Auto rate hike to be modest

No Massachusetts drivers, even the very worst ones, are likely to see more than a 10 percent increase in their premiums when auto insurance competition begins next year, according to two bulletins issued by the state insurance commissioner.

Commissioner Nonnie S. Burnes said she fully expects most drivers will see their rates go down when auto insurance competition begins April 1, but she is building in safeguards to make sure no one sees an increase greater than 10 percent as long as there is no change in the vehicle they are driving or their driving record.

"We don't want anyone to experience this rate shock everyone is worrying about," Burnes said.

In 1977, the last time Massachusetts tried auto insurance competition, rates for some urban and young drivers rose dramatically. The Legislature responded by abandoning competition and shifting to a system where regulators set all auto insurance rates.

Under new regulations for what Burnes is calling "managed competition," automobile insurers on Nov. 19 will file their own rates for policies that begin renewing on April 1. Every company's rates must still be approved by the Division of Insurance.

Burnes has issued two bulletins that effectively cap how much an individual's auto insurance premium can go up next year. The bulletins, which supplement the existing regulations, cover policies renewing between April 1 next year and March 31, 2009.

The first bulletin says any insurer that files rates that would result in more than a 10 percent premium increase for an individual driver or a 10 percent increase in any driver's individual coverages would be subject to a mandatory hearing before the Division of Insurance.

While the bulletin doesn't rule out increases beyond 10 percent, Burnes said any rate increase in excess of 10 percent is "presumptively not credible."

The second bulletin effectively says the state's highest risk drivers cannot see their rates rise more than 10 percent. Under the current regulations for auto insurance competition, drivers that have no insurer that is willing to cover them voluntarily will be assigned to a carrier and charged either the lower of that carrier's rate or a rate generated by Commonwealth Automobile Reinsurers, the agency that oversees the distribution of the state's high-risk drivers.

CAR yesterday released its rate request for next year, which is based on losses generated by the 168,000 drivers in the high-risk pool. CAR said the average premium of those drivers is $1,380 and should rise, based on loss data, to $2,092, a 51 percent increase. To comply with the commissioner's 10 percent cap, CAR proposed an average premium of $1,508, an increase of 9.3 percent.

Burnes said the cap will mean the state's relatively few high-risk drivers will continue to be subsidized by the remaining 3.8 million drivers, who will pay slightly more. "We're trying to have a managed transition," she said.

Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge, said the commissioner's bulletins may offer less protection to drivers than she thinks.

"The point is that any driver - good or bad - whose record didn't change could still see an increase of up to 10 percent," he said. "Keep in mind that if the commissioner had not adopted her managed competition plan, none of these drivers would have received a rate increase and the vast majority of drivers would have received a decrease of about 10 percent."

More than 70 lawmakers yesterday began a push for significant changes in Burnes's regulations. The lawmakers, led by Senator Dianne Wilkerson, a Roxbury Democrat, said their bill would allow insurers to use only a person's driving record, garaging address, type of vehicle, and certain other information in setting a driver's premium.

By contrast, Burnes's regulations prohibit insurers from using such factors as occupation, education, income, and credit history in setting premiums, but allow companies to use any other factors subject to her approval. The lawmakers say Burnes's approach will allow insurers to use proxies for occupation, education, income, and credit history to set rates.

Wilkerson predicted the bill would become law by Thanksgiving, a tall order given that it is likely to face significant opposition in the House and from Governor Deval L. Patrick. The bill's sponsors currently include 23 senators and 48 representatives.

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