Massachusetts' switch from fixed rates to managed competition

When a state stops setting auto insurance rates, prices do not simply fall or simply rise. Massachusetts is the clearest American test of that question. On April 1, 2008, it ended a system in which the insurance commissioner fixed the rates every insurer had to charge, and replaced it with "managed competition," in which insurers set their own prices and the Division of Insurance reviews them. Average premiums fell sharply in the first two years, then climbed again, and the residual market for hard-to-place drivers shrank to a sliver. Some of those effects are well documented. Whether the new system caused them is still argued.

This article separates the two. It explains how the old system worked, what the 2008 change did, which rules survived, and what the numbers show as of November 2026.

How fixed-and-established rates worked

Under the old system, Massachusetts did not ask insurers to propose prices and then approve them, as a prior approval state does. The commissioner set the price. The Associated Press described it in 2009 this way: under the old "fix-and-establish" system, the commissioner set auto insurance rates after considering recommendations from groups representing consumers and the industry. Insurers then charged those rates to every customer in the same class.

The legal machinery sits in two statutes. General Laws chapter 175, section 113B governed the fixing of rates. Chapter 175E, the state's motor vehicle rate law, still contains the trigger for fixed rates today. Under section 5 of chapter 175E, the commissioner must fix and establish rates for a territory or class of insurance if, after a hearing, she finds that competition is insufficient to keep rates from being excessive, or that competition is so conducted as to be destructive of competition or harmful to insurer solvency. Any such order lasts no more than a year unless renewed on new findings.

Three features of the fixed system shaped everything that followed.

Rates barely varied between companies. A Boston Globe review in 2012 summarized it plainly: historically, the state set standard rates for every carrier, so rates differed little from company to company. Insurers could still offer credits for good experience within a risk class, according to a footnote in a 2009 NAIC-published study by economists Laureen Regan, Sharon Tennyson and Mary Weiss, but the base price was the state's.

Some drivers were priced below their expected claims cost. The state-set rate structure carried premium subsidies for urban, inexperienced, young and older drivers, a point the Massachusetts Association of Insurance Agents made when it defended the system in 2005. A subsidy means somebody else pays more than their own expected claims cost. Lower-risk drivers in effect helped cover the gap.

Independent agents dominated. The same 2005 account cited industry research putting independent agents and brokers at 78.8 percent of the Massachusetts personal lines market, well above most states, and quoted the national trade group's chief executive complaining that the government set agent commissions as well as insurer rates. A 2008 Fitch Ratings report, summarized by Insurance Journal, put the independent-agent share of auto at 85 percent and noted that major direct sellers such as GEICO, Progressive and State Farm did not write auto in the state at that time.

Why a fixed price creates a residual market

Every state runs a residual market: a pool or plan that insures drivers whom regular insurers decline. Economists who study this explain the link to price controls with a simple mechanism. If the regulated price for a class of drivers is below what those drivers are expected to cost, insurers have a reason to avoid writing them. Those drivers end up in the residual plan instead. In their 2009 study, Regan, Tennyson and Weiss note that prior literature finds that regulation which holds prices down tends to enlarge the share of drivers insured in the residual market. A 1998 chapter by Susan Suponcic and Sharon Tennyson, published by the National Bureau of Economic Research, makes the same point about rationing in the voluntary market.

In Massachusetts the residual plan was Commonwealth Automobile Reinsurers (CAR), an industry-run pool. I could not open a source that gives CAR's share at its peak, so this article does not quote one. What a CAR annual-report summary does say is that the residual market's share of private passenger auto was 4.3 percent before the 2008 changes and 1.25 percent in fiscal 2018. The Fitch report adds a revealing detail: local insurers that "used the prior residual market system to their advantage" were expected to be hit hardest by the change.

What the 2008 change did

The switch was not deregulation as most people use the word. Three things happened at once.

1. Insurers began setting their own rates. Under chapter 175E, section 7, an insurer files its manual of classifications, rules and rates at least 45 days before the effective date, and the commissioner can disapprove a filing that does not comply. Insurance Journal's account of the 2008 filings put it in plain terms: insurers file individual rates, which take effect unless the commissioner disapproves them. The attorney general can force a hearing on any filing she considers excessive. In early 2008 she did so for five of 19 insurers, and Commissioner Nonnie Burnes upheld the filings.
2. The commissioner capped increases for the worst records. The AP reported in November 2007 that Burnes imposed a 10 percent rate-increase limit for motorists with the worst driving records, and said that without it the increase for those drivers "would be 50 percent." The state had tried competitive rating about 30 years earlier and scrapped it after urban drivers saw their rates triple, so the cap was a deliberate guard against a repeat.
3. The residual market was reorganized. The Fitch summary notes that the state was switching from CAR's reinsurance-style plan to an assigned risk plan, which became the Massachusetts Automobile Insurance Plan. In 2009 Burnes told CAR that, for policies effective after April 1, 2010, she would find a filing unfair if it raised base rates by more than 2 percent on bodily injury liability, personal injury protection or property damage liability for drivers who had been continuously insured and had few merit rating points and claims.

