Massachusetts Insurance Commissioner Julianne M. Bowler announced that 2006 private passenger auto insurance rates will be cut an average 8.7% staewide next year.
The new rate takes effect January 1 and translates to an average decrease of $95.14 per vehicle and a statewide average annual rate of $994.862. The rate cut saves Massachusetts drivers $380.3 and is the largest rate decrease in more than 25 years.
Property and personal injury losses fell by more than $237 million between 2003 and 2004. The Division of Insurance estimates that fraud fighting efforts by the City of Lawrence and insurers yielded approximately $20 million in reduced losses.
The reduction is a lot more than the 0.1 percent cut recommended by insurers but falls short of the 18 percent decrease advocated by Attorney General Tom Reilly.
Bowler’s decision also adopts a recommendation by the Division’s State Rating Bureau to adjust rates for cities and towns that show significant reduction in claims on a timelier basis. As a result, the average rate reduction for drivers in Lawrence will be 2% greater that the statewide average rate reduction.
Bowler approved a -0.8% profit allowance for the insurers, which is slightly less than was allowed for profits in 2005. The insurers were seeking a +3.8% profit allowance, but Bowler decided that the -0.8%profit provision provided a “reasonable balance between the risks assumed by auto insurers and returns available in current financial markets.”
A 1.5% average increase in agent commissions was approved, raising the average commission per vehicle from $119.50 in 2005 to $121.34 for 2006.
As a result of enactment of Chapter 213 of the Acts of 2004, the rate for 2006 will remain in effect through March 31, 2007. Should a private passenger auto insurance rate case be held in 2006, the new rate the commissioner would approve would take effect April 1, 2007. The new law allows insurers to eventually bill all policyholders using the new rate approved by the commissioner and is designed to reduce insurer expenses associated with provisional billing.
“This decision directly reflects the drop in personal injury and property losses between 2003 and 2004 and fraud-fighting efforts in Lawrence contributed significantly to that reduction. I am pleased to be able to order substantial rate relief for our drivers at this time and hope that this trend continues,” said Bowler.
Gov. Romney welcomed the rate decision but maintained that consumsrs would fair better with a competitive rating system.
“This is a well-deserved present for the drivers in the Commonwealth. It’s an appropriate and substantial level of rate relief. However, we cannot lose sight of the fact that a rate decrease is no long-term answer to the problems that plague this system. To give the majority of our drivers real choices and the true rate relief they deserve, we need to move to a more competitive market of the type that exists in every other state in the nation,” said Romney. . A group of insurers that along with Romney has been trying to change the state’s uniform rate system used the announcement as an opportunity to press their case.
“If Massachusetts had a competitive rating system most auto insurance consumers would have saved money on their policies already” stated James T. Harrington, executive director of The Massachusetts Insurance Federation and spokesman for the Fairness for Good Drivers Coalition. “The annual process where the state sets auto insurance rates deprives Massachusetts drivers from the savings they could have had all along with a competitive system. Instead every year Massachusetts drivers wait for months for a rate announcement and decision by the government” Harrington said.
“This rate announcement is just one more reason auto insurance reform is desperately needed. While any saving is welcome news for Massachusetts drivers, the Legislature can permanently fix a broken auto insurance system by bringing competition, among other reforms, to Massachusetts like the 49 other states and put an end to auto insurance rate setting by government. That would be a real present to good drivers across Massachusetts,” remarked Harrington.