Mass. Managed Auto System Brings Competition, Lower Rates, Survey Says

July 6, 2009

Nine new auto insurers, more carriers for each independent agency to represent, a drop in the number of uninsured drivers, and a decrease in policies written in the residual market — these are some of the advantages under the one-year old managed competition auto insurance system in Massachusetts, according to a summary of a survey by the state Division of Insurance.

The state began its conversion from a system where the state fixed all auto insurance rates to one where insurers were given more flexibility in pricing under a managed system of competition on April 1, 2008. The survey covers the time period from April 2008 to April 2009.

Average premiums per vehicle have dropped 8.2 percent during the first year under managed competition; previously premiums had declined by 5.2 percent between 2006 and 2007, according to DOI.

The report says that while from the early 1990s until 2008, the number of companies offering private passenger auto insurance fell from 35 to 19, in the first year of managed competition, nine new companies entered the state’s auto insurance market. The new entries include Progressive, Occidental and Liberty Mutual’s Peerless.

Since the survey, two additional carriers— GEICO and Allstate– have also announced their entry.

Massachusetts consumers saved over $270 million in insurance premiums in the first year of managed competition. Average premiums per vehicle dropped 8.2 percent during the first year under managed competition; previously in 2006-07, premiums had declined by 5.2 percent.

Consumers with clean driving records were 19 percent more likely to see savings under the new system than those who had accidents or violations during the first year of managed competition.

The survey also found that 69 percent of consumers continue to purchase coverage through agents, rather than purchase directly. This number is nearly twice the national average.

Other findings:

  • Most consumers maintained their level of coverage when renewing their insurance policies. Those who changed their level of coverage were twice as likely to increase than to decrease their coverage levels. Many insureds opted to reinvest some of their premium savings into additional insurance coverage.
  • African-American, Hispanic and Asian drivers were more likely than the overall population to increase their level of coverage.
  • The number of drivers in the so-called residual or high-risk market is declining.
  • There has been a 13 percent decrease in the number of uninsured vehicles on Massachusetts roads since April 2008.
  • Forty-two percent of the consumers surveyed were more satisfied with the auto insurance market in Massachusetts than a year ago and only 3 percent were less satisfied.
  • Under the new system, 87 percent more agencies are representing four or more companies, whereas under the old system many agencies represented only one or two insurance companies – this makes it easier for consumers to shop for the best policy at the lowest price for their needs.
  • Approximately three out of four consumers indicated that they were aware of the new auto insurance system, and those who were aware were 60 percent more likely to have saved money than those who were not aware.
  • Not all consumers availed themselves of the new system in the first year. Some believed shopping around would be time-consuming; they were skeptical that they would save money; they found it difficult to compare insurance policies from different companies and they believed they could not change insurance carriers before a policy had expired.

Overall, the study concludes, the first year “showed positive results for most Massachusetts drivers but also highlighted that more outreach and education needs to be done to continue to afford all consumers the benefits of managed competition.”

According to DOI, the survey included nine focus groups with consumers held around the Commonwealth, a preliminary survey of 1,100 consumers, a 30-minute survey of more than 4,500 drivers and one-on-one interviews with over 50 insurance agents and executives.

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