Why Does Competition Matter?
Competition matters because you may be able to get different insurance products or packages for different prices if you shop around. Rates and policies will no longer be the same for all companies.
In recent years, all rates for automobile insurance have been set by the Commissioner of Insurance under what was known as the "fix-and-establish" system. Under this system, if you requested a premium quote for the same coverage from different companies, each of those companies would give you the same price for that coverage - unless you were eligible for a group discount.
Beginning April 1, 2008, automobile insurance companies will begin using their own rates. Although these rates may vary, they must still be approved by the Commissioner of Insurance. Under the new system, if you request premium quotes for the same coverage from several different companies, you will probably receive different quotes from each of them based on their rating systems. When selecting your coverage, you should consider the different rates, benefits, and services offered by the companies as they compete for your business under the new system of managed competition.
Will My Auto Insurance Coverages Change?
The minimum coverages for a basic policy are still mandated by Massachusetts law. The types of coverage you are required to purchase by law are called compulsory insurance, and will not change. The types of additional coverage you may purchase voluntarily, known as optional insurance, may vary from company to company.
More Options
Although the minimum limits and basic coverages will not change, insurers will now be permitted to offer additional coverages, higher limits, and lower or waived deductibles. Therefore, you may have more choices available to you, and may want to shop around if there are additional coverages you wish to purchase.
Will Surcharges Change?
Under the prior "fix-and-establish" system, Massachusetts law requires that companies apply specific surcharges for certain accidents and traffic violations. This system of surcharges is called the Safe Driver Insurance Plan (SDIP). Under the new system, insurance companies will be permitted to develop their own rules - known as merit rating plans - to determine if and how they will impose surcharges on your premium for at-fault accidents and traffic violations. These new merit rating plans will be subject to approval by the Commissioner of Insurance. Companies may also choose to use the existing SDIP for a merit rating plan.
Merit Rating Board
In the competitive rating system, insurers will still be required to report all at-fault accidents to the Merit Rating Board (MRB). The MRB is the state agency that maintains operator driving history records. The MRB will continue to provide this driving history information to automobile insurers.
Why Is Auto Insurance So Expensive In Massachusetts?
Massachusetts has some of the highest auto insurance costs in the country. Many factors contribute to these high costs. The state is densely-populated with the majority of its drivers living in urban areas where accidents are more likely to happen. In addition, Massachusetts' higher cost of living means higher costs for medical care, auto repairs and litigation costs.
The bottom line is that Massachusetts has more property damage and bodily injury claims per vehicle than nearly every other state. As the number of claims increases, so does the cost of insurance. When claims decrease, insurance rates decrease as well.
Will Competition Lower My Premium?
Competition is designed to encourage insurance companies to offer their lowest possible premium to each driver. Although the majority of Massachusetts policyholders will probably benefit from reduced rates under the new system, the amount that you pay will depend on your individual risk factors. Examples of individual risk factors include your driving record, the territory in which you live, and other rating factors approved by the Commissioner. While every policy is different, maintaining a clean driving record should lower your premium.
What Types and How Much Coverage Should I Buy?
Mandatory Coverage
There are several types of compulsory insurance that you are required to purchase under Massachusetts law. These coverages are:
" Bodily Injury to Others, with a mandatory limit of $20,000 per person and $40,000 per accident
" Personal Injury Protection (PIP), with a mandatory limit of $8,000
" Bodily Injury Caused by an Uninsured Auto, with a mandatory limit of $20,000 per person and $40,000 per accident
" Property Damage, with a mandatory limit of $5,000
Optional Coverage
Depending on your individual circumstances, you may also wish to purchase additional types of coverage, or increased limits on the types of compulsory insurance listed above. You should consult with an agent or other insurance professional for help in determining what types and levels of coverage you need. All companies will offer the following coverages that you may wish to buy:
" Increased limits for bodily injury to others
" Increased limits for bodily injury caused by an uninsured or underinsured auto.
" Coverage for medical payments beyond the mandatory PIP coverage
" Collision coverage that pays for damage to your car no matter who causes the accident. Most companies will allow you to choose from a range of deductibles.
" Comprehensive coverage that pays for damage to you car caused by events such as fire, theft or vandalism. Like collision, companies will allow you to choose from a range of deductibles.
" Coverage for substitute transportation while your car is being repaired from a collision or comprehensive claim.
" Coverage for towing and labor when your car breaks down.
Each of these coverages is subject to important limitations and exclusions.
In addition to the standard options, automobile insurers are allowed to offer additional optional coverages that you may want. Some of the options expand existing coverages or offer benefits that were never available in Massachusetts. You will want to learn more about all of the options available to you from each company in which you are interested.
For a more detailed description of auto insurance and available coverages, please visit the DOI website, or review the Division's Ways To Save On Your 2008 Automobile Insurance consumer guide.
How Should I Shop For Auto Insurance?
First, you should determine what types of coverage you need, and how much of each coverage type you need. Once you have decided what you need, you should then get premium quotes for that coverage from several companies. Some companies market insurance through agents, while others sell directly through employee salespersons. Therefore, you will be able to obtain multiple quotes by working with one or more agents, or by contacting each direct writer separately, either by telephone or online. To make sure you get the best possible premium for the coverage you need, you should make sure that each of the premium quotes you receive are for the identical coverage you wish to purchase.
