Will New Massachusetts Car Insurance Rate Regulations Backfire?

In many states, your car insurance rates are partially based on your profession, education and credit score. Statistically, engineers are less prone to car accident than say, bar hops, so it makes sense to charge a lower insurance rate to the former. Those with a college degree have fewer accidents than the less educated, and those with better credit scores are more likely to pay the car insurance bill in the first place.

Massachusetts Car Insurance Rate Regulations

Massachusetts outlawed socioeconomic rating long ago, allowing insurers to charge based on driving history only. In April 2008, facing pressures from insurance companies that said the rates were squeezing them out of the state, Massachusetts changed to a competition based system in which insurers set their own rates within the Massachusetts Insurance Commissioner’s guidelines. So far, commissioners have stuck to the socioeconomic rating ban. But should a commissioner with sympathies towards insurance companies take office; that could change.

Legislation Seeks to Ban Socioeconomic Rating Practices

The Massachusetts Association of Insurance Agents wants to prevent that with a recently proposed 2012 ballot referendum and a legislative measure that ban socioeconomic factors when calculating car insurance rates. The association tried for legislation last year but failed, so it’s trying again and adding a ballot initiative this time. To be successful, the association needs nearly 69,000 signatures before December 8.

Insurance Companies Balk

Insurance companies believe the measure goes too far. Not only does it ban practices not allowed under current rules, but it’s also vague about what factors can be used for discounts. Such language could be interpreted to eliminate good student discounts or special group discounts. That would certainly backfire for residents, eliminating helpful discounts in place today.

Consumer Interest Groups Support the Legislation

Deirdre Cummings is the legislative director of the Massachusetts Public Interest Research Group (MassPIRG). The group fights special interest groups on behalf of Massachusetts residents. Cummings often finds himself stuck in the middle when it comes to car insurance rate hikes. Consumers don’t believe insurance companies have any business in their personal lives. Some say it’s unfair that a high school graduate who decides to enter the workforce right away gets no shot at a good student discount. A laid-off worker whose credit score suffers would suddenly have to pay more for insurance at a time he can afford it least.

“Sometimes people feel a little violated that somebody’s looking into what they feel is a personal financial matter,” Cummings 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.”[1]

It’s likely that such a law would help consumers overall, even if it eliminates certain discounts. The combination of open competition, underscored by certain legislative restrictions would allow Massachusetts drivers to pay rates that stem from their personal driving histories rather than rates based on arbitrary life situations over which one has little control. Some would pay more, but some, especially those facing the toughest economic times, would pay less.


[1] http://www.wbjournal.com/news49874.html

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