State urges drivers to negotiate with auto insurers

Canceling and renewing policies -- a potentially cumbersome practice not usually encouraged by insurers -- is the tactic the state is urging some drivers to try in order to take advantage of lower auto insurance rates that go into effect April 1.

Drivers renewing or purchasing a policy during January, February, and March will not be able to enjoy the 2007 rate reduction because of a change in billing procedures. Instead, these policyholders -- about a third of Massachusetts drivers -- will be billed at the higher 2006 rate until they renew again in 2008.

But State Division of Insurance officials are launching a campaign today to urge consumers to negotiate with their agents to try to get the lower rate this year.

"People who fall into this three-month window are frustrated by seeing that for 2007, the average rate is 11.7 percent lower, but they don't necessarily need to wait for a potential double-digit rate cut," says Daniel C. Crane, state director of consumer affairs.

State law allows drivers to cancel their policies within 30 days of renewal date and switch to another carrier without a financial penalty. So between now and April, it's still possible for drivers to move the effective date of their policy and take advantage of a lower premium. The current statewide average premium is expected to drop from $1,018 to $899 when the new rates take effect.

But this is not a one-size-fits-all scenario. Henry Risman, president of Risman Insurance in Medford and Byette Insurance in Tewksbury, says "there might be benefit for some, but you have to be careful before you jump."

There are potential costs associated with switching carriers, from losing a group discount, affecting related homeowner policies, or changing a billing cycle, requiring another down payment. In addition, some Massachusetts communities have a lower premium rate, due to antifraud premium adjustments, but some municipalities have experienced an increase.

"Renewing only makes sense if you're getting a big benefit," says Crane.

Tony Ruscetta of Rehoboth, whose auto policy with Commerce Insurance renewed on Jan. 1, is just waiting out the 15 months to get his benefit when it kicks in 2008.

"It's a Catch-22," says Ruscetta, who tried to calculate how much he would save by canceling and renewing with another agency but found it hard to compute. "I'm not sure how much I'd save anyway. But by waiting until 2008, I'm definitely losing money because you can never catch up."

Daniel Johnston, president of the Automobile Insurers Bureau of Massachusetts, says he's uncertain how many consumers are canceling their policies or switching insurers to get the lower rate in 2007.

The multi-page recommendations and guidance of the Division of Insurance, which it expects to post on its website Mass.Gov/DOI today , does not go against the bureau's manual, says Johnston. "Everyone will eventually get the discount, though," he adds.

But Stephen D'Amato, a consultant with the Center for Insurance Research in Cambridge, says those who are unable to take advantage of the new rates because of their renewal dates are "paying for this one-time windfall for the insurance industry."

D'Amato is calling for the Division of Insurance to waive any financial penalties incurred by canceling and renewing policies, creating a mechanism to allow people to get the new rates.

"Consumers whose policies renewed between January and March are paying 11.7 percent more, funding a $150 million dollar bonus for the insurance industry," says D'Amato.

In 2004, the law was changed to make April 1 the date that annual changes in the automobile insurance rates become effective. This move was intended to eliminate the practice of sending estimated bills to consumers whose policies renewed earlier in the year, a routine the Division of Insurance called "confusing and inefficient." The Legislature made the change effective for 2007 to give companies adequate time to plan for the change.

This act, combined with a dramatic decrease in insurance rates, called attention to the new effective date. "If rates had gone up instead of down, this wouldn't be an issue," says Risman.