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Charting her own course; State's new insurance commissioner faces numerous challenges.

Byline: Bob Kievra

BOSTON - Navigation is nothing new for Nonnie S. Burnes.

The state's new insurance commissioner is a veteran sailor, a person at home charting a course across Nantucket Sound or the Atlantic Ocean.

"I've recently converted myself into the navigator on the boat," said Ms. Burnes, 64, a longtime director at the Wianno Yacht Club in Osterville.

Many of the state's major insurers and trade associations are watching what direction Ms. Burnes charts for the Division of Insurance, a state agency that sets rates for automobile insurance and establishes policies for health insurance, workers' compensation and homeowner's insurance.

Since being tapped by Gov. Deval L. Patrick for the high-profile position, the one-time Superior Court judge has been studying the issues and becoming familiar with the major players in the Massachusetts insurance industry, a business sector that includes health insurers, life and disability insurers, and companies that provide automobile and property and casualty insurance.

A former law partner of Mr. Patrick's, Ms. Burnes comes to the job with no background in the industry but said her work as a lawyer and her 11 years as a judge provides her the necessary skills to wade into a sector marked by long-standing problems with no easy solutions.

"We get very difficult and complicated issues. That's what we do," she said. "I know the issues are very contentious. And I think it's important to know the person making decisions is fair and impartial and taking into consideration all of the facts."

Those who know her say Ms. Burnes is a smart, independent thinker, a person not beholden to any portion of a powerful insurance lobby, which has split over the issue of how Massachusetts sets prices for automobile insurance.

"I think if she was looking for a challenge, there will be plenty presented to her," said Deirdre A. Cummings, consumer program director for the Massachusetts Public Interest Research Group. "There does need to be some attention paid to insurance issues this year, particularly in health care and homeowners."

The state's landmark health care legislation, enacted last year, requires the commissioner to approve the standards for minimum health care coverage. The oversight is needed because the new law requires all adults to have health insurance by July 1.

In addition, the escalating cost of homeowners insurance has become a problem that potentially affects everyone in the state, she said.

It remains unclear how the new administration will tackle the issues.

Former Gov. Mitt Romney sought to reshape the state's auto insurance system and his insurance commissioner, Julianne M. Bowler, led the charge until she was dismissed by Mr. Patrick, who took office in January.

"We got farther than ever before, but at the end of the day, we got a whole lot of nothing," said Frank O'Brien, vice president and regional manager for the Property Casualty Insurers Association of America.

Legislative leaders said they expect to hold hearings this year on altering the state's automobile insurance sector but were uncertain what level of attention it might get.

"We're going to take a look at auto insurance," said state Sen. Stephen J. Buoniconti, D-West Springfield, the co-chairman of the Joint Committee on Financial Services. "It's a big enough issue."

The Massachusetts insurance commissioner sets rates for all automobile insurance companies, while in every other state insurers determine their own prices based on their rating variables. Mr. Romney sought to give insurers greater flexibility in pricing their own policies, including the potential use of credit scores in establishing annual premiums.

The state cut auto rates for 2007 by 11.7 percent, producing an average statewide premium of $898.81. Rates were reduced 8.7 percent in 2006, and Mr. Buoniconti said he expects rates will drop another 8 percent to 10 percent for 2008.

Ms. Burnes said she's keeping an open mind about how rates are set. She said she would await a report due out this week from a six-member task force headed by Daniel C. Crane, director of the state Office of Consumer Affairs and Business Regulation.

It's reasonable for insurers to know how well a policyholder makes his or her payments, she said. But permitting an insurer to know where a person went to school or what type of job they perform may not be relevant.

"I have a visceral response against it," she said. "My initial reaction is to resist that."

If the new administration has an insurance playbook, Ms. Burnes said she hadn't seen it and would have not have taken the job if one had been in circulation.

"What was important to me is that I wasn't just going to be implementing someone else's decisions," she said. "From everything I've been told, there is no preconceived agenda. We have to be fair to the consumer but allow the businesses to be successful."

Some in the industry say those businesses can't succeed unless Mr. Patrick tackles the issue of automobile insurance reform.

Susan K. Scott, senior vice president of the Worcester-based Premier Insurance Co. of Massachusetts, which insures about 7 percent of the Massachusetts automobile market, said the current system needs to change. Another Worcester-based insurer, The Hanover Insurance Co., was also supportive of Mr. Romney's efforts.

The current automobile market is dominated by insurers who primarily do business only in Massachusetts, Ms. Scott said. The lack of national insurers means regional insurers with limited geographic diversification could go out of business should a natural disaster such as a hurricane strike Massachusetts, she said.

