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Mass. caps car insurance hikes at 10%; smaller insurers eye 2.5% cut

The first moves toward competitive rating for auto insurance in Massachusetts indicate that rates for drivers insured by insurers with small market share could drop an average 2.5 percent, while rates for drivers in the state’s high risk pool could go up but no more than 9.3 percent on average.

In addition, any coverage increases for individual drivers will be capped at 10 percent under a directive from Insurance Commissioner Nonnie Burnes, who is managing a transition from a system of state-set rates to one for next year where insurers have more flexibility to set their own.

The rate recommendation from companies with under 1 percent of the private passenger auto insurance market in the state — the so-called “under 1% companies” — calls for an average 2.5 percent rate decrease, starting April 1, 2008. The filing was made by the industry rating organization, Auto Insurers Bureau (AIB), on behalf of five “under 1%” insurers: Norfolk & Dedham Group; Allianz Insurance Group; Electric Insurance Group; State Farm and American National Financial Group.

The estimated 14 insurers with bigger than 1 percent market share have not yet filed their rate indications. Their first deadline is Nov. 19.

According to AIB, in 2006 the “under 1%” companies wrote $100 million of premium, 2.3 percent of the total market, for roughly 100,000 vehicles. About 95 percent of that business was written on a voluntary and 5 percent was ceded to the residual market, Commonwealth Auto Reinsurers (CAR).

AIB said the recommended average rate for these small market insurers represents these insurers’ voluntary experience and the expected expense to write and service that business, as well as their share of the involuntary market. The current 2007 average rates for the five smaller companies were set on a total market basis under the fix-and-establish regulation that is now being discontinued. The “under 1%” insurers, however, have different books of business and operating structures than insurers with larger share and the proposed rates reflect those differences as well, according to AIB.

Also on file with the state insurance department is a filing for drivers insured through the residual market, or CAR, that recommends an average overall increase of 9.3 percent. That’s a lot less than what insurers would ideally like to get for these drivers they consider high risks. According to CAR, the actuarially indicated rate level change for these policies is an increase of 51.6 percent.

However, Burnes has put all insurers on notice that increases for individual drivers should not be greater than 10 percent above the 2007 coverage rates or they will be considered “unfair, unreasonable and violative of public policy.” Thus CAR filed for an average rate increase of 9.3 percent.

That directive from Burnes capping any coverage increases at 10 percent applies to all rates, not just residual market rates. Burnes did not outright prohibit increases higher than 10 percent but made it clear such increases will trigger a public hearing within 10 days and will presumed to be unreasonable.

Meanwhile, some lawmakers, consumer groups and insurance agents are challenging the plan with a bill to limit rate-setting to a person’s driving record only. While current rules bar insurers from considering income, marital status, education, occupation, homeownership and credit scores, these critics say there are loopholes, such as considering membership in a professional organization as a proxy for occupation. Rep. Antonio Cabral, D-New Bedford, and Sen. Dianne Wilkerson, D-Boston, are co-sponsors of the bill.

“We’re … on the front line,” said Jim Slattery, an independent agent from Abington. “We are the ones who, under the current plans, will have to tell drivers they were rejected by an insurer or that their rates went up, even though they have a perfect driving record. This bill will really protect all good drivers across the state.”

Topics Carriers Auto