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Cut in auto rates to average 7.7%

Drop is smaller than in no-competition system

Email|Print| Text size + By Bruce Mohl
Globe Staff / November 20, 2007

Massachusetts auto insurance premiums will drop an average of just under 8 percent in the first year of the state's new competitive insurance system, less than what some analysts had forecast would happen if regulators continued to set the rates.

State officials said the rates filed yesterday for policies renewing April 1 would yield a reduction in the statewide average premium of approximately 7.7 percent. Massachusetts regulators under the current system had cut the statewide average premium for 2007 by 11.7 percent, lowering it to $899.

The Division of Insurance will officially release the filings today, but company officials estimated that 70 to 80 percent of the state's drivers will probably see rate reductions, while about 20 to 30 percent will see their rates hold steady or increase by as much as 10 percent.

The state is switching to a competitive auto insurance system after 30 years in a bid to attract big national carriers, expand coverage options, and drive down premiums, which are among the highest in the country.

The state's 19 existing companies introduced many new coverage options yesterday, but no new carriers jumped into the market. Rates also fell, particularly for some drivers, but not as much as some had expected.

On a conference call with reporters yesterday, Insurance Commissioner Nonnie S. Burnes initially declined to provide the statewide average premium number for next year, saying it was "not a reasonable comparison" under her new regulatory system of managed competition. The number has been used in past years to compare one year's rates to those of previous years.

She later called the Globe back and provided the number, but cautioned that it failed to take into account the many policy enhancements companies are beginning to offer.

"This is the number, but it's not the story," she said.

Burnes estimated that premiums for 46 percent of the cars insured by the state's five biggest carriers, or about 1.2 million vehicles, would drop by 10 percent or more.

Massachusetts currently is the only state in the nation where regulators set all auto insurance rates. The Patrick administration is moving to a system where companies can implement their own rate plans, subject to regulatory approval. Rate increases, at least initially, are capped at 10 percent.

Yesterday's filings were accompanied by a flurry of news releases as companies pointed to steep discounts and policy enhancements they plan to offer drivers they consider the best risks.

Companies introduced discounts for students with good grades, for customers who continue to insure their vehicles with the same firm, or for those who also purchase an insurance policy for a home, a condo, or an apartment.

Companies also introduced policies that wouldn't penalize drivers for a rare accident or that cut in half from six to three years the time an accident would remain on a customer's driving record.

Commerce Insurance of Webster, the state's largest automobile insurer, said it would retain its discounts for members of the American Automobile Association and provide other benefits, including pet-injury coverage.

Many of the company press releases promoted premium reductions of 20 to 35 percent for their best customers, but the definition of a best customer was vague. Hanover Insurance Group of Worcester said about 5 percent of its existing customers would qualify. Officials with Liberty Mutual Group of Boston said they didn't know how many of their customers would qualify.

Arbella Mutual Insurance Co. of Quincy, the state's third-largest automobile insurer, said it broke its customers down into five groups: safest, good, careful, standard, and special. A company spokesman said those defined as the safest drivers would receive an average rate reduction of 19.4 percent next year, while good drivers and careful drivers would receive average reductions of 14.5 percent and 7.4 percent, respectively.

The Arbella spokesman said standard and special drivers would receive average rate increases of 4.7 percent and 8.3 percent, respectively.

Companies have until next Tuesday to amend their rate filings, and several said yesterday that they plan to review what their competitors filed and adjust their rates accordingly.

Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge and a critic of managed competition, said the 7.7 percent reduction in the average premium wasn't impressive. He noted that industry officials had been forecasting an 8.5 percent reduction if the commissioner continued to set rates.

"Clearly, this is not the auspicious start that the Division of Insurance had been telling public officials and consumers to expect," he said. "In addition, based on the proposed rates, there's a real concern that many drivers with clean driving records could actually see rate increases, which we've been told for months would not happen."

An industry executive, who asked not to be identified because he was not authorized to speak to the media, said his firm had forecast a reduction of more than 10 percent in the average statewide premium if the insurance commissioner continued to set rates.

"Companies are happy with this," he said.

But Burnes called projections that rates would drop 10 percent or more if she continued to set rates "sort of an urban myth." She said the new policy enhancements and proposed rate reductions were great news for consumers.

"Nobody was offering any of these benefits under the old system," she said.

James MacPhee, Liberty's general manager, said the new system is far superior to the old system.

"It's speculative to say we would do better under state-set rates,' MacPhee said. "Consumers are going to get big rate decreases and product enhancements they would not have received otherwise."

Changes in managed competition are percolating in the Legislature. The Patrick administration currently prohibits the use of such factors as income, occupation, education, and credit history in setting a driver's premium, but a Senate bill likely to be taken up this week would prohibit many more factors by requiring insurers to consider only driving record, garaging address, type of vehicle, and certain other information.

Bruce Mohl can be reached at mohl@globe.com.

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