For a current list of all insurance companies offering auto insurance in Massachusetts, please visit the DOI's website .
Where Can I Get Premium Quotes?
There are several ways in which you can obtain premium quotes, including working with agents or contacting insurance companies directly.
Agents
Agents may represent one or more insurance companies, and will be able to provide you with premium quotes for the companies they represent. Exclusive agents represent only one company or group of affiliated companies, and will only be able to give you a quote for that company or its affiliates. Independent agents often represent several companies, and will be able to provide you with premium quotes from the companies they represent. If you get quotes through agents, be sure to find out which companies they represent and which ones have given you insurance quotes.
Direct Writers
You may obtain a quote directly from an insurance company by contacting the company online or over the telephone.
How Should I Decide Where To Purchase My Policy?
Once you have determined the appropriate types and levels of coverage to fit your needs, you can obtain quotes from different insurance companies directly or through agents in order to find the best price. Make sure that all of the premium quotes you receive from each company are for the same coverage. Once you have determined which companies are offering the best price for the coverage you need, you may wish to speak with family members, friends and neighbors to learn about their claim experiences. Remember that while price is certainly an important factor in deciding which insurance company to choose, it is not the only factor. Price, discounts, claims handling, the location of an agent or direct writer, or the financial health of the company are all legitimate factors you might consider in buying insurance. Ultimately, you must decide which features are most important to you.
What Are The Different Ways Companies Sell Auto Insurance?
Insurance companies generally sell insurance either through agents or direct marketing. Agents can be either independent or exclusive. Buying insurance through agents or direct marketing companies each has advantages and disadvantages. Policies are marketed, sold and serviced differently depending on which method you choose.
Agents
Most insurance companies in Massachusetts currently sell insurance through agents. Agents represent one or more insurance companies. When you receive a quote from an agent, make sure you find out exactly which companies each agent has obtained quotes from so you can be certain you have obtained quotes from a variety of companies.
Independent agents generally represent several insurance companies. While independent agents may represent several companies, these agents generally do not represent all the insurance companies offering auto insurance in Massachusetts. Exclusive agents represent only one insurance company. Whether you are dealing with independent or exclusive agents, it is a good idea to make sure that you have obtained quotes from a variety of companies.
Direct Marketing
Some insurance companies sell insurance through direct marketing - meaning that they sell insurance directly to consumers without the involvement of agents. Direct marketing companies typically sell and service insurance policies over the internet, through the mail, or through 1-800 telephone numbers.
How Do Companies Determine My Premium?
Insurance companies group you with other individuals who share your general risk characteristics - such as the number of years driving experience. To calculate your individual premium, the company uses a base rate for your group, then adjusts it to reflect your individual risk factors and appropriate discounts for which you are eligible. In determining your actual premium, insurance companies may consider factors such as your years of driving experience, the number and type of your at-fault accidents, the number and type of your traffic violations, the vehicle you drive, and the place where you garage that vehicle. Insurance companies may also consider other risk factors if those factors are relevant to risk and approved by the Commissioner.
Prohibited Underwriting and Rating Factors.
Even though the system is changing, under the rates companies are offering as of April 1, 2008, insurance companies are prohibited from using certain factors for either underwriting or rating in Massachusetts. Underwriting is the company's process for deciding whether or not to voluntarily accept you as a risk. Rating is the company's process for determining the amount of your actual premium. For underwriting, companies are prohibited from using sex, marital status, race, creed, national origin, religion, age, occupation, income, principal place of garaging, education, and home ownership. For rating, companies are prohibited from using sex, marital status, race, creed, national origin, religion, age (except for drivers who are 65 years or older), occupation, income, education, and home ownership. Insurance companies are also prohibited from using credit information from consumer reporting agencies for either underwriting or rating.
If an insurance company uses any of these prohibited factors in connection with either the underwriting or rating of a policy offered as of April 1, 2008, you should file a consumer complaint with the Division of Insurance.
What Should I Do If My Rate Goes Up?
First: Make sure that your rate has really increased. Compare the types of coverages and coverage limits on your policy last year to the coverages and coverage limits you've received quotes for, and make sure they are the same. Also remember that any change to your policy will affect your premium. Changing your vehicle, adding or changing drivers, or changing your cars garaging location may all increase your premium.
Second: Consider whether you are classified as a high-risk driver, such as one with multiple at-fault accidents and/or traffic violations, or one with less than six years experience. If you are, the increase in your premium may be the result of these factors.
Third: Contact your agent or your insurance company for an explanation of why your rates have increased.
Fourth: Once you have learned the reason for your rate increase, you may want to obtain premium quotes from other insurance companies until you are certain you have found the lowest premium for the coverage you want. Remember that if you have had a change in driving history, such as an at-fault accident or traffic violation, your premium is likely to go up in a competitive rating market the same as it would have increased under the "fix-and-establish" system.
What Types of Discounts Are Available?
There are a variety of discounts insurance companies may offer. Some discounts are required by law, such as for passive restraint systems or other safety features, anti-theft devices, and drivers who are 65 years or older. Other discounts are optional, and may include ones offered to members of a group program, persons qualifying for advanced driver-training, or multi-car discounts. Whether insurance companies are required to offer a particular discount by law or simply choose to offer it, the amount of those discounts may vary somewhat from company to company. When shopping for your new policy, be sure to find out what types of discounts each company offers, and how much each of those discounts reduce your premium.