New Mass. Auto Plan On Way to Commissioner; New Safe Driver Plan Questioned

June 29, 2004

The board that oversees the Massachusetts auto insurance high risk facility, Commonwealth Auto Reinsurers (CAR), voted 11-2 in favor of final rules to convert the plan to an assigned risk plan on June 29. The CAR governing board plans on forwarding the new rules to Commissioner Julianne Bowler on June 30, in keeping with her deadline, for her final approval.

The CAR approval came despite the warnings of the state’s largest auto insurer, Commerce Insurance Co., and a consumer advocate, Steven D’Amato, Center for Insurance Research, that changes will hurt consumers and that the process of adopting them has been too hurried and hidden from the public.

Commissioner Bowler has the option of first adopting the rules in an emergency fashion and holding a public hearing later. She could also have the Division of Insurance (DOI) hold a public hearing next month before deciding whether to accept them but some of the changes are supposed to begin July 1.

DOI Spokesman Chris Goetcheus said only that the Commissioner will review the rules when she receives them. If the rules achieve the goals set forth by the Commissioner in her original directive to CAR, she will likely hold a hearing, he added. Whether she will invoke emergency powers remains to be seen, however.

In opposing the changes, Commerce Senior Vice President James A. Ermilio testified that the changes would “raise premiums for all consumers;” lessen incentives to control fraud; eliminate individual company financial responsibility for high risks in the residual market; and make it easier for carriers to exit the marketplace.

He urged the committee not to act in haste. “What emergency exists to justify the Commissioner’s implementation of the proposed rules without first fully assessing the legal issues and giving the public the opportunity to voice its opinion?” he asked.

Commerce was joined by D’Amato of CIR who termed the proposal “anti-consumer’ and the process that resulted in their adoption “corrupted.”

D’Amato maintained that not only are consumers uninformed about the effects of the changes but that insurers themselves may be in for some surprises. “Once over a million drivers find themselves tossed out of the voluntary market and into the assigned risk plan, you’ll see dissent that makes the responses to last year’s credit scoring proposal in the homeowners’ insurance area seem very tame,” D’Amato warned. “And, for that matter, when drivers learn that insurers plan to use credit scoring as a tool for deciding who should be placed in the assigned risk plan, it is extremely likely that insurers will lose the ability they currently have to use credit scoring for underwriting purposes in automobile insurance.”

D’Amato suggested that his organization has uncovered a legal obstacle to final implementation of the rules but declined to reveal it at this meeting.

Commerce, which raised legal questions about the ERP rules, is also keeping its options open, according to Ermilio.

An industry coalition of 16 insurers that has backed the switch to the assigned risk plan submitted a legal analysis by Attorney Donald Hillman that refuted Commerce’s suggestions that the proposed changes conflict with state laws.

Attorney General Tom Reilly has also backed the reforms and said the Commissioner has the authority to make the changes without legislative action.

Meanwhile, in a separate hearing at the Division of Insurance, the state heard comments on a new safe driver insurance plan (SDIP) that has been proposed by the State Rating Bureau.

Susan Flanagan-Cahill, of the insurance division of Attorney General Tom Reilly’s office, and Dan Foley, vice president of government affairs for the Massachusetts Association of Insurance Agents, were among those testifying.

Cahill opposed the SRB proposal, criticizing it for not achieving its own goals of “increasing premium equity among drivers based on accident and violation history and providing explicit financial incentives for drivers to drive safely.”

In fact, Cahill charged, the SRB’s plan overcharges good drivers and reduces caps on rates for motorists in high-rated urban territories.

“The SDIP changes should not be adopted unless and until the Commissioner adopts capping and tempering provisions that maintain the current territorial rating balance,” she told the DOI hearing officer.

Foley said that MAIA supports the SRB proposal but offered several amendments. He offered suggestions for simplifying the calculation of surcharges; called for clarification of how bodily injury claims are to be included as surchargable incidents; and urged caution over the use of the inexperienced rating classification on additional vehicles.

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