From November 19 to November 27, auto insurance companies must
file their rates, which will become effective starting in April 2008. Consumers
need to be aware of what to expect and how to evaluate what the actual filings
will mean to them.
Insurers will likely announce huge double-digit rate
decreases for the “best” drivers, including decreases in the range of 20-30% or
even larger. These rate reductions will
be touted by the Patrick administration and by the insurers as “proof” that the
newly deregulated auto insurance system is working. To properly evaluate the new system, however,
the key questions are which and how many consumers will be eligible for these
decreases.
“Based on what I’m hearing, the real deal is this: The
announcements and rates will be nothing but an old-fashioned bait and switch,”
said Deirdre Cummings, MASSPIRG’s Legislative Director. “The Patrick administration and the insurers
will tout the great rates, but will avoid specifics about who, in the end, will
be able to get those rates.”
“Unfortunately, it is expected that most drivers with clean records will
not receive the best rates and many could actually receive rate increases,”
said Stephen D’Amato of the Center for Insurance Research.
Governor Deval Patrick, Insurance Commissioner Nonnie
Burnes, and the insurers have stated emphatically that the new auto insurance
deregulation plan – labeled “managed competition” by Commissioner Burnes – will
produce lower rates for the consumer. Consumer advocates have opposed this
specific plan, as it is likely to lead to dramatically different rate changes
for drivers with clean driving records.
This is because the plan invites insurers, in determining which drivers
in Massachusetts
will get the best rates, to rely on a host of factors that are unfair,
discriminatory, and have nothing to do with driving records.
The consumer advocates strongly support competitive rating
legislation pending on Beacon Hill that would
enable all good drivers to receive the benefits of competition in the form of
substantial rate decreases next year.
Absent quick action on the legislation, it is very likely that large
numbers of good drivers will not receive the double‑digit rate decreases
offered to some, and could even see rate increases of 10%* under the
Commissioner’s plan.
BAIT AND SWITCH
Here’s how it works:
The Bait: Company
X announces its proposal to give the best drivers a 25% rate reduction.
The Switch: Most
motorists with clean records end up not receiving this decrease and are instead
switched to a smaller rate decrease or to a rate increase. Company X accomplishes this by using many
factors other than driving record to determine what rate a motorist is
offered. For example, Company X, like
some insurers in other states, might use the amount of insurance coverage
purchased in the prior year by a good driver as a basis for denying access to
favorable rates. Or Company X might deny
the best rates to drivers who use an installment plan to buy insurance. Both of
these examples also illustrate how insurers could use “proxies” for prohibited
underwriting and rating factors, such as income.
*NOTE: It is also
very important to keep in mind that rates under the new system must be measured
against the 10% rate decrease consumers would have received under the old
system. Therefore, a rate increase of 10%
(which the Commissioner has set as a ceiling for this first year) is
effectively a 20% increase because drivers hitting the cap would not only
receive the 10% rate increase, but would also miss out on the expected 10%
decrease.
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