Mass. Streamlines and Equalizes Agents’ Access to CAR’s Commercial Auto High Risk Operation

The Massachusetts auto insurance industry is streamlining the way it 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.

Under yesterday’s vote of the governing committee of the residual market organization, Commonwealth Auto Reinsurers (CAR), the new limited servicing carrier program will be in effect for ceded commercial policies effective January 1, 2006, a year later than proponents originally had hoped.

CAR’s commercial automobile committee will develop the modifications to the rules of operation necessary for the program’s implementation to for approval at the governing committee’s June 16, 2004 meeting.

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 proposal, which was drafted by Michael DeConti of Travelers Property Casualty, calls for three to five CAR-selected companies to be appointed as LSCs 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.

If an agent cannot write a certain client with his or her existing carriers there would always be a company that would take that client, and there would be no limitations on how many of the agent’s clients could go there, under the plan.

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.

Another important tenet of the plan is that prior to being ceded, some proof of attempted access of the voluntary market must be presented. Three declinations certified by the agent may suffice.

The distribution of ceded business through all agents to the LSCs will be as equitable as possible and the appointment terms determined by the commercial auto committee may be staggered initially and may be from 3 to 5 years in length, according to the plan.

In other news out of CAR’s, it was learned that a market need analysis identified the city of Lowell as the only community eligible for newly emerging ERP appointments for the quarter beginning April 1, 2004. Based on the results, Lowell has the capacity for two additional ERP appointments, according tot he analysis.

CAR also announced it would present two cost containment seminars featuring leaders from the legal, medical and law enforcement communities who will speak on the following topical issues: City of Lawrence Fraud Initiatives; Medical Fraud; Defending PIP Class Action Suits; and SIU Denials. The seminars will be held on May 12 at Lantana in Randolph and May 18, at the Wyndham Hotel in Westboro.