Byline: Bob Kievra

BOSTON - Two state regulators squared off yesterday over how auto insurers prepare their rates under the new managed competition structure, clashing over how the recipe is interpreted and what ingredients can be used.

The tug-of-war between Insurance Commissioner

Ms. Coakley is questioning the filing of Commerce and four other insurers, alleging the five are seeking to overcharge policyholders more than $125 million in proposed 2008 rates.

Commerce Insurance was the first to defend its rates before Ms. Burnes in the quasi-judicial proceeding, which featured sworn testimony, quashed subpoenas and marked exhibits.

Assistant Attorney General Peter Leight sought to probe Commerce's filings in detail, but Ms. Burnes limited his probes. Prior to the hearing, she sided with Commerce in rejecting a subpoena request from the attorney general that requested more documents from the insurer. In a ruling yesterday, she struck from the record pre-filed testimony by an expert retained by the attorney general's office.

Ms. Burnes said her role in the new system is to consider whether proposed rates are excessive, inadequate or unfairly discriminatory.

"It is not to endorse or validate one method in getting to a rate,'' she said.

She acknowledged "some unhappiness with how I've been trying to focus" the hearings but said she won't allow months-long proceedings that were the norm under the old system, in which regulators set the premium that all auto insurers could charge customers.

"We cannot have these hearings go on for months or we are never going to get these rates," she said.

The state's auto insurers are in a period of transition after regulators scrapped the former system, opting instead for a new framework in which companies are permitted to establish their own rates, subject to certain conditions and approvals.

The Commerce hearing will resume today and insurance officials have expressed concern they could be put at a competitive disadvantage if rulings aren't made swiftly. The managed competition system becomes effective April 1 and renewal notices must go out in mid-February, they said. Insurers worry a company without an approved rate might lose customers to those insurers with lower rates approved by the Division of Insurance.

The fifth-floor hearing room at 1 South Station was packed with some of the state's top insurance company executives and officials from insurance trade associations.

Some were present because they will be defending their company's rates starting next week. Others were listening in hopes of obtaining information that might be used to their competitive advantage in subsequent rate filings.

Commerce's average premium will drop 8.1 percent under its proposed rate but Ms. Coakley has previously argued that had the old system remained in place, rates for 2008 would have likely been reduced by approximately 11 percent.

In making his case, Mr. Leight argued that Commerce's rate filings was unnecessarily complex, lacked transparency and selectively used data that cast its proposal in the most favorable light.

Mr. Leight spent much of the day questioning Commerce Assistant Vice President Thomas Boyer II, scrutinizing Mr. Boyer's assumptions and source of data. Mr. Boyer explained how he used such factors as snowfall amounts, frequency of accidents and how contingent commissions are allocated to insurance agents in authoring the company's rate filing.

In testimony filed by the company, Commerce defended its proposal, saying provisions for profit, losses and expenses are not only appropriate, but conservative. The company said its methodology is sound and is consistent with generally accepted actuarial methods and techniques.

Mr. Leight said no one knows for sure whether the filing is appropriate because Commerce won't share - and the commissioner won't order - the production of documents used in crafting the rate.

The filing also does not take into account that Commerce last year increased fees for bad checks and missed payments and hiked monthly installment plan fees by 25 percent, Mr. Leight said.

Insurance company executives urged Ms. Burnes to keep the big picture in mind and not spent an inordinate amount of time on the granular. They said companies, because of competition, can't afford to charge excessively high rates because customers now have the choice of going to a lower-priced insurer.

Ms. Burnes has scheduled a hearing Monday for The Premier Insurance Co. and Wednesday for The Hanover Insurance Group Inc., both based in Worcester. Premier has proposed an average reduction of 6.3 percent. Hanover has proposed an 8.1 percent decrease in the average premium. Statewide, the average reduction across 19 companies for policies effective in April is -7.8 percent, according to the Division of Insurance.