(Boston Globe, The (KRT) Via Thomson Dialog NewsEdge) Dec. 24--Drivers renewing or purchasing an auto insurance policy over the next three months don't have to wait a year for the double-digit rate cut just approved by the Romney administration, but speeding up the savings won't be easy.

A state law passed in 2004 changed the effective date of the 2007 auto insurance rates from Jan. 1 to April 1, which means anyone renewing or purchasing a policy during January, February, or March will be billed for a second year at the 2006 rate until they renew again in 2008.

State officials, insurers, and agents are urging people affected by the new April 1 effective date -- roughly a third of the state's 4 million drivers -- to patiently wait for their rate cut. They warn that moving the effective date of a policy to April 1 would require changing insurers and could trigger costly financial penalties.

But Tony Ruscetta of Rehoboth, whose policy with Commerce Insurance renews Jan. 1, said he would prefer to get the rate cut sooner rather than later. What happens, he asks, if the Legislature next year scraps the existing rate-setting system and lets insurers set their own rates? He said a driver would also lose out if he moves or dies before his policy renews in 2008 -- or later years if rates keep going down.

Daniel Johnston, president of the Automobile Insurers Bureau of Massachusetts, said he believes drivers are not permitted to change the effective date of their policies to take advantage of a rate cut.

"I would never advise anybody to do it," he said.

Johnston pointed to a provision in the bureau's manual stating that no policy in effect prior to a rate change can be canceled and rewritten to take advantage of the rate change.

But state officials and some insurance agents say the provision appears to only bar an insurance company from changing the starting date on a policy for one of its existing customers. The officials said nothing would prevent a customer from canceling a policy with one insurance company and jumping to another carrier to obtain a policy starting date of April 1.

Those renewing or buying a policy in March would have the easiest time changing their effective date to April 1. State law allows drivers to cancel their policy within 30 days of their renewal date and switch to another carrier without incurring any financial penalty.

Those renewing or buying a policy in January and February would be subject to financial penalties for canceling a policy early and switching to another carrier on April 1. According to Division of Insurance regulations, the penalty would be 5.5 percent of the entire premium for drivers renewing in January and 6 percent for people renewing in February.

Since auto premiums for 2007 haven't been calculated yet, it's difficult to estimate the benefit of switching to a new insurer on April 1. But it's possible to get a rough idea of the savings by using statewide averages. The current statewide average premium is $1,018 and it's expected to drop to $899 when the new rates take effect, a savings of $119 over the entire year, or roughly $10 a month.

Someone with the statewide average premium who buys or renews a policy in March could cancel April 1, sign on with a new company, and take advantage of the new rates for 11 months, for a total savings of $110.

The same person buying or renewing a policy in February would be able to take advantage of the new rates for only 10 months, for a total savings of $100. But the person purchasing or renewing in February would have to pay a 6 percent penalty, or $61, for canceling his policy early. The net savings would be $39.

The person purchasing or renewing a policy in January would be able to take advantage of the new rates for nine months and pay a 5.5 percent penalty, or $56. Net savings: $34.

"That's a substantial penalty you're paying for something you're going to get anyway," said Kevin Beagan, director of the State Rating Bureau, a unit of the Division of Insurance, referring to a rate cut that will arrive a year later.

There are other costs associated with switching carriers. The driver would have to seek out a new company and possibly a new agent and have his car inspected by the new insurer. He also might lose access to a group discount he had with his former insurer, as well as any joint discount he received for insuring his home and car with the same company.

Many drivers are unwilling to part with their existing insurer to take advantage of a rate cut sooner. Peter Colby of Gloucester is very upset about being charged at the 2006 rates for two years in a row, but he won't leave his current insurer, Liberty Mutual of Boston.

The new effective date was pushed through the Legislature in 2004 by agents and insurance companies that deal directly with their customers. The agents and companies were tired of issuing provisional bills to clients who renewed in January, February, or March before final rates had been calculated.

Henry Risman, president of Risman Insurance in Medford and Tewksbury, said the provisional billing doubled his work, messed up electronic payments, and confused customers.

Drivers wouldn't have paid any attention to the new effective date if rates weren't falling so dramatically. As Risman said, "If rates had gone up, they would have never called and said, 'Can I get the increase now?"'

But with a third of the state's drivers forced to pay the higher 2006 rates for a second year in a row, many drivers are upset. "As far as I can see, only the insurance companies benefit," said Andrea A. Costello of Roslindale.

Frank Mancini, president of the Massachusetts Association of Insurance Agents, said the new effective date wasn't part of any insurance conspiracy. He noted the bill authorizing the change was drafted and passed in 2004, long before anyone knew what would be happening in 2007.

"This happens all the time," Mancini said. "There's always somebody at the beginning of a rate change cycle and somebody at the end. It's just where you happen to be."

To see more of The Boston Globe, or to subscribe to the newspaper, go to http://www.boston.com/globe.

Copyright (c) 2006, The Boston Globe
Distributed by McClatchy-Tribune Business News.
For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

[ Back To TMCnet.com's Homepage ]

Discussions: