Massachusetts Agents Score Policy Ownership Victory

By | August 6, 2010

Massachusetts insurance agents scored a victory this week as the state’s governor signed a new law allowing them to keep their rights to clients’ expiring auto policies — a move sought by agents since the state’s insurance system was deregulated two years ago.

The change means agents maintain their status as producers of record for residual market policies, a move that prevents an insurer from taking ownership rights on policies if the insurer offers voluntary coverage.

It was one of two major changes to the state’s auto insurance system signed into law by Gov. Deval Patrick. The other: Massachusetts has ended its controversial practice of allowing new auto insurers to avoid participating in the state’s residual market.

That two-year rule, also known as Rule 30, was enacted in 2008 when the state deregulated its auto insurance system and replaced it with a system of “managed competition.”

Both rules had been a bone of contention between long-time insurers and agents in the state, which unsuccessfully sued to overturn them

Regulators created the two-year exemption partly to entice new insurers to begin writing policies in the state. At the time, then-Commissioner Nonnie Burnes said the rule brought Massachusetts in line with the 40 other states that operate residual markets — markets of last resort for high-risk drivers who cannot obtain coverage in the voluntary market.

Insurers in the state, including Arbella, Plymouth Rock and Encompass, argued that the rule would unfairly force them to shoulder a disproportionately large number of high-risk drivers — an argument Burnes dismissed as “naïve.”

In a high-profile, unsuccessful lawsuit, Arbella and the Massachusetts Association of Insurance Agents sued the state to overturn the exemption and to allow agents to keep ownership rights to policies. The state’s highest court rebuffed both attempts earlier this year.

The law change goes into effect Jan. 1, meaning any insurer that enters the market between now and the end of the year will remain exempt. Insurers that are operating under that exemption currently will continue to do so.

Eleven new insurers have entered the state since 2008, including three of the industry’s largest — Geico, Allstate and Progressive, direct writers with marketing budgets that have been a concern for the state’s competing independent agents.

“This legislation continues to move us forward as we create a marketplace that always aims to put the customer first,” Gov. Patrick said.

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