Mass. Commissioner Orders High Risk Pool Changes Within 30 Days; Governor Names Reform Task Force

Just hours after Massachusetts Insurance Commissioner Julianne Bowler formally called upon the industry to come up with a plan to change the way private passenger auto high risks are handled, officials of Commonwealth Auto Reinsurers (CAR), the organization that oversees the high risk market, called a special meeting for May 6 to get started.

Bowler has given CAR 30 days to adopt rules to convert CAR to an assigned risk type plan. If CAR is unable or unwilling to change its rules, she said she would exercise her own authority to implement the changes she wants.

The commissioner directed that the transition be accomplished over three or four years to minimize disruption in the marketplace. A committee of 16 of the state’s 19 insurers, agents and public officials, including representatives of Bowler’s division and Attorney General Tom Reilly’s office, has been working behind-the-scenes for months on such a plan and has already developed a timetable that mirrors Bowler’s request, as reported by Insurance Journal on April 21.

“A healthy private passenger automobile market depends on rules that distribute high risk losses in a fair and equitable manner. My conclusion is that the only system that will efficiently, fairly and equitably distribute losses is an assigned insurance system that assigns individual policies to carriers based upon market share at the point that they are denied coverage by a carrier,” Bowler wrote to CAR. “Such an assigned insurance plan is in place in the vast majority of other states and works to establish an efficient, fair and equitable distribution of high risk losses.”

Bowler’s directive for swift action was revealed during a press conference during which Gov. Mitt Romney called for additional reforms to encourage competition and named a bipartisan task force to draw up more long-term proposals for change. He said he hopes to hear back from the task force by the end of the year.

“If any insurance system needs reform, it is this one,” said Romney, standing in front of an antique Stanley Steamer at the Museum of Transportation in Brookline’s Lars Andersen Park. He called the Massachusetts auto insurance system a “punitive” system that is riddled with fraud and that rewards bad drivers.

“It’s time to give our consumers more choice and the advantages that come with safe driving,” said Romney. “The goal of the task force is to form a consensus for a fair and smooth transition to a competitive marketplace.”

He also called the system “anemic,” citing the decline in the number of auto insurers from 53 in 1990 to only 19 today. He said he wants a system that will attract new capital and national insurance companies to the state. He named Progressive and State Farm as two companies that write elsewhere but not in Massachusetts that have told him they might come into to the state if the system is changed.

He quoted one resident insurer as telling him that it was considering leaving the state because “it’s easier to do business in Venezuela than here.”

Romney asked the task force to focus on eliminating rate subsidies now paid by good and experienced drivers to support bad and inexperienced drivers, subsidies which a recent study by Tillinghast Towers Perrin shows are considerably higher than in other states and which contribute to insurers’ reluctance to write business here.

Romney stopped short, however, of supporting elimination of a 25 percent discount given senior citizens and said he would not support erasing the subsidies that rural and suburban communities pay to cover the costs of some urban territories including Boston.

Bowler and Romney cited the Tillinghast (see Insurance Journal, April 28) report that compares the Massachusetts system of rate setting, subsidies and high risks with systems in other states.

In Massachusetts, high risks are now assigned in blocks of business to carriers, rather than assigned individually as in assigned risk plans operating in many other states. The Massachusetts method ends up penalizing some carriers over others since some carriers get blocks of business with high loss rations while other get blocks with low loss ratios, the Tillinghast report claims.

“This unfair distribution of losses has created an inequitable distribution of residual market risk that has been a significant factor to existing carriers exiting and new carriers declining to enter the market,” Bowler told CAR officials in here letter.

Two consumer groups strongly objected to the switch to an assigned risk plan.

Stephen D’Amato, executive director for the Center for Insurance Research, claimed that the state “abandoned an assigned risk plan in the 19070s, eliminating unfair discrimination in auto insurance. Returning to this would be a huge step backwards for consumers.”

D’Amato and Deirdre Cummings, of MASSPIRG, said reformers should instead focus on reducing the state’s highest-in-the-nation accident rate.

“If we don’t address the underlying system costs, our rates will never come down,” said Cummings.

In addition to Bowler, the members of the Romney auto reform task force are Senator and Assistant Majority Leader Marian Walsh, Representative and House Insurance Committee Chairman Ronald Mariano, Chief of the Attorney General’s Public Protection Bureau Alice Moore, Secretary of Economic Development Ranch Kimball, and Consumer Affairs Director Beth Lindstrom.

The industry generally applauded the moves by Bowler and Romney.

“We have been working closely with all parties leading up to today’s
announcement and our members strongly support the reform efforts that have been proposed. We look forward to working with the task force and the administration in an effort to develop and implement these changes according to the aggressive timetable that has been established,” said Frank O’Brien, vice president and New England regional manager for the Property Casualty Insurers Association of America (PCI).

The Massachusetts Insurance Federation, whose nine insurers write 43 percent of the private passenger automobile insurance, also hailed the announcements.

“Every Federation auto writer is 100 percent in support of the Governor’s focus on restoring health to the auto insurance market. Both the immediate recommended revisions to CAR aimed at a fair distribution of insurer losses generated by the state’s high risk drivers and the creation of a task force charged with moving toward competition, reviewing the benefits of no-fault, aggressively pursuing fraud and eliminating the subsidizes good drivers pay for bad are together essential to the achievement of increasing desperately needed capital to the state’s personal lines market,” offered James T. Harrington, executive director.