For decades, Massachusetts was the only state in the U.S. that set automobile-insurance rates for all drivers, barring carriers from competing based on price. That changed last spring with the institution of managed competition, which allows carriers to provide options to motorists, within limits. That has created more work for insurance agencies, but it has been a benefit to drivers, especially those with clean records.
How someone feels about the recent changes in Massachusetts auto-insurance rules might depend on where in the state they live.
Its good for the consumers, especially the consumers in Western Mass., said Dean Florian, president of the Insurance Center of New England in West Springfield.
He noted that, in most states, drivers who live in urban areas pay higher rates than those in less-populated communities, but until recently, the Pioneer Valley and the Berkshires didnt enjoy a similar advantage over the metro Boston area because of a state law that strictly regulated automobile-insurance rates for all drivers.
For many years, the rates were artificially high in Western Mass. to subsidize Eastern Mass. drivers, Florian said. We were paying their freight for the last 30 years. But thats being eroded considerably.
Indeed, for much of the past century, auto-insurance rates in Massachusetts have been set by the state Division of Insurance until last spring, the only such regulated system among the 50 states. Anyone who requested a premium quote for a certain level of coverage would receive the same price from any number of companies, unless they were eligible for a group discount.
Managed competition, which began about 15 months ago, allows insurance companies to offer their own rates. Although these rates may vary, they must still be approved by the Division of Insurance hence the term managed. But now, for the first time since an ill-fated attempt at changing the system 30 years ago, Massachusetts drivers are able to compare the different rates, benefits, and services offered by the 20 insurance companies competing for their business.
I think it has been a big winner for the consumer, said William Grinnell, president of Webber and Grinnell Insurance in Northampton. It has really accomplished what the insurance commissioner set out to do, which was to create a more competitive environment. More companies have entered the state, and rates have been pushed down; every company essentially dropped their rates from where they were two years ago, so thats been great for the consumer.
Initially, said Grinnell, the change spurred a rush of customers calling about how to reduce the rates they were currently paying, but those calls have died down to some degree. But as policies renew, there is still a heightened interest from clients wanting to know whats out there, what their various options are.
In this issue of BusinessWest, we talk to the leaders of area insurance agencies to learn how the change to managed competition benefits consumers, and how it has added a layer of challenge to agents jobs.
Accelerating the Workload
Theres been a little more work, no doubt about it, said Jules Gaudreau, president of the Gaudreau Group in Wilbraham.
He was referring to the fact that helping customers find the right carrier for both cost and benefits has become more time-intensive in the current environment.
From an agents perspective, its a more difficult environment from which to operate, Grinnell agreed. Were all paid on commission, so as rates drop, our revenues drop. At the same time, our staff people are working a lot harder. Obviously, people are calling looking for the best deal they can get, and it takes a lot of time to shop among all the carriers we represent.
Sometimes the auto is tied into the homeowners insurance, and there are additional credits available, he added. Youve got to make sure they meet the guidelines to get an accurate quote. It takes time and a lot of explaining. Its more work, but it isnt necessarily generating more dollars.
Gaudreau, however, goes further, questioning how beneficial, in the long run, managed competition will be for consumers.
When one considers the auto-insurance market, if we had maintained the status quo, rates would have gone down 9% or 10% in 2008, and then would have done the same thing a year later, he explained.
So you have to ask the question: how has the reform market performed compared to what would have happened anyway? And the fact is, it has underperformed, he said. The voluntary rates went down about 10% in 2008 when carriers could compete, but we did not see the same thing in 2009. Meanwhile, from 2007 to 2009, the status quo would have resulted in a 20% rate decrease.
Still, he conceded that motorists seem to appreciate having options based on their lifestyles and economic priorities.
There has been more innovation in the marketplace as a result of competition not so much competition, actually, but allowing carriers to do the things they feel are important to their customers, Gaudreau said.
Such actions might include discounts for students away from home that make it easier for their parents to carry them on their policies year-round, coverage of pets that are injured in car accidents, and significant discounts on auto and home insurance if both policies are bought from the same carrier.
