Associations Tell Mass. Commissioner to Let Competition Determine Auto Premiums

June 4, 2003

Private passenger auto insurance premiums should be determined competitively and the Massachusetts Division of Insurance should move toward that goal carefully, but expeditiously, wrote the National Association of Mutual Insurance Companies (NAMIC) and several other insurance trade associations in a joint statement to Commissioner of Insurance, Julieanne Bowler.

The associations’ member companies account for 85 percent of the servicing carriers for the residual market and approximately 60 percent of the writings in the Massachusetts private passenger auto insurance market noted the groups, whose letter supplemented testimony presented by each association at a recent hearing to determine whether 2004 private passenger auto insurance rates should be fixed and established or whether there should be a return to some form of competition.

“A competitive auto insurance market will best serve the interests of Massachusetts consumers and will allow significantly more choice-in price, product and carrier,” according to the associations’ statement. “As was indicated at the hearing, there is sufficient competition based on a recognized measure of competitive activity to allow for the adoption of more free market pricing rate regulation than exists under the currently imposed ‘fix and establish’ state
made rating.

“The move to a competitive system must be preceded by fundamental reform of the current residual market mechanism, Commonwealth Automobile Reinsurers (CAR). Prompt reform of CAR is essential. It is the most important step in restoring sound competition. Reforming CAR is also essential because the way it operates in the current system is unfair and inequitable to the overwhelming majority of the small number of carriers still doing business here.

“We applaud the Commissioner and her staff for taking the first steps towards understanding and addressing the problems with CAR. The Division must aggressively and promptly complete that effort and develop a package of comprehensive reforms. Those reforms must
(1) more fairly distribute the residual market burdens than currently occurs, and (2) tailor the residual market mechanism so it works to facilitate a competitive market.

“While the Division proceeds with the reforming CAR, we urge the Commissioner also to take an initial step towards the reintroduction of competition by any one or more of the following actions as part of the 2004 private passenger auto insurance rate-making process:

·Permit the filing and pricing by insurers of optional endorsements.
·Allow insurers flexibility, within narrow parameters, to vary premium charges for expenses.
·Allow companies to competitively price optional coverages.

“We believe that the combination of implementing significant CAR reforms together with one or more of the steps outlined above to give consumers more product and pricing options for 2004 will begin the process of stabilizing a distressed market and of restoring confidence. The reintroduction of broader competition after those steps will encourage other companies to enter the market,” the statement concluded.

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