GEICO looks to enter the Massachusetts, a lesson in cartels.

As someone who spent a good portion of his young adult and adult years as a citizen of the Commonwealth of Massachusetts I have been watching with amusement the process by which the Honorable Nonnie Burnes, the commissioner of Insurance, former judge and former trial lawyer with the once great Hill & Barlow firm in Boston, is dragging the auto insurance cartel of Massachusetts into the free market. Nonnie S. Burnes

Despite moving from Massachusetts 20 years ago this spring, I am still a daily reader of the Boston Globe and Cape Cod Times, and I have been following the hilarity as Nonnie has dared to introduce COMPETITION into the last great price fixing, good old boy cartel of Massachusetts based property casualty firms that for decades paid to play under the old "price controlled" auto system.

Most people outside of the Commonwealth are probably unaware that it is still working under the same corrupt, socialistic, antiquated auto insurance system I enjoyed when I first got my drivers license and a car at age 16 back in 1974. Essentially, and I am greatly simplifying here because it is impossible to explain the bizarre complexity of the Massachusetts auto insurance system in a blog post, if you are a bad or high risk driver in Massachusetts you are guaranteed auto insurance coverage in a price controlled entity called CAR ( Commonwealth Automobile Reinsurers ) which has for decades been a honey pot for local property casualty agents who can always find coverage for clients, only need to market to one company and which allows to a large degree the P&C companies that can handle writing business in the Commonwealth, a small list I might add, to cherry pick the profitable accounts and dump the rest in the CAR pool. The net impact is that there is a tiny number of insurance companies interested in writing business in the Commonwealth as they are in a price controlled, mandated coverage, mandated contribution to CAR state. Unless you had a substantial block of other lines of coverage to subsidize your firms auto insurance business you just didn't want to write in that state, and now the current companies who have been in the system are saddled with all the contracts they dumped into CAR under the old, pre-competition model. The agents and companies never had to worry about the competition of the Progressive's, USAA and GEICO's lowering costs and providing superior coverage all while doing an end run around the cartel of P&C agents in the state by going directly to the consumer.

The impact to consumers was that bad drivers, high risk drivers and others who wouldn't be underwritten with out the subsidized pricing, were instead carried for decades at below market pricing while the good drivers and low risks had artificially high rates forced upon them by the very limited number of companies that would write their insurance in the Commonwealth. It was pure, 1960's liberal utopianism meets old boy, old school insurance company greed to keep the system in place for the last 30+ years. I'll never forget when I moved to Arizona and was able for the first time as an adult to competitively shop my auto coverage and found that my premiums were 60% less in Phoenix for coverage that was double that which I had in Massachusetts. Essentially it was a huge hidden tax to the consumer and a subsidy to the cartel.

Enter Nonnie Burnes and her "radical concept" of introducing competition to the state market, phasing out CAR and allowing citizens of the Commonwealth a break in their auto pricing as they would finally be able to enjoy the free choice that the rest of the United States has of working with direct underwriters of coverage such as Progressive and now GEICO. Today's Boston Globe headline indicates the free market is working and GEICO is going to enter the state, which should lower rates for the vast majority of drivers even further.

Judging from a quick scan of Google, Nonnie has her hands full with the agent and insurance lobby that is seeing it's lucrative franchise vanish in the face of competition, but she has hung tough and boy I hope she continues. She probably doesn't remember me but she and I had a couple of cases together back when she was at Hill and Barlow and she was always a smart, charming and tough lawyer and I expect she will see this through to the end.

As we look at our economy and how we can give consumers and others a break, it's important for people to remember the huge hidden cost that is built into " consumer protections" such as the Massachusetts Auto Insurance System over the last 30 years and the value of a fair, open and transparent market. Good job Nonnie and a pat on the back to Deval Patrick for backing her in this thankless and necessary move to make the Commonwealth a more competitive place to live, work and operate a business.

Remember, expansion of free, transparent and appropriately regulated markets and the removal of insurance cartels based on lies and barriers to entry, is a lot more consumer friendly then the "tort reform" and "consumer protections" pushed by the insurance industry and those who carry their water in state houses all over the US.

On another note, artificial barriers to entry and cartel like behavior has plagued the structured settlement profession for over 25 years as well, with the resulting situation being one where we are losing life markets, have almost no new blood and are seeing our franchise eroded by competitive forces outside our profession. Remember guys, the Berlin Walls always eventually crumble and the firms that are prepared to embrace a more open, transparent and free market in structures will survive and the others will be left to remember what was and is no more.

Posted on March 21, 2009 .