New Stats Show Mass. Car Insurance Costs Have Been on Decline

Graph comparing average expenditures for Mass. and Nat'l average

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The latest figures released by the National Association of Insurance Commissioners (NAIC) indicate that the average expenditure on Massachusetts car insurance declined by 19 percent between 2004 and 2008.

The state’s insurance commissioner, Joseph Murphy, attributes the significant decline to national rate trends, mild winters that resulted in fewer claims, fraud-prevention initiatives and the introduction of managed competition.

According to NAIC data, the state’s average expenditure on auto insurance has dropped from $1,113 in 2004 to $903 in 2008.

Although the state’s expenditures fall in line with the downward trend seen across the county, it far outpaces that of the average for the 50 states and the District of Columbia. Between 2004 and 2008, the national average dropped by only 6.4 percent — about a third of Massachusetts’ drop during the same period.

Murphy said the state’s most significant year-to-year decrease, which occurred between 2007 and 2008, can be attributed to the introduction of “managed competition” to the state car insurance market.

Before the introduction of managed competition, rates were set through what was called a “fix-and-establish” system in which regulators — rather than insurers — set rates.

The standard practices used by regulators varied from those of major insurers. For instance, the state-set rate system allowed at-fault accidents and moving violations to affect premiums for up to six years, while most insurers allow them to affect premiums for only up to three years.

Since the fix-and-establish system was discontinued in April 2008, the Massachusetts coverage market has seen an influx of competitors. Twelve companies — including Geico, Progressive and Allstate — have begun doing business in the state since insurers were given the power to set their own rates.

According to the state’s division of insurance, consumers saved an estimated $270 million on premiums in the first year of managed competition.

But the average expenditure was already on the descent before the re-working of the market. The two years before the 2008 change both saw 6-percent year-to-year decreases.

For these years, Murphy says one major factor was fraud-prevention initiatives. Between 2003 and 2006, the division of insurance and the insurance fraud bureau gave grants to local district attorneys to combat fraud in some urban communities where they saw spikes in fraud-related activities.

“They were able to take a lot of fraud out of the system, to the tune of tens of millions of dollars,” Murphy said.

Despite the inordinate decreases, Bay State residents still pay $114 more than the national average for coverage. Some studies have shown, though, that Massachusetts has some of the most affordable premiums when the average cost of coverage is weighed with the state’s median income.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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