Mass. Ruling Gives New Hope to Advocates of Auto Assigned Risk Plan

By | April 20, 2007

Whether Massachusetts will implement an assigned risk plan for its private passenger auto market was considered a dead issue when in January the incoming Patrick administration suspended rules to create one, but now the administration has signaled that the idea may not be dead after all.

Insurance Commissioner Nonnie Burnes, who took office in February, ruled yesterday that a final decision on an assigned risk plan would come after she sees some changes to one of the proposed assigned risk plan rules that affects good drivers who might be rejected by private insurers.

Burnes told Commonwealth Auto Reinsurers, which runs the high risk system, to get back to her within 30 days with amendments to the so-called “clean-in-three” provision, which she indicated is the biggest obstacle to moving ahead with the MAIP.

“[W]e find that were an assigned risk plan to be implemented in our residual market at some point in time, additional amendments would
be required to the current “clean-in-three” provision. Therefore, we find that the MAIP rules, as they pertain to the “clean-in-three” provision only, need further amendment,” the decisiom states.

After she receives those amendments, Burnes said she would rule on whether the proposed Massachusetts Assigned Insurance Plan should be implemented in its entirety.

The ruling gives some hope to proponents of the MAIP.

The decision to “direct CAR to improve the ‘clean-in-three’ portion of the assigned risk regulations leaves open the possibility that she will ultimately decide to replace the current inequitable residual market system in Massachusetts with an assigned risk plan,” said John Murphy, American Insurance Association vice president for the Northeast.

The ruling caught the industry off-guard.

“It was a surprise but a pleasant surprise,” said Frank O’Brien, regional vice president for the Property Casualty Insurers of America.

Daniel Foley, Jr. agreed, calling it “somewhat of a surprise.” Foley is vice president of government affairs for the Massachusetts Association of Insurance Agents, which opposes the MAIP and cites the “clean-in-three” provision as one of the reasons it does.

This provision seeks to keep drivers with clean driving and claims records within the past three years who cannot obtain insurance from an insurer in the voluntary market from being forced into the assigned risk plan.

In a key Supreme Judicial Court decision last year upholding the commissioner’s authority to implement the MAIP, the “clean-in-three” provision was the only feature that did not win court approval. The court remanded that rule to then-Commissioner Julianne Bowler for amending.

Since then, the rule has been amended but agents and others are still uncomfortable with it. In its latest version, insurers would be required to share with all other insurers the names of “clean-in-three” drivers they do not want to insure, in hopes other insurers may pick them up and an assigned risk placement could be avoided.

But MAIA and agents have criticized that method. Agents argued that it would violate their rights to control policy expirations and would interfere with the business relationships they have with these customers. In her ruling, Burnes appeared to raise some doubt about these rights claimed by agents, referring to agents’ “alleged rights to control policy expirations.”

Agents have also complained that this practice could harm consumers’ rights to select their own agents.

Others have criticized the information-sharing rule as potentially violating consumers’ privacy rights.

Gov. Patrick’s own Automobile Insurance Study Group report released last month recommended that if an assigned risk plan is adopted, it should contain safeguards to control the size of the residual market, including a requirement that companies write and renew “clean-in-three” drivers until they no longer meet the criterion.

Attorney General Martha Coakley has also recommended requiring insurers to write these clean risk under a modified “take all comers” requirement.

Whether the “clean-in-three” is fixable to Burnes’ liking remains to be seen. MAIA’s Foley would not predict what happens next. Neither would PCI’s O’Brien venture to say what Burnes, who he said has given “no hint” of her thinking on the issue, might do after she receives amendments to the rule. “This administration has been confounding,” he commented.

AIA’s Murphy certainly hopes it can be fixed. “The assigned risk plan has been studied for years, with improvements in ‘clean in three’ it should be implemented,” he said. “The current system is unfair and benefits some insurers over others.”

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