A Brief Overview of Competitive Rating Regulations and Some History and Insight. And Not In That Order.

(at this time, we have been advised that all this is subject to change, much of it has not been worked out, but here's what we have as of September, 2007 anyway)

When Paul first heard that the State was considering creating a separate "residual" market for high risk drivers, he was not pleased. He lived through the time during the 1970's when such a thing existed, and it was a lot of work for everybody, took a lot of time and nobody was happy. There were no computers or fax machines, and you physically took your piles of paper policy applications into a building in Boston, waited in long lines until you found someone who was willing to give you a policy number.

At least now we have computers, so the process should go a little faster. And supposedly, for all the hoopla, it will only affect 5% of the auto insurance buying market. So, 95% of you can relax. However....

Now the State also wants to introduce competition, in an attempt to get more insurance companies to do business here. Different companies have their opinions on it, and it works in other states and in other lines of business like Homeowners, Commercial, Life and Health Insurance, so why not at least try it? The Commissioner figures she can always pull the plug on it if it doesn't work out, and as the companies try to leave the state, they'll be paying some heavy duty fines and penalties so it's not much different than what she's been dealing with anyway, since we used to have over 50 different companies, and we're now down to 14.

That being said, what are some things the consumer should be aware of? Is the new system going to be the nightmare of credit checks and rising renewal premiums that were advertised on TV? Our guess is that a lot more people will be shopping around each year, and customer loyalty may become a thing of the past, at least for the first few years, until people decide what level of customer service they need, and deciding if the lowest price is the best price. While comparing prices, people will also need to compare coverage. The recent commercials put on by Geico and Progressive use scare tactics at claim time to stress the importance of reviewing the coverage you are buying. Online quoting systems do not always make this easy. Buyer beware? This is one area where buyers should never be afraid to ask questions to whoever is doing the selling, be it a customer service rep, or an agent.  

Finally, what types of information will companies use to decide if they'll take you, and what to charge you for the honor? Massachusetts law prohibits a company from using gender, race, marital status, religion and age (except for the over 65 discount) as rating factors in an auto policy. The Insurance Commissioner has stated she is banning the use of education, income, and homeownership for rating and underwriting considerations. Credit scores are still up in the air, for at least a year, since underwriters are using them for Homeowners products, but not as rating factors. The commissioner's intent at this time appears to keep rating confined to the type of vehicle, what city or town it is garaged in, how many years driving experience you have, and how many accidents and violations do you have. In other words, keep it as close to how it is now rated as possible, and give the companies some areas where they can be creative with discounts and new services.  

For the alleged 5% of the folks that will be affected by the residual  (high risk) market, you get all of the above, a "slightly" adjusted rate, and not much choice of which company to do business with, since any of them can turn you down just as easily as you used to be able to turn them down (by shopping around).   Under the old system, the consumer had very little idea if they were part of the 5 percenter group. The people in this group used to be able to walk into any agency, say what they wanted, get a price, if they liked it, sign an application, leave a deposit, and be done with it. How the new system will be implemented is still being debated, as there are contractual and legal aspects that companies, agents and politicians are all trying to work out.  

Some people on all sides are feeling all this is too much change happening too fast, since rates have been decreasing steadily over the past several years, and consumers are pretty happy about it. There are concerns over what will happen to prices and coverage availability after each change is implemented. Others feel all this change is necessary to fix a system they feel doesn't work properly, and is still too expensive. The companies that are still in Massachusetts recognize that competition has its faults, but it is used satisfactorily in every other state in the nation. Most of these companies do business in other states, and plan to take what has worked for them in other states and use it here. They also know to learn from mistakes they have made in other states, and not repeat them here.  Hopefully, the same will be true for the new residual market.  

Stay Tuned.