The reform also came from a gradual process. A study group appointed by Governor Deval Patrick in 2007 recommended introducing competition "gradually" and advised against allowing insurers to use credit scores, occupation or education. The commissioner's rules followed that line.

What survived: rating limits and the safe driver plan

The most surprising fact about "managed competition" is how much of the old consumer-protection structure stayed in place. Insurers got to set the price level, but several rules about how drivers can be sorted survive in statute.

All six rows come from section 4 of chapter 175E. The AP's 2007 account added that regulators barred insurers from considering income, education, occupation and homeownership as rating factors, and limited them to driving experience and record as primary factors. Critics said insurers found proxies: the MassPIRG director told the AP in 2009 that homeowners could not get a discount for owning a home but could for having homeowner's insurance.

The Safe Driver Insurance Plan

The other survivor is the Safe Driver Insurance Plan (SDIP), a statewide system of surcharge points and credits. Its rules are in 211 CMR 134. The regulation's purpose clause says insurers must follow the surcharges and credits that apply in the Safe Driver Insurance Plan "required during Fixed-and-established Markets," and that the data collection continues in "Fixed-and-established and Competitive Markets" so that insurers can run either the SDIP or their own merit rating plans. In other words, after 2008 an insurer could keep using the state plan or file a different merit rating plan.

Three technical points matter to a driver:

• A central record keeps the books. The Merit Rating Board collects claim and violation data and answers insurer requests. Insurers must report certain claims to it, including comprehensive and personal injury protection claims, within 30 working days of payment.
• An accident counts as at-fault only above a threshold. Under the definitions, the operator must have been more than 50 percent at fault and the claim payment, beyond any deductible, must exceed $1,000 for accidents on or after July 1, 2015 (it was $500 before).
• Surcharges follow a formula. For policies using the state plan, the surcharge factor equals one plus the product of the driver's surcharge points and the surcharge percentage, and incidents in the sixth year of the experience period carry zero points.

Here is a hypothetical to show the arithmetic. Suppose a driver has 5 surcharge points and the surcharge percentage is 2 percent. The factor is 1 + (5 x 0.02) = 1.10, so the driver pays 10 percent more than the base premium; when the points age off, the factor returns to 1.00. These numbers are invented to show the method, not the plan's actual points or percentages, so check the current schedule with your insurer or the Division of Insurance. For the plan's coverage side, including personal injury protection, see Massachusetts auto insurance: PIP, the Safe Driver Plan and 2008.

What the numbers show

Documented effects

Premiums fell, then rose. A 2012 Boston Globe analysis reported that the NAIC found average Massachusetts premiums fell by 12.7 percent from 2007 to 2009, the steepest drop in the country, equal to $133.80 per policy. The same story reported median increases of 4.5 percent in 2011 and 4.3 percent in early 2012 among major insurers, ahead of Boston-area inflation of 2.7 percent. Attorney General Martha Coakley's office found that Travelers had raised rates by more than 30 percent since January 2009, while Liberty Mutual and Plymouth Rock were up 18 percent and Commerce and Progressive 16 percent.

National insurers entered. Progressive began selling in the state shortly after the April 2008 start, and GEICO announced its entry in late March 2009, according to the AP. In October 2024 the Globe reported that the seven largest insurers wrote about 75 percent of the market, led by MAPFRE (19 percent) and GEICO (16 percent). The Globe also noted that GEICO and Progressive had declined to write in the state under the old system, and that hundreds of insurers are licensed there even though seven hold most of the market.

The residual market stayed small. Beyond the CAR figures above, the NAIC's 2022/2023 Auto Insurance Database Report shows 17,765 residual-market earned car-years in Massachusetts in 2022, against 4,490,106 earned car-years in total liability business, about 0.4 percent. In 2020 the figures were 35,486 and 4,523,251, about 0.8 percent. The two sources measure different things, so read them as pointing the same way, not as one series.

