Boston Globe reporter Bruce Mohl writes a priceless story today on auto insurance in Massachusetts. This article should be required reading for all students in a first semester course in microeconomics. It illustrates the futility of regulatory attempts to keep market forces from influencing our ersatz market for auto insurance. The story could be headlined “Keeping the Market out of the insurance market”:
Insurance Commissioner Nonnie S. Burnes, concerned about higher prices for drivers who are less affluent or less educated, has proposed rules for auto insurance competition that would bar companies from using such socioeconomic factors as income, education, occupation, and homeownership in deciding how much drivers should pay for coverage or whether to insure them. She has also proposed a one-year ban on the use of a driver's credit history in setting rates, but not in deciding whom to insure.Thank you, Nanny State Nonnie! But wait! The ugly head of market competition emerges from yet another mole-hole!
Many companies appear to be using proxies for those factors today. Under the existing auto insurance system, where Massachusetts regulators set all the rates, companies are allowed to offer discounts on the state-set rates to members of groups or associations. Many of these groups fit targeted education, occupation, and income levels insurers believe have lower loss experience.Horrors! Please rescue us, oh wise Commissars of Insurance!
And our always confident Massachusetts Division of Insurance gives the proletariat this statement of assurance in today's
"As we move to give drivers more choice and lower premiums through managed competition, we expect these discounts may become less and less relevant as a competitive environment creates lower costs for a greater number of people"Not only are these regulators able to simultaneously set so many business policies and also set rates at the market-clearing prices, they confidently predict that the appeal of discounts will soon wither away in our worker’s paradise. Such discounts must be mere vestiges of bourgeois capitalism!
And a spokesperson for an incumbent insurance company, the big fish in this small pond of regulation that has driven away their larger national competitors replies:
"Whatever the system is, we will compete under the rules of the system"Indeed they will, though they are the only ones who can tolerate the stifling regulatory environment.
So let’s continue down the road to managed competition. We can’t wait for our regulators to drive prices down while they simultaneously drive up “fairness”.
What a Commonwealth! What a Party!
All hail the Great Leader, Comrade Deval and his loyal comrade in the Ministry of Insurance, Commissar Nanny State Nonnie!