Drivers who insure their cars in the city - once dubbed "the auto insurance fraud capital of Massachusetts" - would have their coverages for bodily injury drop 20 percent more than the average state rate reduction.

State Insurance Commissioner Julianne Bowler, whose office helped reach the agreement, is expected to sign it Friday.

"This agreement finally brings a fair return to the people of Lawrence, who have swept fraud out the door and lowered rates for every driver in Massachusetts," State Sen. Susan Tucker said yesterday.

"Insurance companies have seen a reduction in claims of tens of millions of dollars," said the Andover Democrat, who has authored several laws aimed at curbing auto insurance fraud - including the one that made it a felony.

"The effort and time put in by Lawrence needed to be rewarded financially. This will show other communities there is real money in fighting fraud," she said.

The settlement was reached recently between the three entities involved in the state's auto insurance rate-setting process - the State Rating Bureau - an arm of the Division of Insurance; the attorney general, and the Automobile Insurers Bureau of Massachusetts, which represents insurance companies.

Top officials representing at least two of the parties involved in the settlement were hailing it as a major incentive to spur other communities to follow Lawrence's example in the fraud fight.

"It's unprecedented that we'd do this kind of thing to individual communities," Automobile Insurers Bureau President Daniel Johnston said.

"But all three parties felt a dramatic rate impact was warranted and reflective of the most recent experience," he said.

State Attorney General Tom Reilly called the settlement "good news for consumers."

"We hope to work with the industry in the future to make sure that towns and cities continue to be rewarded for fighting fraud and doing the right thing," he said yesterday.

Lawrence police Chief John Romero assembled a fraud task force in the fall of 2003, weeks after a 65-year-old great-grandmother died in a staged car crash that police said she helped plan to scam insurance companies.

Since the task force's inception, 186 people have been charged with auto insurance fraud. Two lawyers and a chiropractor who were among 16 indicted by a special grand jury investigating auto fraud in Lawrence received jail sentences.

The success in Lawrence prompted the industry-funded Insurance Fraud Bureau of Massachusetts to model eight other task forces in fraud-prone areas in the state.

Some of those communities that have been effective in reducing fraud also will realize benefits under the agreement, according to Johnston.

Drivers in Boston's neighborhoods, including Dorchester and Roxbury, which have been the focus of a similar task force, will see a 10 percent reduction in personal injury coverage in addition to the overall state increase.

Efforts by task forces in Lynn and Brockton have been rewarded with decreases of 5 percent and 2 percent, respectively.

Overall, fraud task forces covering nine communities have combined to save the insurance industry more than $192 million between the years of 2003 and 2005, according to Johnston, who also is executive director of the Insurance Fraud Bureau.

Lawrence, alone, has accounted for a savings of more than $30 million between the years of 2002 and 2005.

The agreement would become effective for the period of April 2007 through April 2008.

No figures were available yesterday on the average savings for Lawrence policyholders.

But Johnston said it could amount to "hundreds of dollars or more" for many of those insuring their cars in the city.

The agreement mirrors legislation filed by Tucker earlier this year. It gives Lawrence drivers a 20 percent reduction in rates beyond the statewide rate change for 2007.

It also creates a separate rate territory for Lawrence. The city had been grouped with other cities, which diluted the impact of Lawrence's work reducing fraudulent auto claims.

"The success the city has had over the last three years in fighting insurance fraud is unmatched anywhere - not only in the commonwealth, but throughout the country," Romero said last night.

"But despite all the success we've had, it wouldn't have mattered if the people of Lawrence didn't see a significant decrease in their insurance rates," he said.