"The only thing that works really well in this system is that it covers up its faults, masks the problems and keeps policymakers lethargic from the looming crisis we are confronting as the automobile market continues to consolidate," she said.

Premier's parent company, The Travelers Cos. Inc., is growing in every other market, except for Massachusetts, she said.

"Its long-term commitment to this place is very cautious," she said.

Hanover officials have also been paring their automobile and homeowners business in Massachusetts.

Hanover had net written premiums of $205.8 million in Massachusetts last year, or 14.4 percent of its total personal lines net written premiums. That is down from 2005, when the insurer had $245.7 million in net written premiums in the Bay State, or about 18 percent of its total.

Hanover last year said it was significantly reducing its homeowners policies on Cape Cod, citing new catastrophe models that forecast greater risks for damage from major storms and hurricanes.

But linking homeowners insurance with automobile coverage is a red herring, said an executive for Commerce Group Inc. of Webster, the state's No. 1 auto insurer and the second-largest provider of homeowners insurance in the state.

Even in states where automobile insurers have the ability to set their own prices, they are resisting offering homeowners policies in coastal areas, said James A. Ermilio, Commerce's executive vice president of Massachusetts insurance operations.

Most Massachusetts-based insurers are well capitalized and have purchased reinsurance to provide additional coverage in the case of a major disaster, such as a hurricane, he said.

The Massachusetts Property Insurance Underwriting Association, also known as the FAIR plan, has seen its market share on Cape Cod grow from 4 percent in 2000 to 40 percent in 2005. It raised rates 25 percent on the Cape last year and 12.4 percent statewide.

The association, which was created to provide insurance for those who could not obtain it anywhere else, is now the No. 1 provider of homeowners insurance in Massachusetts, with approximately 13 percent of the market.

The FAIR plan, whose premiums are regulated by the insurance commissioner, will submit a rate increase request sometime this year, said FAIR plan President John H. Golembeski. More Massachusetts residents are using the FAIR plan because insurers are withdrawing coverage from coastal areas - regions dominated by densely populated homes often expensive to rebuild. In turn, reinsurers are forcing insurance companies to carry extra coverage, prompting many companies to pare their businesses.

While FAIR plan policyholders pay the higher premiums, the repercussions affect everyone, said Mr. Golembeski. If losses from a disaster overwhelm the FAIR plan, all insurance companies writing homeowners insurance in Massachusetts have to cover the resulting losses, he said. Should that occur, those insurers could pass those costs along to their customers.

"If there is a catastrophe on the Cape, the people in South Hadley, in Pittsfield, and in Worcester will ultimately pay for it," said Sen. Buoniconti, whose committee will study a proposal to form a state-backed insurance catastrophe fund.

The fund, initiated by state Sen. Robert O'Leary, D-Barnstable, would act as a Massachusetts reinsurer and would enable companies to buy less reinsurance on the private market. All insurers would be required to contribute annual premiums into the fund and a governing board would be able to issue revenue bonds if the fund balance was inadequate.

Ms. Burnes, who has a home on the Cape with her husband Richard M. Burnes Jr., co-founder of the venture capital firm Charles River Ventures, said she wants insurers and reinsurers to adjust their views about Massachusetts. She said it was unlikely that a Category 5 hurricane would strike the state. In addition, Massachusetts has stricter building codes than other parts of the country.

"The pressure is mostly coming from reinsurers," she said. "They wag the dog and there's no leverage on them."

Leverage is something no one should try to apply to the commissioner's office, she said. While she's happy to take into account other points of view, no one will have an inside track, she said. "I really want this to be an open and transparent process," she said.

Contact business reporter Bob Kievra by e-mail at rkievra@telegram.com.

Changing landscape

More than two decades ago, 90 % of automobiles in Massachusetts were insured by national companies. Between 1984 and 2006, the number of insured automobiles rose 35 %. But by then, 27 companies had exited the state's market, leaving Massachusetts-based companies to insure nearly 61 % of the automobiles.

1984

Total insured National Massachusetts-based

automobiles companies companies

2,995,748 2,707,553 (90%) 288,195 (10%)

2006

Total insured National Massachusetts-based

automobiles companies companies

4,052,171 1,594,444 (39%) 2,457,727 (61%)

ART: PHOTO

CUTLINE: Nonnie S. Burnes, the new insurance commissioner for Massachusetts, plans to tackle many issues including proposals to alter the state's automobile insurance sector.

PHOTOG: IAN HURLEY
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Title Annotation:BUSINESS
Publication:Telegram & Gazette (Worcester, MA)
Date:Mar 11, 2007
Words:1731
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