The gap with the national average narrowed. Using the same NAIC report's Table 4 (average expenditure per insured vehicle, a measure of liability, collision and comprehensive premium spread over insured cars), Massachusetts was about 10 percent above the national average in 2019 ($1,182.69 against $1,075.08) and about 3.5 percent above in 2023 ($1,326.46 against $1,281.92). That is my calculation from the NAIC tables, and it covers only those years. NAIC itself warns that direct comparisons between states should be treated with a high degree of caution.

Contested effects

The data cannot settle those disputes alone. A price series that falls after a reform may reflect the reform, the economy, claim frequency, or all three.

The 2022-2024 test

The cycle that began in 2022 gave managed competition a harder test than the first years. The Boston Globe reported in October 2024 that auto insurance costs in the state had risen almost 38 percent since the start of 2022, with the seven largest insurers winning average approved increases of more than 12 percent in 2023 and almost 5 percent in 2024 to that point. The story cited repair, parts and medical costs and theft, and said shoppers who compared quotes could limit the damage. Massachusetts was not alone: the national figures in the most and least expensive states for car insurance show the same pressure across states with very different regulation.

That matters for judging the 2008 reform. A system that lets insurers raise prices when claims costs jump is working as designed, though whether regulators approve increases too slowly or too quickly is a judgment every state with a filing system faces. For the mechanics of filings, see how car insurance rate approval works and prior approval vs file-and-use: do regulated states pay more or less?.

What other states can take from it

The record offers five lessons that are easier to defend than a verdict on whether the reform "worked."

1. Price effects are hard to isolate. Premiums were falling before the reform, and the Regan-Tennyson-Weiss study warns that high costs can lead voters to demand regulation, not only the reverse.
2. Transitions can be cushioned. The 10 percent cap, the study group's call for gradual change and the limits on residual-plan increases show a staged approach.
3. Availability and price are linked. The residual market shrank once the state stopped suppressing prices for some classes, the pattern the economic literature predicts.
4. Rating limits can coexist with competition. Massachusetts kept its bans on credit, sex and marital status while letting insurers compete on price. For how affordability varies elsewhere, see car insurance affordability by state: premium as a share of income.
5. Shopping is part of the design. Competition lowers prices only if buyers compare, and the AG's 2009 report said most had not.

North Carolina still runs a bureau-based system with a reinsurance facility; see North Carolina's rate bureau and Reinsurance Facility: a system apart for the contrast.

What to do as a Massachusetts driver

1. Ask each insurer which merit rating plan it uses. Under 211 CMR 134 an insurer can use the state plan or its own, so the surcharges for the same record can differ.
2. Check your Merit Rating Board record. An at-fault accident requires more than 50 percent fault and a payment above $1,000; an incident that does not qualify should not cost you points.
3. Get several quotes. Prices for identical coverage can differ widely between companies because there is no state-set base rate. Compare identical limits and deductibles, and compare independent agents, who can quote several carriers, with direct sellers such as GEICO and Progressive.
4. Do not expect credit to matter. State law bars it, so a better credit score will not lower a Massachusetts auto quote.
5. Appeal a wrong surcharge. Chapter 175E provides an appeal of how the safe driver plan or a merit rating plan was applied to you.

Look up current minimums with state car insurance requirements lookup and read the state's own page on Massachusetts.

Common questions

Does Massachusetts still set auto rates?

No, not as a rule. Since April 1, 2008, insurers file their own rates. The commissioner can disapprove a filing, and under chapter 175E, section 5, she can fix rates again if she finds after a hearing that competition is insufficient. I found no source showing that power has been used for personal auto since 2008.

Can a Massachusetts insurer use my credit score?

No. Section 4(a) of chapter 175E bars rates based on credit information and bars refusing to issue or renew on that basis. Insurers may use their own payment history with you and official driving and claims reports.

Did managed competition make Massachusetts cheaper?

In the first two years, yes by the NAIC's measure: a 12.7 percent drop from 2007 to 2009. Later increases erased part of that, and the downward trend before 2008 makes it hard to credit the reform alone.

Key takeaways

• On April 1, 2008, Massachusetts moved from commissioner-fixed rates to insurer-filed rates under regulator review, with a 10 percent cap on increases for the worst-record drivers at the start.
• The residual market shrank (4.3 percent before 2008 to 1.25 percent in fiscal 2018, per CAR figures reported by a trade site), and NAIC data show about 0.4 percent of liability car-years in 2022.
• State law still bans credit, sex and marital status in rating, requires at least 15 territories and gives drivers 65 and over a 25 percent reduction.
• Premiums dropped 12.7 percent from 2007 to 2009 but were already falling before the reform and rose again; what caused the drop is disputed.
• Shop actively: with no base rate set by the state, price gaps between insurers for the same driver can be large.