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Auto Insurers Expect 3d Rate Drop

Jul 5, 2007

By Bruce Mohl, The Boston Globe

Jul. 6--The state's automobile insurers say they are likely to ask for a rate decrease next year if the Patrick administration decides to continue regulating the prices they can charge.

It would be the third straight year insurers have asked state regulators to cut premiums, a trend reflecting an unprecedented downturn in the dollar value of insurance claims.

Daniel J. Johnston, president of the Automobile Insurers Bureau of Massachusetts, said the size of any requested rate reduction won't be known until company expense numbers and other data are crunched over the next two months.

But he said claims data indicate the cost and severity of auto insurance claims continued to fall in 2006, with the value of all claims dropping 8.5 percent compared to 2005.

"It's good news, and it likely suggests we'll be filing for another rate decrease," Johnston said.

An industry request for a reduction would guarantee Massachusetts drivers some premium relief next year, since the filing by the companies is typically the starting point for the state rate-setting process.

This year the auto insurance companies asked for a 3.7 percent reduction in rates and the state's insurance commissioner ultimately approved an 11.7 percent drop, resulting in a statewide average premium of $899. In 2006, the companies requested their first rate reduction ever, asking for a 0.1 percent decrease. The commissioner ultimately approved an 8.7 percent cut.

Nonnie S. Burnes, the insurance commissioner appointed by Governor Deval Patrick in February, hasn't decided yet whether to set auto insurance rates for 2008. She is giving serious consideration to deregulating the rate-setting process and letting automobile insurers set their own premiums. A decision is expected by July 16.

Many of the state's auto insurers say premiums would probably fall even faster if they were allowed to set their own rates rather than having to wait for the state's annual review. But opponents of competitive rate setting say there's no need to tinker with the process .

"Rates have never plummeted like this, ever," said Stephen D'Amato, a consultant to the Center for Insurance Research in Cambridge. "This just shows there's no crisis in the auto insurance market, and the current rating system is working for consumers."

But proponents of change argue that rates overall will drop more quickly if competition is allowed, and any increase in rates affecting some drivers would be mitigated in an environment where prices are falling.

"This is the perfect time to move to competition," said James Harrington, executive director of the Massachusetts Insurance Federation, which represents state insurers pushing for competition.

Paul Mattera, senior vice president for public affairs at Liberty Mutual Insurance Co. of Boston, which favors some deregulation, said the benefits of competition go well beyond the prospect for lower premiums. He said Liberty in other states is free to offer better services, such as policies that let customers off the hook for an accident if their record has been clean for five years, or replace a car without any depreciation if the vehicle is less than four years old.

"There are benefits to the consumer beyond price diversity," he said.

Johnston, of the Automobile Insurers Bureau, attributed the decline in the value of claims to a mild winter in 2006 and success in fighting fraud. Analysts say claims also have been dropping nationally, possibly because cars are safer and people are driving fewer miles because of high er gas prices.

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