On April 3, 2008, Commissioner Nonnie Burns of the Massachusetts Division of Insurance issued a new bulletin permitting insurance companies to offer the option of purchasing automobile policies with six-month terms.  This development comes on the heels of Massachusetts’ transition to a managed competition system for automobile insurance that officially began on April 1, 2008.  For additional background regarding Massachusetts’ deregulation of automobile insurance, see our earlier posts here, here and here.

Although Massachusetts will now permit six-month policies, several restrictions have been placed on their use:

1.  Insurance companies are prohibited from only offering six-month policies.  Consumers must have the option to purchase coverage for an entire year if they desire, and the maximum permissible policy term under Massachusetts law remains two-years;
2.  The premium for a six-month endorsement must be equal to half of the premium for twelve-month term;
3.  Rates in effect on the effective date must be the rates for the entire policy term;
4.  Six-month endorsements may not modify the terms and conditions provided under the policy; and
5.  Twelve-month policies may not be converted to six-month policies unless requested by the policyholder within 30 days of the effective date, in which case the policyholder must cancel the twelve-month policy and apply for a six-month policy.

In addition, before a six-month policy can be issued to a twelve-month policyholder, insurance companies must obtain written acknowledgement from the policyholder that he or she understands:

1.  The law requires that every insurance company offer twelve-month term private passenger motor vehicle insurance policies at the option of its customers;

2.  A six-month term policy is shorter than a twelve-month term policy;
3.  A six-month term policy will have a premium that is half as much as a twelve-month term policy; and
4.  The premium for a renewal of the policy for an additional six-month term will be based on the rates in effect for that insurance company on the renewal effective date.

The Massachusetts Division of Insurance believes that by allowing insurance companies to issue six-month policies “consumers [will be provided] more freedom and flexibility to take full advantage of the wide range of benefits managed competition has to offer.”

To view the complete bulletin, click here.