Commerce Insurance Claims It Fears Liability, Not Competition, If Mass. Auto Changes Adopted

August 26, 2004

The leading writer of auto insurance in Massachusetts says it opposes the changes to the state’s residual market not because it fears competition or dislikes the assigned risk plan concept but because it fears liability exposure from the way the changes are being handled.

Commerce Insurance Co. says it is worried about lawsuits over conflicts with existing consumer protections laws if those statutes are not addressed before the new residual market, the Massachusetts Assigned Insurance Plan (MAIP) is implemented by regulation.

Commsissioner Julianne Bowler is expected to approve a version of the plan soon.

“All we are asking is not to create a liability exposure for companies,” James A. Ermilio, Commerce senior vice president and general counsel, told Insurance Journal. “Our real concern is the potential violation of consumer protections.”

As laws potentially in conflict, Commerce has cited the state’s “take-all-comers” law, a law banning disparate treatment of agents, and another preventing disproportionate representation of certain territories or classifications in the residual market system.

The attorney general and a coalition of insurers have largely dismissed Commerce’s concerns, although the attorney general has recommended late changes to the MAIP to assure it conforms with laws on underwriting.

As for costs of the MAIP, Commerce said its costs would rise $3.6 million in the first phase’s 18 months of implementation, assuming the plant is implemented retroactive to July 1, 2004 substantially as submitted. Ermilio suggested that this is not a big concern for a company that reported $88.4 million in net earnings for the first six months of the year. The company said it would incur additional expense for the final six months of 2004 of $2.4 million, and in 2005 of $1.2 million.

That $88.4 million in first half earnings was a slight improvement over last year’s $84.4. However, the company did see its second quarter net earnings drop more than 50 percent to $ $37.4 million.

Ermilio scoffs at the notion that Commerce dreads an assigned risk plan, noting that the company is very familiar with how they operate as it already uses similar systems in California and the Midwest states where it writes.

Commerce also disputes complaints about a gap between its market share and its share of high risks. He says its residual market participation ratio is in line with its market share: a 28.6 percent market share matched against a 24.o percent participation ratio. Ermilio maintains there are companies with larger gaps.

For mroe on the Mass. auto changes, see the Aug. 23, 2004 edition of Insurance Journal east.

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