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Contrary to recent news headlines and to statements by the Commissioner of Insurance, the newly deregulated auto insurance industry in Massachusetts will result in excessive premiums for consumers.

Our current auto insurance rating system, which is about to be scrapped, produced a 21% decrease in rates over the last three years for drivers. It is widely accepted, by both insurers and consumer groups, that under the current rating system, we would have seen another significant drop in rates this year. How much that would have been can be debated, but according to industry testimony submitted to the Division of Insurance, the rate decrease would have, at a minimum, been 8.5%.  See Testimony of Plymouth Rock Assurance Company on June 15, 2007, based on data from the Automobile Insurers Bureau. Historically, the insurers’ predictions are lower than the final rate – for example last year they proposed an average rate reduction of 3.7%, which in the end resulted in a final reduction three times as large, at 11.7%. Therefore, being conservative, it is very reasonable to assume that Massachusetts drivers would have seen an average rate reduction of at least 10% for 2008.

All rates proposed by the insurers, as well as the Commissioner’s recent ruling that no driver should receive a rate increase in excess of 10%, must be measured against the 10% rate decrease consumers would have received under the current system. The Commissioner’s 10% cap on rate increases, and the filings this week by the Automobile Insurers Bureau for a 2.5% rate decrease and by Commonwealth Automobile Reinsurers (the residual market) for a 9.3% rate increase, are all very bad news for the consumer. The Commissioner’s 10% rate cap is actually a 20% cap because drivers hitting the cap will not only receive a 10% rate increase, but will also miss out on the 10% decrease. Likewise, the already filed rate requests amount to increases of 7.5% and 19.3%, respectively. “These are not the benefits of competition that consumers were promised,” said Stephen D’Amato from the Center for Insurance Research.  

For policies issuing or renewing in April 2008, the deadline for insurers to file rates with the Division of Insurance is November 19. “It appears at this time that, once again, when an industry argues for less regulation and more competition, the consumer pays,” concluded Deirdre Cummings, legislative director for MASSPIRG.