The auto insurance market in Massachusetts gets a glimpse of greater competition today when carriers disclose their proposed rates, but the big unknown is whether motorists honk for joy or hit the guardrail.
The Patrick administration hopes the result is better than the last time Massachusetts tried to create a competitive system for setting auto insurance rates 30 years ago. That system was scrapped after urban drivers revolted upon seeing their rates triple.
Insurance Commissioner Nonnie Burnes says there are safeguards built into the administration’s shift to “managed competition.” She’s imposed a rate-increase limit of 10 percent for motorists with the worst driving records.
Until now, Massachusetts was the only state where regulators, not the market, set car insurance rates. Beginning today, companies will submit their proposed insurance products and rates to regulators, who will review them, before offering them to the public. Premiums will take effect next April.
“I hope that we will see better rates for good drivers. We are already seeing some new products,” Burnes said. “There’s this notion of pay as you drive. You pay less if you drive less. Some companies offer accident forgiveness. There will be better service because these companies are going to be competing for business.”
The filings will be closely watched on Beacon Hill, where some urban lawmakers are pushing a bill to significantly change the administration’s final set of rules.
The current rules bar insurers from considering income, marital status, education, occupation, homeownership and credit scores when setting their rates. Insurers are limited to considering a motorist’s experience and driving record as primary factors in setting rates.
But Sen. Dianne Wilkerson, D-Boston, and Rep. Antonio Cabral, D-New Bedford, say those rules create loopholes, such as considering membership in a professional organization as a proxy for occupation, which insurers can use to set higher rates for low-income and poor people.
The bill nearly came to the floor of the Senate last Thursday, but Gov. Deval Patrick personally lobbied Senate President Therese Murray, as well as House Speaker Salvatore DiMasi, to not act on the measure before Monday’s rate filings, according to DiMasi.
“He has asked personally not to have anything done until we see what those rates are,” DiMasi said. “I tend to agree with him. Let’s see what the reality is, instead of people speculating what this might be.”
DiMasi said he supports Patrick’s program to bring in more competition, and noted that the new rules offer protections for inner-city drivers.
“The governor has asked us to wait and see, and that’s what I’ll do,” he said.
Murray hasn’t taken a position on the Wilkerson-Cabral measure, said spokesman Dave Falcone.
Burnes says her safeguards will protect the worst drivers. “If (carriers) were able to charge what they want to charge for those drivers, the increase would be 50 percent,” she said.
Just 19 insurance companies currently write auto policies in Massachusetts. Last week that number grew to 20 as Peerless Insurance, a unit of Liberty Mutual, said it would begin writing auto and home policies in the state starting in the second quarter next year.
James Harrington, executive director of the Massachusetts Insurance Federation, an insurer trade association of insurers, said the old system was overregulated.
“Consumers will now have the ability to shop for price. You’ll see some product innovations,” he said. “The benefits to good drivers are relatively extensive.”
After today, companies can compare their rates to competitors, make adjustments, and amend their filings later up until Nov. 27.
Consumer advocates, however, say drivers shouldn’t be fooled. They warn that insurers will announce rate decreases of up to 30 percent for the “best” drivers, but will avoid specifics about who qualifies for them.
Stephen D’Amato of the Center for Insurance Research, says it’s possible that most drivers with good records won’t receive the best rates. He also said the new rates should be measured against the 10 percent decrease motorists would have received under the old system.
The National Association of Insurance Commissioners ranked Massachusetts as the fourth-most-expensive state for auto insurance in 2004, the most recent year for which data were available.
The study found the Bay State’s average auto insurance expenditure in 2004 was $1,113, behind only top-ranked New Jersey, the District of Columbia and New York. The national average in 2004 was $838.
The state’s insurance rates have been going down in recent years because of decreasing claims, and a crackdown on auto insurance fraud.
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