There are a variety of ways in which that innovation has led to a better market for consumers, he said. Certainly better drivers in Massachusetts will do much better over the next five to 10 years than under the old system, but the jurys still out on how much money others will save.
Driving Change
Under the prior, regulated system, insurance providers were required to apply specific surcharges for certain accidents and traffic violations, a program known as the Safe Driver Insurance Plan (SDIP). Now, insurance companies are permitted to develop their own rules, subject to state approval, for imposing surcharges for at-fault accidents and traffic violations. They may also use the state-established SDIP in setting their rates.
The last time Massachusetts waded into managed competition was three decades ago, and premiums shot up more than 25% for some motorists. Lawmakers quickly passed a law capping increases at 25% over 1976 levels, and in 1978, amid widespread discontent, Massachusetts reverted to a fully regulated system yet again.
To avoid the rate-spike problems of 1977, when managed competition began last year, Insurance Commissioner Nonnie Burnes capped any increase at 10% for the worst drivers.
But Florian predicts that could change, and although rates have fallen across the board, he said, they could eventually drop even lower for good drivers, while motorists with spottier records could find it more difficult to keep costs down.
There is still a ceiling on how much companies can charge, and until that ceiling goes away, rates wont go as low as they could, he explained. Theres only so much they can charge an inner-city driver in Boston, and thats holding the rates high in more suburban areas.
In Connecticut, you can charge anything you want for a 22-year-old, crazy driver, he continued, and better drivers pay less because theyre not subsidizing that risk. I think that will happen in the next year or two here. The commissioner just didnt want to implement all the changes at once.
For drivers with good records, those rates have come down more substantially than for drivers with poorer records, Grinnell said. Theyre down across the board, but theyre especially aggressive for the good driver.
That hearkens back to Florians point about companies being limited in how high they can set rates. Because carriers operating in Massachusetts are restricted in how much they can charge motorists who have poor records, live in cities, or demonstrate other factors, theyre taking on greater financial risk with those shakier drivers making competition for customers with clean records even more fierce.
Roadmap for Savings
Independent agencies are learning something about competition, too, from the likes of so-called direct writers like Progressive and, soon to enter the market, Geico businesses that operate largely off Web sites and focus their marketing on price. Gaudreau, a longtime proponent of the independent insurance agent, is confident that most Bay Staters will continue to demand more.
People are used to talking to a licensed professional and want to continue to enjoy that kind of service, he said, adding that getting in touch with a local agent is just as easy as accessing the Internet, and that agent will have a better idea of what questions to ask in tailoring the right policy.
Why take the risk of not being properly covered when you can just fax a copy of your insurance to a local agent in your own community whos dedicated to taking care of you and your family? he asked. Youre not talking to someone in a call center in India or Texas, but someone right here, available to help you.
The direct writers have certainly had an impact, Grinnell said. But theyve also brought some controversy, he added, such as Progressives recent fining by the state for allegedly deceptive rate-quoting policies that made six-month terms seem like annual rates.
When quoting comparison rates on the Web, their default choices are often bare-bones coverage with higher deductibles, Grinnell said. We were losing a fair amount of business to them until they were forced to straighten their Web site out. Hopefully, more-informed customers will call you so you can have an opportunity to explain the differences.
And because of the states landmark law change last year, there are plenty of differences to explain.
It certainly is more work, Florian said. Our customer-service representatives have to know more, but its making everyone a better salesperson.
All I used to hear was, Massachusetts auto is Massachusetts auto. But thats not true anymore. Its a brave new world.
Joseph Bednar can be reached at[email protected]
Maggie Bergin is principal with The Art of Politics, a government-affairs consulting company, where she ensures her clients’ meetings with elected officials yield tangible results; (413) 887-7450; 
Gary G. Breton, Esq. is a partner with Bacon Wilson, P.C., and a member of its Banking and Finance Department; (413) 781-0560;
