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Today — April Fool’s Day — is the day when competitive rating in the Massachusetts private passenger auto insurance market becomes real.

No kidding.

For the first time in more than three decades, the state is permitting its 20-something insurers to use competitive rates, discounts and incentives and is encouraging drivers to shop around for the best deal.

According to the industry, consumers are taking advantage of the opportunity.

“As we predicted, consumers are showing a strong appetite to shop around as they consider their automobile insurance choices,” said Massachusetts Insurance Federation Executive Director James T. Harrington. “This is a very good day for Massachusetts consumers.”

The state estimates that responsible drivers will save at least 10 percent on their 2008 auto insurance premiums. Companies are offering rate changes ranging from -2.2 percent to -15.5 percent, according to state officials.

The transition to managed competition comes as a result of the Patrick Administration’s decision last summer to no longer have the state fix and establish uniform rates for all carriers.

The new system has prompted Progressive Insurance to enter the auto market starting in May, selling online only at first. Also, Peerless Insurance, a division of Liberty Mutual, has returned to the market after years away.

They will join the current roster of 19 insurers, many of them homegrown: Commerce, Arbella, Plymouth Rock, Liberty Mutual, Hanover and Safety being among the Massachusetts-based veterans of the market.

According to Insurance Commissioner Nonnie S. Burnes, architect of the managed competition approach, the state needs more carriers.

“In 1977, we had over 100 insurers writing private passenger auto in Massachusetts. From the early 1990s to 2007, 35 companies left the state. By 2007, there were just 19 companies writing private passenger auto, and I don’t think there is another state that comes close to that,” she told a gathering of ratemakers belonging to the Casualty Actuarial Society at a meeting in Boston this week.

According to Burnes, this was a dangerous situation for Massachusetts. “There were so few insurers and some insurers were amassing a pretty significant market share. This was not a good place for the Massachusetts consumer to be, to say nothing of the auto market itself.”

As a result, in July 2007 she decided there was sufficient competition to open the market to limited competition — where insurers file rates within certain rules. Among other things, the rules ban the use of credit scoring and other socio-economic factors.

Burnes has been urging consumers to take advantage of managed competition even before their current policies expire.

All consumers are allowed to cancel or change companies any time during the term of their policies, or when their policy terms expire. Before making a change, however, Burnes has urged consumers to first talk to their insurance agent or company because insurers may charge a fee known as a “short rate value” for early cancellation.

“One way insurers are competing for business under managed competition is by offering to waive or credit short rate values. Others are rewarding customers who stay with them,” said Burnes. “You should check with your insurance agent to determine the insurance choices that are in your best interest.”

Insurers cannot charge consumers who cancel their policies within the first 30 days of the policy a short rate value.

Independent agents — who now control more than 80 percent of the auto market — are very much in the middle of the transition. Many have picked up additional carriers so they are in a position to offer multiple auto quotes. They are also staffing up to field more calls, reconfiguring their computer systems and beefing up their marketing.

However, they are unhappy about a new Division of Insurance Web site (www.Mass.Gov/AutoRates) that gives consumers insurance premium comparisons. They say the site, which only asks six questions of drivers, is extremely limited in its options and does not produce accurate premiums.

Frank Mancini, president and chief executive officer of the Massachusetts Association of Insurance Agents, has advised Burnes of agents’ concerns.

“While we understand the intention of the site is to assist consumers in the new managed competition environment, in our judgment, it is resulting in a more confusing experience,” he said in a recent letter.

“The primary concern is that the site provides extremely limited
options for a consumer to choose.”

He said that because the site does not allow the inclusion of specific company discounts, credits, or other features, the premiums displayed are in most cases higher than they would be if such variables were included.

Burnes has, however, stuck with the Web site, claiming it is not intended to produce actual quotes but to give consumers a “taste” of shopping around.

“When consumers use our site, they are struck by the huge variations in prices and discounts being offered by different companies and it really motivates them to get serious about calling their agent and starting to comparison shop,” said Burnes. “The savings for good drivers has the potential to be significant so it’s worth it for all consumers to do a little legwork.”

The DOI site instructs consumers to contact an agent to obtain an actual rate quote by clicking on the site’s “find an agent” feature. Agents have criticized this feature as well for listing licensed agents in their hometowns but not actual agency business locations and branches. DOI has agreed to add agency locations by June 1, according to MAIA.

The switch to a competitive system is also causing insurers and agents to step up their advertising.

“Consumers see or hear an advertisement in Massachusetts and now it means something,” the industry’s Harrington said.

Topics Carriers Agencies Auto Personal Auto Massachusetts