Mass. High Risk Plan Passes Key Vote; Insurers Expected to Begin Offering Agents Contracts

May 24, 2004

A plan to convert the state’s high risk auto reinsurance facility in Massachusetts to an assigned risk plan (ARP) was approved by the industry officials running the current plan at a special meeting on March 20.

One quick result could be a rush of insurance companies offering hundreds of agents now without private carrier contracts for auto, involuntary agents known as exclusive representative producers (ERPs), the opportunity to sign new voluntary market contracts with insurers for their private passenger auto business.

On May 20, the governing committee of Commonwealth Auto Reinsurers (CAR) voted without objection to accept reports from CAR’s actuarial and claims committees on how the conversion will work. The committees must still write up actual rules to implement the changes but many of these are expected to be approved at CAR’s next meeting on May 27. However, CAR officials said they might ask Bowler for an extension of the deadline for another 30 days to complete all of the rules necessary.

The ARP plan has been pushed by Governor Mitt Romney and Commissioner Julianne Bowler and supported by a consensus of agents and insurance company leaders in the state. Last month Bowler gave CAR an ultimatum that it come up with rules to convert to an ARP or she would write the rules herself.

Officials have been searching for ways to reform the state’s private passenger auto system to encourage more competition and attract more insurers. Changing the way CAR operates has been a priority.

CAR responded to Bowler’s ultimatum with two special meetings — May 6 and May 20 — and behind-the-scenes work by its various committees. CAR’s actions have all been “consistent” with the reforms sought by Bowler and an industry consensus, according to James Harrington of the Massachusetts Insurance Federation, a trade group for a number of the state’s insurance companies.

The state’s independent agents praised the actions by CAR.

“This is good progress. The CAR governing committee is taking the right steps,” said Frank Mancini, executive vice president, Massachusetts Association of Insurance Agents.

Mancini sees the reform as an opportunity for many ERPs to obtain better markets.

Early next month, CAR is set to release the loss ratios of ERPs and insurers are expected to seek out those with the better loss ratios for voluntary contracts. Under the previous rules, insurers had no incentives for signing up ERPs with good loss rations but the new ARP system changes that.

Mancini, said he expects “hundreds” of ERPs will be offered the opportunity to sign voluntary contracts with companies. There are more than 700 ERPs across the state.

CAR President Ralph A. Iannaco said draft rules for 2004 and 2005 operations of the ARP should be ready for members’ review by early this week, in time for the May 27 governing committee meeting.

If approved as expected, they would be submitted to Bowler before her 30 day deadline. CAR has asked for an additional 30 days to develop rules to govern operations after 2005.

Iannaco said insurers are being kept informed about what is happening and he believes they are “all preparing their own strategies” on how to respond to the changes. “I’m sure there will be some movement,” he added.

Chris Goetcheus, spokesman for Bowler, said the commisoner is “quite pleased” with the progress that CAR appears to be making, although he added that the Division of Insurance has not yet received any final rules or requests for an extension from CAR.

“The commissioner will determine what to do and what if any extension to grant after she sees what CAR submits,” he said.

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