The list of new carriers includes industry giants that do most of their business online, like Allstate, Progressive and Geico. The list also includes smaller companies with big networks of neighborhood insurance agencies like Bankers Standard Insurance Co., the most recent entry into the market, and Vermont Mutual and Green Mountain Insurance Co.
Traffic is rerouted around barriers in the construction zone on Interstate 91 in Springfield.Massachusetts drivers have saved $480 million in car insurance premiums since a managed competition system was instituted three years ago this spring, says the state’s insurance commissioner.
Instituting competitive rates also brought 13 new insurers to the Bay State’s auto insurance market, and some consumers say they’re still reaping savings year-to-year as they find bargains thanks to careful comparison shopping.
It’s quite a difference for a state which once had some of the most expensive – and most highly regulated – car insurance rates in the nation.
Before April 2008, Massachusetts set rates that never varied from company to company. The state also set up discount programs that also never varied. Customers had very few options and even less incentive to shop around.
“What I can tell you there have been improvements in product design and savings,” says Robert W. Gilbert Jr., president and chief executive officer of the James J. Dowd and Sons Insurance Agency in Holyoke. “It’s hard to pin down, but our average savings is $100 to $500, depending on the customer’s exposures.”
Competition has spurred companies to offer innovative discounts and benefits to their best customers, like “disappearing” deductibles that get smaller and smaller as drivers wrack up incident-free years of driving, or discounts for customers who don’t drive very many miles in a year.
Insurance agents have to work harder, Gilbert said, and interview their customers, discern their driving habits and fit them into the insurance policy that makes the most sense for them.
“There was really no incentive for companies to offer innovative products. The discounts were mandated,” said Joseph G. Murphy, state insurance commissioner. “The old discounts were for things like having seat belts. Well, every car has had seat belts for a long, long time.”
Car insurance rates are trending upward across the country as the economy recovers, according to Murphy. Claims for damage also drive rates, and this winter’s weather has already driven more people to the state’s claims arbitration system, he said.
According to the National Association of Insurance Commissioners, the average for auto insurance expenditures in Massachusetts dropped from $1,113 in 2005 to $903 in 2008, the most recent year for which the association’s state-by-state data is available.
By comparison, over the same period the average costs in neighboring Connecticut went from $993 to $950, and Rhode Island went from $1,061 to $986.
The change in the rate system has been a boon for the marketplace in terms of the number of insurers doing business in Massachusetts. Thirteen additional auto insurance companies have started writing business in the state, bringing the total to 32, according to the state Division of Insurance’s website.
That list of new carriers includes industry giants that do most of their business online, like Allstate, Progressive and Geico. The list also includes smaller companies with big networks of neighborhood insurance agencies like Bankers Standard Insurance Co., the most recent entry into the market, and Vermont Mutual and Green Mountain Insurance Co.
“Companies never had an incentive to get in the market before,” Murphy said. “The state set the rates. No one had any incentive to shop and no one every changed insurance carriers.”
But, Massachusetts still has a long way to go, said J. Bruce Cochrane, president of Renaissance Insurance Group, an agency that also acts as a wholesaler, providing smaller local agencies to access a variety of insurance carriers. Massachusetts has 32 carriers, while neighboring Connecticut, a smaller state, has 220 carriers.
Murphy said he’s hoping to attract more carriers as the Massachusetts market matures in the next few years.
The real impact of managed competition is the drastic drop in the number of drivers with poor driving records who have to get insurance through the state’s high-risk pool, according to Cochrane.
“That means more companies are willing to take a chance on some of these drivers,” he said. “It shows a healthier market.”
Justin R. Moreau, 23, of Chicopee saw his insurance rates drop by half when he bought through an online service last year. But, an accident sent him to the hospital and he had trouble getting his medical bills paid.
Now he’s back with an agent, and his rates are still lower than they were before managed competition.” It just helps to have someone to talk with who is local,” Moreau said.
That’s the challenge for insurance agencies now that the market is much more competitive, says Gilbert. Websites that quote insurance rates can be confusing or default to higher deductible policies that have low rates for less coverage, Gilbert adds.
“Some companies have six-month polices on their sites, policies that they sell in other states,” Gilbert said. “We can usually tell right away if someone quotes us a price of the web that just doesn’t make sense.