December 15, 2004
CONTACT: Chris Goetcheus
(617) 973-8767

Division Of Insurance Announces 2005 Auto Insurance Rate Decision

Commissioner Bowler Approves Slight Rate Decrease

Insurance Commissioner Julianne M. Bowler today issued a decision in the 2005 private passenger insurance rate case that will result in a statewide average rate decrease of 1.69% next year. The new rate takes effective January 1st and results in an average decrease of $18.30 per vehicle and a statewide average annual rate of $1,063.19.

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+ yearsdriving experience6.072.478.34
Inexperienced Drivers w/4-6 years driving experience13.556.9420.94
Inexperienced Drivers w/0-3 years driving experience24.3512.1632.68


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.