of Massachusetts Association of Insurance Agents, the state’s trade group for agents, said he was unsurprised by the announcement of Geico’s entry, but was unaware of any plans by Esurance to enter the state.

“We expected that they (Geico) would be here at some point, and we’re going to have to see what the reaction is,” he said.

Mancini said he was also unsurprised that the biggest entrants into the state’s personal auto market — Progressive and, now, Geico — are direct writers which sell primarily through Web sites.

“You push a button someplace and now what wasn’t available before is now,” he said.

“There’s very little investment in launching a Web-only operation in a state,” Mancini added. “But it brings no jobs and no investment to the state’s economy. They hurt jobs in the state.”


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