The small average changes in auto insurance rates taking effect right now mask very large increases — and decreases — for some drivers.
On April 1, the one-year anniversary of the state’s experiment with auto insurance competition, many companies adjusted their rates upward, while a handful lowered them. (See my earlier post.) The thick filings at the state Division of Insurance report average premium changes for all of a company’s customers, but they also disclose how high and low rates can go for some drivers.
Liberty Mutual Insurance Co. of Boston, for example, filed rates effective April 1 that yielded an average premium increase for all of its customers of 4 percent. But, according to the Liberty filing, the changes might drive up the rates of some policyholders by as much 36 percent, while others might see their premium drop by as much as 12 percent.
Arbella Mutual Insurance Co. of Quincy, which reduced its rates overall by an average of 2 percent, said some customers would see their premiums drop by as much as 28 percent, while others would see their costs rise by 11 percent.
Encompass Insurance of Illinois had the biggest range. It said its rates overall were rising an average of 4.9 percent, but some drivers might face an increase of 61 percent, while others could see their rates fall by 64 percent. Progressive Insurance of Ohio raised its rates on average by 4.8 percent, but included no maximum or minimum ranges for customers in its filing.
Under the state’s experiment with managed auto insurance competition, called managed competition, companies set their own rates subject to regulatory approval. Previously, the state approved one set of rates for all automobile insurers.
Jason Lefferts, a spokesman for the state Office of Consumer Affairs and Business Regulation, which oversees the Division of Insurance, said the highs and lows in the individual filings apply to a very small percentage of a company’s customers and would probably prompt those who see their rates rising dramatically to shop elsewhere for a policy.
“We’re encouraging people to shop,” Lefferts said. “The magic number seems to be three. If you shop at least three companies, it seems like you start to see savings.”
Lefferts said companies can raise the price of compulsory basic coverage no higher than what is charged in the residual auto insurance market. Rates for the residual market, which caters to drivers no company wants to insure voluntarily, are set by the state. Prices for non-compulsory types of insurance are not capped, Lefferts said.
There were 183,217 drivers in the residual market on January 1, 2008, according to Lefferts, and that number dropped to 146,980 by the end of the year. Lefferts said the residual market is now down to about 125,000 drivers. Prior to April 1, the combined losses of drivers insured in the residual market were shared by companies based on their market share. Now individual drivers in the residual market are being randomly assigned to specific companies with assignments based on a company’s market share.
