Insurance Center

Massachusetts Introduces Managed Competition

Massachusetts used to follow the “fixed and established” system for setting auto insurance rates. This meant the state―and not insurance companies―set auto insurance rates, and all insurance companies charged the same premiums for each driver based on specific rate categories.

However, as of April 1, 2008 the Massachusetts auto insurance market will see managed competition. For consumers, this means the opportunity to “shop around” for potentially lower car insurance rates―an opportunity Massachusetts drivers didn’t previously have. And for insurers? Why, the chance to be more competitive, of course!

Massachusetts provides answers to frequently asked questions about managed competition, but below we’ve outlined information on the new managed competition system, Massachusetts auto insurance laws that remain unchanged, and tips on how to utilize your new freedom to shop around for auto insurance!

Implementing the Managed Competition System

As the managed competition system takes over the Massachusetts insurance market, the Commissioner will provide insurance companies with regulations for proposing auto insurance premiums. These regulations will help insurance companies take into consideration factors such as drivers’ traffic violations, accidents for which they are at fault, and overall driving records.

During the second year of managed competition implementation, the Commissioner will conduct a review.

Note that while most of the managed competition system’s elements are already in place―or will be once the Commissioner provides insurance companies with regulations―the managed competition system won’t immediately and completely take over the “fixed and established” auto insurance system. The process will be gradual.

Compulsory Auto Insurance in Massachusetts

Regardless of some big changes in the Massachusetts auto insurance market, compulsory coverage requirements remain the same.

If you want to register a motor vehicle in Massachusetts, you are required to buy a minimum amount of insurance. The Massachusetts Registry of Motor Vehicles makes sure of this by requiring your auto insurance company to stamp your application for registration. No stamp, no registration.

Of course, you can always cancel your insurance after receiving the stamp. But driving without insurance in Massachusetts is illegal and can result in heavy fines and a license suspension, if you are caught. So it's not worth risking your driving future to save a few hundred bucks.

Here's the minimum amount of insurance you are required to purchase for any motor vehicle being registered in Massachusetts:

• Bodily injury coverage: $20,000 per person injured in any one accident and $40,000 for all persons injured in any one accident.

• Property damage coverage: $5,000 for injury to or destruction of property of others in any one accident.

• Personal injury protection (PIP): PIP covers up to $8,000 in medical and work loss expenses, without regard to fault.

You are not required to purchase any other auto insurance to obtain a registration. This includes coverage by an uninsured or underinsured driver, as well as collision and comprehensive insurance. This doesn't mean you shouldn't consider purchasing more than the minimum coverage.

Remember that if you purchase minimal insurance coverage, you are personally liable for any expenses beyond the maximum. So if you have an accident and are found liable for $100,000 worth of damages, the absolute best your insurance company will cover is $40,000. The other $60,000 is coming from you.

It's usually not very expensive to extend your coverage for higher liability and personal injury coverage. Most insurance companies recommend at least $100,000 worth of liability and personal injury coverage, with higher-income drivers considering increasing that coverage to $500,000 or even $1 million.

Insurance Surcharges in Massachusetts

Until the managed competition system completely takes over the Massachusetts auto insurance market, it’s best to stay familiar with the byproducts of the state government and the auto insurance companies working together to set rates.

One such byproduct is the Safe Driver Insurance Program. This program is designed to put a greater burden of insurance premiums on the drivers who most often make insurance claims and to reward drivers with safe records.

What this means to you is simple: If you get a single traffic ticket or are found liable in a traffic accident with more than $500 in damages, you are going to get mandated insurance surcharges. These can add up fast.

Massachusetts uses a point system in which traffic violations and accidents are awarded from one to five points each. Every point on your license can mean up to 15% more on each of the four required parts of your insurance policy―bodily injury to others, personal injury protection, damage to someone else's property―as well as optional collision coverage.

This can add up fast to hundreds or even thousands of dollars in extra charges added to your auto insurance premiums. Even worse, there's no way to remove these points from your license other than time and keeping a clean driving record. Where many states allow drivers to go to traffic school to reduce points, Massachusetts does not.

So the best advice here is to drive safely and within local regulations at all times. With a potential of thousands of dollars in extra charges coming along with every traffic ticket or even a minor accident, it's just not worth taking the chance.

How to Shop Around for Auto Insurance in Massachusetts

There’s good news, Massachusetts drivers! Now that the managed competition system is working it’s way into the picture, you get to experience what it’s like to shop around for the auto insurance policy that fits both your coverage and financial needs.

Before you begin your search, you may want to refer to the following DMV.ORG article to buff up on your auto insurance knowledge:

• Car Insurance Primer

• What Car Insurance Coverage Do You Need?

• How to Buy Car Insurance