New plan drops Bay State auto premiums by 7.8%

The move to a more competitive auto insurance industry in Massachusetts will lead to an average cut in premiums of 7.8 percent, according to the state insurance commissioners’ calculations, which are based on rate filings last week.
Nineteen insurance companies submitted rate requests under the new “managed competition” system enacted by Insurance Commissioner Nonnie Burnes. All the filers were already offering car insurance in Massachusetts under the old, heavily regulated system.
The filings – the first under managed competition – only cover policies that must be renewed by April 1. Liberty Mutual Insurance of Boston proposed the largest average reduction, at 10.7 percent.
“The promise of better rates for good drivers and better products for everyone is coming to fruition,” said Burnes in a statement after the filings, adding: “Consumers will start to experience these benefits firsthand when they begin to shop around this winter.”
The move to a new auto insurance system has proved controversial.
Some consumer advocates have suggested that under the former “fixed and established” rate system, in which the commissioner set a rate annually for insurers, drivers would have seen at least a 10-percent rate reduction this coming year.
Critics have also expressed concern that rules governing the new system might allow companies to use socioeconomic factors – instead of driving-record alone – to determine what rates to charge. Insurers commonly use factors such as occupation, credit scores and income in other states.
Many of the major national companies such as Allstate and Progressive have refused for years to do business in such a heavily regulated environment, and the switch to new rules didn’t change that, at least not yet.
Keene, N.H.-based Peerless Insurance, a subsidiary of Liberty Mutual Group, already has indicated that it will jump into the Massachusetts market in February, when another round of rate filings is scheduled. Others are said to be waiting to see how the new rules pan out.
Under managed competition, insurers propose rates and rating criteria and implement them unless the commissioner objects. Burnes said she will take up to 45 days to examine last week’s submissions to ensure they don’t use the banned socioeconomic factors to determine rates.
“I take my role as a consumer advocate very seriously,” Burnes said. “We will be closely scrutinizing the amended filings to make certain that consumers across our state are being treated fairly.”
The 19 companies initially filed proposed rates and criteria two weeks ago and had a chance to revise those filings last week to make them more competitive. The new system allows companies to introduce products and benefits that were prohibited before, including those that would reduce the effects of an accident on a driver’s premium.
Indeed, many of the companies added features such as good-student and driver-training discounts and accident forgiveness. For instance, Liberty will waive the premium surcharge for an at-fault accident for policy holders who have had a clean driving record for more than five years while insured at Liberty.
Stephen D’Amato, a consultant for the Center of Insurance Research, a nonprofit consumer advocacy group based in Cambridge, Mass., said last week that some of the proposed discounting criteria appeared to be a “back door” way of using socioeconomic factors.
For example, he said, many insurers offered discounts for those who also purchase additional insurance, such as a homeowner’s policy, or those who purchased more expensive coverage.
D’Amato noted one company that will offer a discount to any customer driving a hybrid vehicle. “Poor people don’t drive hybrid cars,” he said.
“It’s not the best drivers who will be paying less,” D’Amato said. “Instead the best drivers who don’t meet those criteria will be paying for the others.”
While Burnes said rates will decrease an average 7.8 percent under the recent filings, individual rates will vary greatly.
MetLife & Home of Warwick, for example, had an average rate decrease of 6 percent, but more than 30 percent of its policy-holders in Massachusetts will see double-digit cuts – and the best drivers will have their rates reduced by as much as 20 percent. At the same time, another 24 percent of MetLife customers will either experience no change or an increase.
Under the fixed-and-established system, drivers really didn’t need to compare policies because regulation kept them relatively alike. But Burnes advised that consumers shop around now.
She said her division will soon launch a Web site to assist drivers in comparison shopping. “We want consumers to be able to go to a central, trusted location so that they can make informed choices about the prices and policies that work best for them,” Burnes said. •