It took Massachusetts 30 years to realize that when theory dictates your central planning will fail; your central planning is destined to fail. Thirty years during which anyone unfortunate to live in the State had to deal with an overly regulated insurance “market.”
According to InsuranceNewsNet ($$$), insurance regulators in Massachusetts have decided to take a giant step out of the stone-age, after Governor Patrick described the automobile insurance market in the State as “ailing.” Previously, the State of Massachusetts, through its regulatory arm, bullied insurers into writing auto policies – under threat of revoking their licenses to write other lines of business. Insurers were essentially forced out of the State altogether – and in theory this would’ve probably affected those insurers who were writing riskier lines – which then creates a problem of adverse selection.
Just how bad is it? Well, only “19 insurers currently write auto business in Massachusetts, while another 35 have left the state since 1990.” State Farm – by far the nation’s largest automobile insurer (about 20% nationally) has a paltry 0.42% share in MA. State Farm writes no new business in MA, and only services policyholders who’ve had to relocate. Now, compare this to any other state, where there are generally 50+ insurers writing policies, where consumers have the choice between a low-cost, direct insurer like eSurance, or a more expensive, full-service insurer with a local agent like State Farm, and everything inbetween.
Says the article:
Massachusetts’ 30-year-old “fixed-and-established” system of centralized private-passenger automobile insurance rate-making will come to an end next year, following a pair of rulings by Insurance Commissioner Nonnie S. Burnes to gradually phase out the system in favor what Burnes is calling “managed competition.”
Nonnie Burnes, the State’s Insurance Commissioner, intends to allow “insurers to propose individual premium levels that take into account such factors as driving record, the frequency and severity of at-fault accidents, and traffic violations,” a novel idea, indeed. This new-fangled method is otherwise known as, among other things, “risk-rating” and is (outside of Massachusetts) widely understood and practiced by Actuaries in all lines of insurance. And it has been, for quite some time.
Bravo. Welcome to the 19th century.
And yet Massachusetts is leading the way in compulsory health insurance.
One small step forward, one great leap backward.
Absolutely stunning. If you can’t successfully regulate something as trivial as car insurance, how the hell can you expect to regulate health insurance?
Not to mention, the same theory which proved the undoing of P&C regulation also applies to Life/Health.