A guide to basic changes to
Auto Insurance in Massachusetts
NEW DIRECTION FOR MASS DRIVERS!
The new way for MASS. drivers is called "managed competition".
- Covers personal vehicles
- Auto insurers to set own rates
- Any rate increases limited to maximum of 10%
- Begins with policies effective April 1, 2008
GUIDING PRINCIPLES
1. Reduction in rates for drivers with good driving records no matter where these drivers garage their vehicles 2. Maintaining low number of uninsured drivers 3. Fairness to all drivers through the prohibition of socio-economic factors in rate setting
Questions and Answers
Q. Why the change?
A. The Commissioner of Insurance believes that Massachusetts drivers will generally benefit from a "managed competition" system through lower rates and more product features and benefit options than drivers currently have.
Q. What is "managed competition"?
A. While insurance companies may set their own rates and offer special product benefits and features, the Commissioner of Insurance maintains approval authority. She will exercise tight control over how rates are set; whether they are too high, too low; whether they are arbitrary, discriminatory, unfair, violate public policy, etc.
Q. What are key factors for competitive rate-setting?
A. For one thing, insurance companies will compete using their own underwriting experience and operations expenses as factors. From the state's standpoint, the key factors for rate-setting are: driving record and years of driving experience.
Q. Can credit reports be used?
A. During the one-year transition period, insurers may not use information from credit reports or credit scoring for rating and underwriting policies effective from April 1, 2008 through March 31, 2009.
Q. Can socio-economic factors be used?
A. The regulation bans the use in rating (pricing) of sex, marital status, race, creed, national origin, religion, occupation, income, education, homeownership, and age as against public policy. Neither can any of these factors, nor principal place of garaging, be used in underwriting a risk for auto insurance in Massachusetts. The one exception is drivers age 65 and over will continue to receive a discount.
Q. Are subsidies for urban drivers maintained?
A. Yes. The new regulation preserves the 2007 rate subsidies for those territories where they are now applied - for cars garaged in cities.
Q. How about poor-risk drivers?
A. About 4% of drivers have unfavorable driving experience. Common causes: multiple accidents or driving violations, or a combination. Their rates will go up, but no more than 10% under a temporary cap imposed by the insurance commissioner.
Q. What are the expectations?
A. Citing the "good financial health" of insurance companies and the fact that information from the industry reveals continued declining claim costs, the insurance commissioner expects that drivers with good driving records should benefit from managed competition, regardless of where they live.
Q. Generally, how will drivers benefit?
A. The Commissioner expects drivers with good records will enjoy lower premiums. Also, drivers will have the opportunity to choose from diverse offerings of premiums, products, coverages, special money-saving credits, and new services offered by competing companies.
Q. What are specific examples of new benefits?
A. "Managed competition" auto insurance filings vary widely from company to company. One popular benefit is a customer loyalty program that provides pricing credits based on the length of time a policyholder has been with a company. Another benefit is multi-car discounts. Some companies offer advanced driver training discounts and good student credits. Some feature "accident forgiveness" programs. In a nutshell, drivers will have many more price and coverage choices!
Q. Will more insurers enter the MASS auto market?
A. The jury is out on that question. Most industry observers think there will be a modest number of companies who will enter the market in 2008 and compete. But they predict most outside companies will adopt a "wait-and-see" attitude.
Q. How are customers of independent agents affected?
A. As a customer of our agency, you already enjoy the advantage of competitive choices because, as an independent agent, we represent several companies, not just one. Under the old system, we have shopped for the best value for you. Under the new system, you will have more choices to meet your needs because we expect our companies will be strong price/value leaders.
Q. Won't more choices mean more confusion?
A. Without a doubt, insurance choices can be confusing. As a client of our agency, you can depend on our knowledge and professionalism to help you make sense of the changes and what they mean for you. What coverage do you need? How much coverage? What discounts do you qualify for? What's the right deductible choice? What insurer offers the best overall value for you?
It's our job to help you sort it all out so you can make informed decisions. We'll also offer to review your insurance regularly to make sure it keeps pace with changing needs.
Q. What happens when I renew my auto policy?
A. There will be a smooth transition. We are well-prepared to handle specific concerns and questions and assist with coverage choices. For the vast majority of our policyholders, the change to the new system will be seamless!
NOTE: This page contains frequently-asked questions about the basics of the new regulations for auto insurance in Massachusetts. It is our job as your professional insurance agent to stay on top of specifics as they develop, and keep you posted. And we will!
(Source: Letter from the Commissioner Regarding Competition Regulation, August 28, 2007. Published on http://www.mass.gov/ )