The CAR Governing Committee at its February 25, 2015, unanimously voted to increase the monthly installment billing fee for each payment from $6.00 to $8.00. The Committee also approved charging assigned risk $29 for any installment’s late payment and the same amount for any payment checks from assigned risks that are returned by a bank.
The Committee voted to implement the new higher charges for MAIP policies effective on or after August 1, 2015, and instructed CAR staff to prepare the appropriate modifications to MAIP Rule 28 of CAR’s Rules of Operation for Governing Committee consideration.
Increase followed survey by CAR staff
At its July 2014 meeting, the Committee’s consensus was that modifications to the installment plan, the late payment and dishonored check fees may be appropriate to better align the fees with the expenses of managing residual market business. The Committee had requested CAR staff to survey existing plans to determine processing costs and the appropriateness of the proposed changes consistent with the principle that the MAIP billing fees should not be competitive with the voluntary market.
CAR staff surveyed companies representing approximately 80% of MAIP assignments to estimate expenses and processing costs. Based on the expense data of those companies participating in the study and transaction volume statistically reported staff concluded and recommend increasing installment fees from $6 to $8, the late payment fee from $25 to $29, and the dishonored check fee from $25 to $29.
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 approved August 1, 2015 installment billing fees and charges|
|Item||Present charge||Proposed charge||% difference|
|Monthly installment fee||$6.00||$8.00||+33%|
|Dishonored check fee||$25.00||$29.00||+16%|
|Late payment or cancellation fee||$25.00||$29.00||+16%|
The CAR enabling statute requires CAR to establish guidelines for installment billing
The enabling statute for the MAIP, G.L. c. 175, § 113H, 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 to what the CAR guidelines should contain. When the MAIP began, the CAR guidelines 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.
In 2014, 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.
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 month period before their making a MAIP 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|
|CAR’s new fees schedule||Premium finance legal maximums|
|Monthly Service or Interest Charge||$8.00||$8.72|
|Dishonored check fee||$29.00||$10.00|
|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 increase in late payment and dishonored checks fees may make the comparison with premium financing more favorable to premium financing for more MAIP applicants than presently.