The rapid growth in motor insurance from 2022 is in stark contrast to the three previous years, when rates increased by a modest 8 percent, partly due to the pandemic era, when there were fewer accidents because many were off the road.
So far this year, the seven largest insurers, which collectively control nearly 75 percent of the Massachusetts market, have received state approval for rate increases of almost 5 percent on average.
A Massachusetts consumer who paid $1,000 for car insurance in 2021 now pays almost $1,380, based on average rate increases from the seven largest insurers.
Because Massachusetts regulators do not publish notices or summaries of rate changes, calculating increases requires reviewing hundreds of pages of documents and deciphering often-convoluted insurance language.
“Insurance is not optional for drivers, but its cost must be carefully analyzed by regulators,” said Deirdre Cummings, legislative director of the state’s Public Interest Research Group. “We need to shine the light on these skyrocketing interest rates again; It is more important than ever for consumers to shop for price comparisons.”
Drivers have some control over how much they pay, either by searching the market for a better rate or by reducing their insurance coverage. Here are some things you need to know about navigating the world of insurance.
Are insurers lining their pockets and we paying more?
You may wonder whether insurers are making huge profits while their rates rise. In fact, Massachusetts auto insurers have performed well during the pandemic, with underwriting profits of 14.4% in 2020 and 9.6% in 2021. However, many are doing worse now than when rates were falling.
After interest rates were cut by almost 1 percent in 2021, the industry’s streak of four consecutive profitable years ended in 2022 with a loss of 4.7 percent. This prompted insurers to begin significantly raising rates – a trend that continues to this day.
The earnings data reported here comes from the National Association of Insurance Commissioners, which collects and analyzes official data from state regulators across the United States.
No state-level profit data is available yet for 2023, but nationally, auto insurers lost about 5 percent in 2023, not as bad as the 12 percent loss they suffered a year earlier, data shows collected by LexisNexis Risk Solutions.
The losses were not felt evenly across the industry. GEICO, for example, reported a profit of $5.3 billion in 2023 after suffering a loss the previous year. This may partially explain why GEICO, after raising rates by almost 26 percent. in 2023 has not yet requested a 2024 rate change in Massachusetts.
So what are the factors behind the increases?
More and more – and more expensive – claims are causing car insurance costs to rise rapidly across the country and in Massachusetts. Claims are more expensive, insurance analysts say, because costs that insurers pay for, such as repairing and replacing cars and medical care for people injured in car crashes, have risen.
Today’s cars and trucks are increasingly complex, equipped with computer chips that do everything from analyzing sensor data to managing greenhouse gas emissions. Christopher Stark, executive director of the Massachusetts Insurance Federation, an industry lobby, gave the example of a Honda Civic’s bumper, which he said now consists of 26 pieces, up from 11 in 1990.
Are rates rising because we are bad drivers?
There are some signs that people are becoming less cautious. According to LexisNexis Risk Solutions, distracted driving offenses – mostly related to cell phone use – increased by 24 percent among younger drivers in 2023.
According to the National Highway Traffic Safety Administration, traffic fatalities in Massachusetts increased by almost 25 percent in the 10 years ending in 2022, but decreased by 20 percent in 2023 compared to the previous year.
Any other factors driving up costs?
Climate change is clearly raising home insurance premiums, but it is also having an impact on auto insurance, which covers claims for cars and trucks damaged by storms, including flood and hail. In Massachusetts, weather damage insurance, called comprehensive insurance, is optional and more expensive.
Auto thefts, which also affect insurance rates, increased 16 percent in 2022 from the previous year in Massachusetts, according to the nonprofit National Insurance Crime Bureau.
Dave Hedrick pulled his cat carrier out of his car when water rose at the Hathaway Creative Center in Waterville, Maine, last year.Michael G. Seamans
Can the state do anything to slow these increases?
State regulators have less power here than they once did, largely because of changes made to increase competition among insurers in Massachusetts.
Before 2008, the state Division of Insurance set auto insurance rates. However, under this system, some major insurers, including industry giants GEICO and Progressive, refused to write letters to state insurers.
The new system, known as “managed competition,” allows insurers to conduct their own complex actuarial calculations to set premiums, and DOI’s current mission is to ensure a competitive market and insurers’ financial solvency.
DOI analyzes insurers’ projected claims, revenues and administrative costs to ensure they can cover any claims they may encounter. He may also question rates that he considers too high. These reviews typically involve dozens of correspondences between DOI and the insurer.
Has managed competition worked?
This has certainly increased competition among insurers. There are currently hundreds of auto insurers in Massachusetts, although the largest seven dominate with approximately 75 percent of the market: MAPFRE (19 percent of the market); GEICO (16 percent); Progressive (9 percent); Security (8 percent); Plymouth Rock (8 percent); Arbella (8%); and Liberty Mutual (7 percent). More competition means you can find lower prices if you want the job done by switching from GEICO to Safety, for example, then back to GEICO and so on.
How can consumers lower their insurance rates?
Shopping local is key. Competition can be beneficial to consumers because it lowers costs. However, to take advantage of the power of competition, you need to obtain multiple quotes rather than simply renewing your policy with the same insurer year after year.
Is there anything else drivers can do to reduce costs?
You can reduce the amount you pay for insurance by increasing your personal risk of loss. You can make changes that mean that if your car is damaged, you pay more and your insurer pays less.
For example, you can increase your deductible, which is the amount you pay out of pocket before the insurer starts paying (deductibles typically range from $500 to $2,000).
Another way to save is to opt out of optional insurance, such as the previously mentioned flood insurance. If you drive an older car, consider dropping your optional collision insurance, which covers damage to your vehicle from an accident you cause, such as hitting a tree, guardrail, pole or other vehicle.
Got a problem? Send your consumer problem to [email protected]. Follow him @spmurphyboston.
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