Massachusetts Insurance Commissioner Julianne Bowler has approved plans to implement a limited servicing carrier program for the state’s commercial auto residual market as proposed by Commonwealth Auto Reinsurers (CAR) and backed by most within the insurance industry.
The program is an attmept to streamline the way CAR handles high risk commercial auto risks by reducing the number of servicing carriers involved in handling them and equalizing access to the residual market for all agents.
The new limited servicing carrier program will be in effect for ceded commercial policies effective January 1, 2006.
Voluntary agents have been complaining for several years that the present system gives unfair access to certain markets to agents who do not have voluntary contracts and write only through CAR, known as exclusive representative producers. In some cases, voluntary agents have no choice but to send accounts to nearby ERPs to secure coverage.
Under CAR’s present commercial lines operation, insurers are financially penalized in some cases for reinsuring commercial auto business through CAR, except for certain so-called excluded classes of buses, trucks and other high risk vehicles.
The plan is to reduce the number of insurers handling high risk commercial lines accounts to a handful of companies on the one hand, while providing equal access to these carriers for voluntary and ERP agents on the other. While only a few carriers will service the commercial residual market business, CAR deficits will be distributed to the industry based upon retained voluntary market shares.
The plan calls for three to five companies to be appointed as LSCs following a bid process to prevent overflow in the residual market. Each LSC will process approximately $50 million to $60 million of ceded business, which backers say should provide increased efficiencies and reduce the costs of servicing the facility business.
The plan calls for all agents to be assigned to one of the LSCs for the processing of ceded policies. LSCs will service all classes of ceded business, and will provide only the minimum required coverages for ceded risks.
Opponents of the plan, including Arbella and Commerce, warned that it would lead to major market disruption, with as much as 50 perent of the commercial residual market business having to change carriers as a result.
Meanwhile, deliberations on changes the the state’s private passenger auto residual market plan are continuing.