Division Of Insurance Announces 2005 Auto Insurance Rate Decision
Commissioner Bowler Approves Slight Rate Decrease
In approving an adequate statewide rate, the commissioner must base her decision on the frequency and severity of losses in recent years, in addition to expenses and profit considerations. While data considered in this rate case reflects a slowing in the growth of overall accident frequency, Commissioner Bowler noted that claims frequency among inexperienced driver classes has grown dramatically in the same timeframe.
"With this decision, rates for inexperienced and bad drivers will be more reflective of the losses they cause and a financial incentive will finally exist for improving driving habits. It is unfair for experienced drivers to continue to shoulder the costs borne by those who cause accidents more frequently," stated Commissioner Bowler.
A report issued to the Division of Insurance in April by Tillinghast-Towers Perrin verified that subsidization by driver class is unique to Massachusetts and that inexperienced drivers are charged premiums that are often significantly lower than the costs associated with providing
them coverage. Massachusetts-specific data indicates that inexperienced drivers property damage and collision claims frequency is four times higher than experienced drivers and personal injury claims frequency is six times higher than that of experienced or Class 10 drivers.
Experienced vs. Inexperienced Operator Claims Frequency (per 100 Vehicles)
2001-2003 Claims Frequency
Experienced Drivers w/6+ years driving experience
Inexperienced Drivers w/4-6 years driving experience
Inexperienced Drivers w/0-3 years driving experience
OTHER DECISION HIGHLIGHTS
In addition to a rating differential that currently exists for inexperienced drivers who have passed a RMV-approved driver education course, Commissioner Bowler approved the creation of a 5% discount for drivers who complete a RMV-approved advanced driver training course. The decision also reduces the subsidy that currently exists for the inexperienced driver classes.
Commissioner Bowler again adopted an internal rate of return model for calculating insurer underwriting profits, the use of which was upheld last month by the Massachusetts Supreme Judicial Court. The resulting profit allowance for the industry remains virtually unchanged from the 2004 rate decision.
A 4.8% average increase in agent commissions was approved, raising the average commission per vehicle from $114.00 in 2004 to $119.50 for 2005.
In a separate decision agreed to by the parties and affirmed by the Commissioner in November, drivers at Safe Driver Insurance Plan ("SDIP") steps 20 to 35 will receive an increase in the value of a surcharge. The additional revenue generated from that increase will result in a reduction in the value of surcharges applied to experienced drivers with one at-fault accident or moving violation that is greater than three years old. The parties also agreed to phase-out the so-called "clean slate rule" that provides for placing drivers with SDIP steps over 15 at Step 14 with three consecutive years of at-fault accident or violation-free driving.
1 A statewide average rate increase or decrease authorized by the Commissioner is based on the existing rate at the time insurers make their rate request, typically in August of each year ($1,082 as of 8/13/04). It is inaccurate to portray an average rate increase or decrease based on the existing rate at the time of the last rate decision because the average rate drifts upward due to the ever-changing composition of the fleet of vehicles in the state.
2 It should be clarified for your audience that the average statewide rate does not necessarily reflect what any one policyholder will pay for premium in 2005. Actual premium is dependent on the types of coverages and deductibles chosen, number and types of vehicles insured, SDIP records and driver classifications, territorial assignment and any discounts applied.