Under Massachusetts law, how is the insurance rate set for personal auto insurance?

The correct answer is grounded in the regulations that govern how insurance rates must be calculated and maintained in Massachusetts. Under state law, personal auto insurance rates cannot be arbitrary or decided solely by an insurer's preferences. Instead, they must be set based on a number of established factors that reflect the risk associated with insuring particular drivers.

These factors typically include the driver’s history, such as prior claims and driving records, to assess the likelihood of future claims. This method of rate setting ensures that prices are fair and representative of the risk that each individual driver presents, allowing for a more equitable distribution of insurance premiums. By taking into account these quantifiable and relevant factors, the regulation promotes transparency and helps maintain the stability of the insurance market.

The other options do not align with the comprehensive requirements for how rates are determined in Massachusetts. For example, setting rates solely based on an insurer's discretion overlooks the need for a structured approach grounded in specific risk-related criteria. Similarly, determining rates only according to state average rates, or solely based on the duration a driver has held a license, would fail to consider the full spectrum of pertinent risk factors that influence an individual's driving behavior and likelihood of filing claims.