Reform, Not Scare Tactics, Needed for Mass. Auto

Over the last month or so there has been a great deal of concern expressed in the Massachusetts agent community regarding the proposed Assigned Risk Plan for private passenger residual market automobile insurance. The implementation of the ARP, to be known as the Massachusetts Automobile Insurance Plan (MAIP), is currently “stayed” under a court order. This recent concern regarding the ARP has been generated by communications from two companies, Commerce and Arbella, to their agency forces. Unfortunately, these communications seem designed to scare agents into opposing reform, by claiming everything from loss of agency value to jeopardizing agency market share to loss of renewal rights and a great deal more.

Curious timing
The timing of the communications from Arbella and Commerce is curious. At this time neither the Division of Insurance nor the Legislature has proposals before them regarding the ARP. Commerce told its agents that MAIA is involved in a “grassroots effort” to influence legislation to support the MAIP. This statement is false. MAIA is not currently nor have we been involved in any legislative effort in support of the MAIP. The ARP matter is in the courts. The courts will decide the principal claim in the lawsuit, i.e., whether Massachusetts law prohibits the Commissioner from implementing an ARP.

Let’s review MAIA’s reasons for supporting changes to the residual market system.

In 1989 there were 61 companies writing private passenger automobile insurance in the state. Two-thirds of those companies have left the state, leaving only 19 companies today; only 12 use independent agents. And 55 percent of agencies in Massachusetts represent only one company for auto insurance. The structure of the residual market is cited as the most significant roadblock to market entry and the most common reason for exit.

With the limited number of companies comes a limited amount of capital committed to private passenger auto insurance and other lines of insurance, such as homeowners. Each time a company decides to abandon the automobile market, it puts pressure on the remaining capital in the marketplace. If a significant writer of auto insurance decided to exit tomorrow, would there be sufficient capital to keep the system stable?

Companies, regulators and government officials have cited the inequitable distribution of residual market risks and losses as a key component of this marketplace’s unhealthy condition. A residual market for any line should provide equal access for all agencies. Massachusetts’ residual market does not provide such equal access. An ARP will.

The structure and procedures of the ARP have evolved over the last 18 months. Does MAIA fully support the structure and procedures of the ARP as currently proposed by the Commissioner? The answer is no. Commerce and Arbella were in receipt of a list of MAIA’s concerns prior to their communications with their agents. Many of the Commerce and Arbella concerns are shared by MAIA. Commerce and Arbella know this, but chose not to share this with their agents.

The order being challenged in the courts was issued by Commissioner Julianne Bowler on December 31, 2004. In early January 2005, Commerce Insurance filed suit. The principal claim of Commerce is that Massachusetts law prohibits the Commissioner from creating an ARP and requires that she maintain the current Commonwealth Auto Reinsurers (CAR ) reinsurance plan. A hearing on the case was held on May 2.

The issue before the court is whether the Commissioner has the authority under Massachusetts law to implement an ARP. The court will not be ruling on specific provisions of the ARP.

Preserve consumer choice
MAIA has identified a number of concerns about the operation of the ARP. For one, MAIA has indicated that the MAIP must include a provision designed to maintain agency relationships with clients, protect renewals and preserve the client’s ability to select an agency. This provision states the following: “To preserve consumer choice of producer, any applicant or existing MAIP risk should have the option of having coverage placed or retained in MAIP in order to maintain that producer/client relationship.”

The Commissioner directed CAR to work with the industry to address MAIA’s and others’ concerns. These efforts were halted in February when the Superior Court issued a “stay” of the implementation of the ARP.

If the court eventually rules that the Commissioner has the authority to implement MAIP, it will be the responsibility of MAIA, CAR, Commerce, Arbella and the other carriers to work with the Division of Insurance to address the concerns we all share about the ARP. If the court rules the Commissioner does not have the authority, we will have to begin a new reform effort.

MAIA hopes that agents can count on the support of all independent agency companies to make the transition to an ARP as smooth as possible for agencies and consumers should the court find in favor of the Commissioner.

Mancini is president and chief executive officer of the Massachusetts Association of Insurance Agents. He can be reached at fmancini@massagent.com