The move to a more competitive auto insurance industry in Massachusetts is about a month old, and Paul Hendricks is still left wondering how it is going to affect him.
Hendricks is one of more than 2,000 auto body repairers in Massachusetts hopeful that the increased competition among insurers will be a benefit. But he is not counting on it.
Owner of Hendricks Auto Body across the Rhode Island border in Uxbridge, Hendricks says that for years under the old, heavily regulated system, some insurers have routinely underestimated the cost of repairs when issuing payouts to their customers.
Repairers are left to decide whether to: accept that estimate, ask customers to make up the difference between the estimate and the actual cost, endure the headache of filing for a supplemental payment from the insurer, or turn the customer away.
Hendricks said increased competition might convince insurers to raise their repair estimates, namely the labor rate they are willing to pay – which Massachusetts auto body shops say is too low in most cases.
“This might help us out,” Hendricks said last week.
But, he added quickly, it might not.
That uncertainty is not unique to the auto body industry as Massachusetts undergoes major changes in the way car insurers are regulated. Repairers are joining agents, consumers and even some insurers in taking a wait-and-see attitude on the state’s switch to “managed competition.”
The Massachusetts Association of Insurance Agents (MAIA) is optimistic that the switch from a “fixed and established” rate system will be a boon for independent agents.
Under the old system that was in place for decades, the state insurance commissioner set a rate annually for insurers, and there was very little difference between policies. Car insurance had become a commodity, explained Frank Mancini, president and CEO of the MAIA.
That has changed. With managed competition, insurers propose rates and rating criteria and implement them unless the commissioner objects. This allows insurers to offer discounts and various products that were prohibited before.
The competitive rates went into effect April 1, so it has only been applied to drivers whose policies have expired in recent months, or those willing to cancel an existing policy to make a switch.
Mancini said agents can provide guidance for customers who have not had to shop around for the best policies for years. “Now there are many, many options,” he said. “And consumers really need to be careful they are getting what they need.”
State officials have hoped that changing the way insurance companies are regulated will woo back to Massachusetts many of the major national companies that had refused to do business there due to the previous regulations. There are 19 insurance carriers operating in Massachusetts.
Progressive Corp., the third-largest auto insurer in the country, is the only new insurer that has set plans to enter the Massachusetts market, although there has been talk of others looking to do the same.
Billionaire Warren Buffett, whose Berkshire Hathaway is the parent company of Geico Corp., expressed an interest last year in establishing a presence in Massachusetts, but nothing has materialized.
The nation’s fourth-largest auto insurer, Geico offers low insurance rates by selling directly to the consumer instead of through agents. Massachusetts is the only state in which Geico does not do business.
In the meantime, the managed competition is leading to an average cut in premiums of 7.8 percent, according to rate filings submitted by insurance companies several months ago.
But the switch has not been without controversy.
Critics have 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.
Some consumer advocates have also suggested that under the former “fixed and established” rate system, drivers would have seen at least a 10-percent rate reduction this year.
In addition, a Web site launched by the state Division of Insurance designed to give consumers sample premium amounts has drawn complaints from insurance agents who say the samples are much lower than the actual premiums being charged.
Insurance Commissioner Nonnie Burnes has touted the move to managed competition as a success, particularly in light of Progressive’s decision to enter the market. And she has said the Web site is intended only to demonstrate the variations in prices and discounts being offered as insurers battle for market share.
For example, MetLife Auto & Home, based in Warwick, which had insured about 300,000 vehicles in Massachusetts under the “fixed and established” system, is now offering features such as Identity-theft services with its products, free of charge.
MetLife 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
“We’re off to a good start,” Ted Mitchell, MetLife spokesperson, said last week. “Sales and retention numbers are strong so far.”
With all the different offerings, Mancini said agents have been busy. But he is sure the changes won’t benefit all his members.
Mancini foresees fewer but larger agencies as the changes force some to consolidate or close their doors.
“We have a lot of small agencies in Massachusetts that only write private passenger auto insurance,” Mancini said, adding that those agents have typically represented only one insurer.
“They had enough business only to attract one company,” he said. “But in a competitive marketplace, you really need more than one company.”
Stephen Regan, spokesman for the Massachusetts Auto Body Association (MABA), said that like Paul Hendricks, many of its members are hoping that managed competition spurs new business.
Regan said Massachusetts drivers who file a claim for a damaged vehicle are typically issued a check based on an insurer’s estimate on how much it would cost to repair. The driver can then take that money to an auto body repairer.
But because the estimate is often lower than what the auto body shop says the job is going to cost, Regan said, drivers often keep the money and put off the repairs.
MABA is hoping that insurers, in the interest of customer service, will increase their estimates, which in turn might persuade more drivers to make repairs.
“A lot of repairers are looking at this as a chance to get extra business,” Regan said. “But we don’t know if managed competition will affect that. It’s too early to say whether it will pan out.” •
