The MAIP Steering Committee at its latest meeting on May 20, 2014, considered introducing a policy fee of $25, increasing the monthly service fee for installment billing from $6.00 to $8.00, and charging $30 for returned checks from assigned risks.
Proposed increases for installment billing on MAIP policies
CAR staff presented their findings and a draft revision to the Rule of Operation to the MAIP Steering Committee at its May 20, 2014 meeting.
The notice for the May 20 MAIP Steering Committee included the possible fee increases as part of a revised CAR Rule 28(C)(2), (3), (5) and (6).
3. Dishonored Check Charge
A dishonored check fee of [$25] $30 will be charged to an applicant or policyholder issuing a check that is dishonored by the financial institution to which the check is presented for payment.
Policy fee and financial responsibility filing fee proposed
The proposed revisions to Rule 28 considered at the MAIP Steering Committee meeting contained two proposed additions that would introduce a $25 policy fee on all MAIP policies and also would add a $25 for SR-22 issuances.
The proposed rule changes would be added to CAR Rule 28(C) as sections 5 and 6.
5. Financial Responsibility Filings
A $25 fee will be charged to an applicant or policyholder for whom the ARC has issued a financial responsibility filing (SR-22).
6. Policy Fee
A $25 fee will be charged for new and renewal business to cover the operational and transactional costs associated with policy issuance.
Breakdown of present and proposed charges
The following chart shows the breakdown between the present installment billing and fees in comparison with the proposed increased installment billing charges and the new fees.
|Present and proposed CAR fees for policies and installment billing|
|Item||Present charge||Proposed charge||% difference|
|Monthly installment fee||$6.00||$8.00||+33%|
|Dishonored check fee||$25.00||$30.00||+20%|
|Late payment or cancellation fee||$25.00||$25.00||0|
|SR-22 Financial Responsibility||0||$25.00||New fee|
|Policy Fee||0||$25.00||New fee|
The CAR enabling statute requires CAR to establish guidelines for installment billing
The enabling statute for the MAIP, G.L. c. 175, § 113H, Reinsurers requires that assigned risk carriers provide installment billing. But this statute only states:
The plan [MAIP] shall include guidelines for installment payment plans to be provided by servicing carriers.
The statute is silent as what the CAR guidelines should contain. When the MAIP began, the CAR guideline simply required that servicing carriers use the installment billing plans that they had on file with the division of insurance. Subsequently, CAR introduced its own installment plan with nine payments, a $6 dollar service charge per payment and the $25 fee for late payments, cancellations and returned checks.
Before the May 20 MAIP Steering Committee meeting CAR staff conducted a survey of the terms and conditions allowed by the division of insurance to carriers in the voluntary market. This survey found that the maximum payments allowed by the division of insurance under the statutory filings for installment billing on auto insurance, G.L. c. 175, § 193B, were higher than those for the MAIP’s installment billing plan.
The proposed increases presented to the MAIP Steering Committee would include all the allowable fees and charges found in the voluntary market.
CAR staff to gather more information on proposed fees and on electronic signatures
The MAIP Steering Committee took no vote on the proposed amendments to CAR’s installment billing plan. The committee instead “agreed that further discussion will be required and requested that staff prepare additional information to assist in the determination of this issue.”
The committee requested CAR staff identify: documentation that may be required to support increases to existing fees and the introduction of new fees; a rate comparison between MAIP and those companies charging SR-22 and policy fees; an explanation on any impacts to the MAIP rate filing; demographics on MAIP business by merit rating status; information on fees from other assigned risk plans; and summary information on the 34 companies CAR staff reviewed with regard to fees and charges.
At the same meeting the Committee also considered a request received by CAR staff that the committee discuss as to the acceptability of using an electronic signature on a MAIP policy. The Committee decided to have CAR staff to “solicit input from companies to determine current usage of this feature in both the assigned risk and voluntary markets.”
For some assigned risks premium financing may be cheaper in the long run
CAR’s installment billing plan does not apply to all applicants under the MAIP. Under CAR Rule 28(C)(1)(a), any applicants who been cancelled for nonpayment of premium within the 24 months before their application must pay the premium in full. Many of these assigned risk applicants finance their premiums with premium finance companies, such as Thrifty Financial Services, that specialize in financing MAIP policies for assigned risks with cancellation histories.
In Massachusetts, a statutory board regulates insurance premium finance rates for consumers. The regulations, 955 CMR 2.00, allow premium finance companies to charge up to 18% interest and an administrative fee of $16.00, but limit the additional fees that insureds have to pay.
|Comparison of CAR proposed installment billing fees to premium financing Maximums|
|Assuming CAR plan of 9 installments and $1,000 balance financed|
|Fees proposed by CAR||Premium finance legal maximums|
|Monthly Service or Interest Charge||$8.00||$8.72|
|Dishonored check fee||$30.00||$10.00|
|Late or cancellation fee||$25.00||$5.00|
|Annual Percentage Rate||n/a||18.6%|
Many of the assigned risks have costs that accrue because they unfortunately have poor payment histories. The MAIP’s proposed increase in late payment and dishonored checks fees, if approved, may make the comparison with premium financing more favorable to premium financing for more MAIP applicants than presently.