IRC: Rate Trends Show Positive Results of Auto Insurance Reforms

A new report from the Insurance Research Council (IRC) claims that three states have seen more affordable pricing, better underwriting results and expanded coverage availability since enacting market reforms over the past 12 years.

The report looks at data from three states: South Carolina (which reformed its system in 1999), New Jersey (which reformed in 2004), and Massachusetts (which reformed in 2008).

“The results of this study show that regulatory reforms have led to a number of positive developments without leading to increases in insurance prices or reductions in availability or service quality,” said Elizabeth A. Sprinkel, the senior vice president of the IRC, in a press release.

The IRC is a nonprofit research organization funded by American property/casualty insurers and associations. The authors of the report say that market reforms brought the following changes to the three states that were studied:

  • Average expenditures bucked the upward trends that had been established before reforms took place.
  • Claims rates decreased.
  • Markets maintained or improved insurer underwriting results.
  • The availability of coverage was maintained or increased.

The difference in average expenditures was exceptionally apparent in the New Jersey and Massachusetts markets.

New Jersey expenditures increased by about 25 percent between 2000 and 2004, when the reforms were enacted. But over the next five years, the average expenditure in the state fell by about 12 percent.

And Massachusetts average expenditures increased nearly every year between 1997 and 2004, but they ended up sliding back down to 2001 levels by 2008.

Massachusetts and ‘Managed Competition’

Graph comparing average expenditures for Mass. and Nat'l averageA big factor in that change was the introduction of managed competition to the Massachusetts car insurance market, although a number of other factors were already helping to drive down costs in the Bay State.

Before managed competition was introduced to Massachusetts, state officials regulated rates much more tightly than any state in the nation. The result was that only a handful of insurers would write coverage in the state, which hurt competition.

But between 2007 and early 2011, a dozen companies–including major players like Geico, Progressive and Allstate–entered the state market.

According to state regulators, drivers saved $270 million in the first year of managed competition.

About Matthew Morisset
Matthew Morisset is a proud alumnus of the University of Redlands, where he obtained a degree in English Literature. Utilizing his passion for analysis and writing, Matthew looks for important trends in the auto insurance industry and their implications for consumers and the market as a whole.

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