Mass. Insurance Division Approves 2.7 Percent Auto Rate Increase

December 16, 2002

Massachusetts Insurance Commissioner Julie Bowler announced a 2.7 percent auto insurance rate increase for 2003 after rejecting an average rate increase request by insurers of 7 percent.

The smaller rate increase translates into an annual average premium increase of $25.81 per vehicle in 2003 and an average annual rate of $978.43. Citing rising claims experience and costs, Commissioner Bowler noted that a modest increase is warranted.

“Maintaining rate adequacy in the marketplace protects consumers. We’ve reached a critical juncture where rising costs cannot be offset by further rate cuts. This outcome maintains stability and deters market erosion that would potentially jeopardize consumer choice and insurers’ obligations to policyholders,” said Commissioner Bowler.

Historically among the nation’s leaders in claims frequency, Massachusetts saw property damage average losses per insured vehicle rise from $110.00 to $121.00 between 1999 and 2001, the most recent year for which there is complete data. Glass claims rose from approximately $122 million in 2000 to $151 million in 2001. Also on the rise is bodily injury liability claims. In 2000, Massachusetts’ bodily injury frequency was double the national average and that figure grew by 2 percent in 2001, an increase that is compounded by ever-escalating medical costs.

Since her appointment as Commissioner in March, Bowler has initiated efforts to remedy inefficiencies within the state’s residual market, the mechanism by which insurers share the losses of high-risk drivers. “In its current form, it has led smaller insurers to leave Massachusetts and is a barrier for larger national auto insurers to enter the state. Addressing this is the first step towards bringing consumers greater choice and competitive rating,” said Bowler.

Bowler also created a working group in May to examine ways that greater competition among insurers could be gradually introduced into the existing rate-setting system. The group, composed of consumer, regulatory, industry and agent representatives, is now preparing its first report to the Commissioner following a series of meetings. Commissioner Bowler will join the working group when it reconvenes in January.

“The current system is penalizing our safest drivers. There’s something wrong when more than 85% of the driving population is under step15 and must subsidize the less than 15% that is largely driving-up costs. Creating greater competition is the way to make policyholders’ safe driving records worth more to them and to insurers,” Bowler said.

As part of the rate decision, Commissioner Bowler approved increasing the Safe Driver Insurance Plan (“SDIP”) premium adjustments for liability coverages (Parts 1, 2 & 4) from 7 precent per SDIP step to 7.5 percent. The premium adjustment for collision coverage (Part 7) remains at 7 percent per SDIP step. For a Step 9 driver, the maximum discount off of the manual rates for each of the three liability coverages will be 45 percent in 2003. Safe drivers could realize further discounts if the auto insurers choose to submit voluntary discount proposals for safe drivers (typically SDIP step 9 & 10 drivers) by January 13, 2002.

Also announced in the 2003 decision was a 1.3 percent average increase in commissions for agents from $111.50 per vehicle in 2002 to $113.00 in 2003.

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