As anticipated in an earlier report by Insurance Journal, an arm of the Massachusetts insurance department has come up with a plan to replace the state’s current safe driver insurance plan with a new one by 2006 and amend the current plan until then so that bad drivers pay more and good drivers pay less in premium
The plan would eliminate by 2006 the current system of assessing premium surcharges and credits based on a step system. The step system would be replaced with a system of four merit rating bands based on each accident and moving violation similar to the way it is done in other states. Gov. Mitt Romney has expressed a desire to make the state’s auto system more like the systems in other states.
The proposal was filed with the Division of Insurance by the DOI’s State Rating Bureau and agreed to by the industry’s own Automobile Insurers Bureau.
According to Daniel Johnston, AIB president, the plan is “revenue neutral,” meaning the amount of dollars collected in surcharges will be equal to those given out in credits, as is required by current statute.
Johnston said the phase-in to the new 2006 plan was important so that the merit rating board, which assigns the surcharges, and insurance companies, which send out the premium statement, could have time to re-program.
The new system, he said, should make it easier for motorists to see the cost of their infractions because surcharges will be added for each accident or moving violation without the complication of a step system and without the various three and six year rules on movement between steps.
Starting in 2006, drivers will be assigned to one of four merit rating bands based on the number of incidents in the past five years: Band 1 (0 incidents); 2 (1-3 incidents); 3 (4-7 incidents); 4, (8-9 incidents). Only experienced operators (driver class 10, 15 or 30) would be eligible for Band 1 and qualify for a so-called Excellent Driving Award.
For Band 2, drivers with accidents or violations would be surcharged from 6.5 percent to 10 percent for five years for each incident, with some modification for inexperienced drivers (less than six years) who already pay more due to their classification.
The study estimated the premium impact of the switch to merit bands on experienced drivers (classes 10 and 15) to include 0 percent change for drivers with 0 incidents; five percent reduction for those with 1 incident; a 20 percent increase for those with six incidents; a 34 percent jump for drivers with eight incidents and 18 percent for those with nine.
For 2006, the plan envisions these major changes:
Steps will be eliminated and replaced with merit rating band
All drivers with one to three accidents or violations on their driving record may qualify for a reduced surcharge if the age of the most recent accident or violation is more than three years old
Bodily injury claims will qualify as a basis for a surcharge.
The proposal sees 2005 as a transition period. For that year, the plan would keep the current steps 9-35 but increase the surcharges for drivers with accidents and moving violations. Under the current SDIP, drivers in steps 9 through 14 are given credits for having good driving records, while drivers in steps 16 to 35 are surcharged for accidents and traffic violations. Step 15 is neutral. For every step above 15, a surcharge of 7.0 or 7.5 percent is applied. The current system reflects incidents within the previous five year period.
The new proposal would raise the surcharge difference between steps 20 to 35 up to 10 percent while keeping it at 7.5 percent for steps 16 through 19 for next year.
For 2005, monies from the higher surcharges would go to reward motorists in steps 10 through 15 without any accidents or violations within the past three years. They would save 7.5 percent under the new plan after three years; under the current SDIP they have to wait six years for a credit.
Under this change, current step 10 drivers would thus become step 9 risks and be eligible for additional SDIP discounts of from two to five percent offered by several insurers.
According to the plan, the primary changes in 2005 will be:
* Experienced drivers with exactly one accident or violation in their driving record that is more than three years old will receive an additional credit to their otherwise applicable step rating of 10, 12, 13, 14 or 15.
* Experienced operators with a step of 20 or higher shall be surcharged 10 percent instead of 7.0 percent for each step greater than 19.
* The Clean Slate Rule will be phased out.
* Driver classification rules applicable to drivers new to the state will be revised.
The plan is designed to not have any impact on territorial subsidies.
The plan is to be the subject of a public hearing on June 11. It must win approval from Commissioner Julianne M. Bowler.
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