A plan to redistribute residual market auto insurance policies among insurance carriers and agents in Massachusetts has been approved by state officials.
The final plan for Commonwealth Auto Reinsurers will require that about 133 exclusive representative producers, who are agents writing auto coverage only with CAR, be switched to a different carrier. The switch will affect about 171,000 vehicles, or about 15 percent of CAR’s business.
The reassignments are to begin on March 1, 2006 for all new business and May 1, 2006 for all renewal business.
On Sept. 30, 2005, Insurance Commissioner Julianne Bowler approved changes to CAR’s rules designed to more equitably assign ERPs and distribute business among carriers. That order followed years of reports and complaints indicating that the financial burdens and high losses of the residual market under the current system were not shared equitably among carriers. Assignments that have been based on insurers’ market share have resulted in some carriers being saddled with ERPs with very high loss ratios while other carriers get ERPs with lower ratios.
However, at the same time that she ordered a new assignment policy, Bowler determined that CAR should also undertake a one-time redistribution to correct for years of imbalance in assignments and losses. On Nov. 16, CAR presented a redistribution strategy. However, Bowler then asked the organization to more fully explain its methodology and also consider suggestions raised by several insurers.
The new redistribution takes loss ratios into consideration so that the loss ratios of the ERPs assigned to carriers will fall within 0.75 percent, plus or minus, of each other. The loss ratio range by company will run from 89.1 percent to 90.2 percent.
Plymouth Rock Assurance Corp. had argued for slightly more flexible loss ratio guidelines, which would have in turn meant switching fewer ERPs and policyholders.
Norfolk and Dedham Mutual and the trade group, the Independent Property and Casualty Insurers of Massachusetts, urged Bowler to require that CAR revisit its assignments periodically to assure an equitable situation in future years.
OneBeacon argued that using loss ratios was not a true indicator of an ERP’s value and doing so would just lead to another inequitable distribution system.
However, Bowler sided with CAR’s original plan and decided at this time against requiring an ongoing review.
In the end, most industry interests backed the plan, including the Massachusetts Association of Insurance Agents and the Independent Property Casualty Insurers of Massachusetts. Several ERPs opposed it.
Bowler and the Romney Administration have actually been pressing to scrap the whole ERP system as it is now constructed and replace it with an assigned risk plan. But her order instructing CAR to implement an assigned risk plan has been held up in court. Commerce Insurance Co. challenged her authority to order an ARP by regulation and won the first round in Suffolk Superior Court. Bowler has appealed that ruling to the Supreme Judicial Court, which is scheduled to hear the matter the week of March 6.
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