NEWBURYPORT - Local agencies are bracing for some sort of change as a result of the state's decision to reduce regulation of auto insurance rates, but they aren't sure what that change will be.
Though it's too early to tell how to interpret Monday's announcement by Massachusetts Insurance Commissioner Nonnie Burnes, deregulation could be good for local drivers, said Jay Howlett, the owner of Chase and Lunt Insurance in Newburyport.
"(Newburyport) is a desirable area for insurers," he said. "It's suburban, and it has a geographic history of good drivers."
That means that in a freely competitive insurance market, local drivers would pay less than those in major Massachusetts cities. Current regulations forbid insurers from basing their rates on geography.
"In effect, we've been subsidizing insurance buyers in greater Boston, Lawrence, Brockton and all those areas," Howlett said.
But what the state is proposing stops short of complete deregulation. Burnes announced Monday evening that she will approve relaxed regulation of insurance prices when they are reset in April.
For the past 20 years, the commissioner has dictated the rates that insurance providers can charge Massachusetts customers. But as dozens of insurance companies have stopped doing business in Massachusetts in recent years, pressure has grown to deregulate the market and let insurance providers compete for customers by setting their own rates.
Burnes' announcement Monday was skimpy on details, but her proposals stop short of unfettered competition. In a letter explaining her decision, she said she wants to "introduce managed competition." Her caution may be due in part to what happened the last time the state relaxed control on car insurance rates, in 1977. The average cost of insurance jumped nearly 15 percent, with urban residents hit hardest of all.
With few specifics about the plan available, local insurance brokers remain cautious.
"It's so hard to tell what effect this will have," said Jay Gould, the owner and president of Gould Insurance in Amesbury. "We're going to have to see how the insurance companies react."
It's not clear whether Burnes plans to let insurance companies offer suburban drivers better rates than those in urban areas. In an ambiguous passage of her letter, she wrote that she intends to "retain a strong yet supple regulatory oversight function to ensure that good drivers enjoy the benefits of such managed competition, regardless of where they garage their cars."
"Right now the message is very mixed," Howlett said. "It's like she's telling insurance companies 'You're free and clear to run a 50-yard dash,' but then she says 'But you're going to have your legs tied together and your hands tied behind your back.' The question is, are insurance companies going to want to run in that race?"
Both Howlett and Gould said the best possible outcome of the pending policy change would be an increased number of insurance companies offering a wider range of policies in Massachusetts. Even if the changes do work for the best, they are bound to mean major changes for how insurance brokers themselves do business.
"If we start seeing price competition, we're going to be getting a lot of calls asking for rate quotes," Howlett said. "With multiple companies offering multiple tiers of rates, we're going to have to make some serious changes to our software to be able to get people the answers they want quickly."
So while Howlett remains unconvinced that the proposed changes will benefit his customers, his company is already preparing for the new way of doing business, he said. And he's waiting expectantly for more details of the commissioner's plan to emerge.
"Whatever happens, this is still the most interesting thing to happen to the auto insurance industry in the last 20 years," he said.
