Nanny State Nonnie Strikes Again

Today’s Boston Globe reports that Nonnie Burnes, the Massachusetts Insurance Commissioner, has decided that auto insurers will not be allowed to use credit scores in their structure for calculating insurance rates. The story by Globe reporter Bruce Mohl reports:

"There are those who assert that the use of this information is unfair and discriminatory," she said in a letter accompanying the regulations. "On the other hand, there are those who view the use of credit information as a valid factor in predicting risk in this market and that the use of this information benefits careful, responsible people wherever they live."

It is both discriminatory and a valid predictor of risk. Discriminatory in the sense that insurers need to discriminate (that is, select for lower priced policies) drivers whose lower risk matches the lower prices they will charge. By forbidding the use of credit data in the process, Burnes is simply forcing insurers to use different measures to predict risk – measures that might be more difficult to obtain and less accurate predictors of the cost of future claims.

Burnes said she decided to tell insurers what factors they cannot use so they would be free "to be innovative in the products and services that they offer."

Any innovation devised by insurers will inevitably undo in part the subsidies that are built in to the present system, subsidies that have been imposed through political pressure on the “regulatory” function of setting the price of insurance. For example:

The regulations maintain for at least one year existing subsidies paid by suburban and rural drivers in order to keep the rates of urban drivers reasonable.

Reasonable? "Lower" is the accurate word.

Is it intuitively reasonable to subsidize the cost of urban auto ownership while also subsidizing urban mass transit, in part because it lacks riders? One can argue that either or both of these subsidies are good public policy, but to label the current outcome as “reasonable” is a policy judgment, not factual reporting.