Last-minute year-end legislation signed by Governor Baker on December 28, 2015, will protect the discounts resulting from membership in approved statutory group marketing plans that can provide group members discounted auto insurance and homeowners insurance for another two years until 2018.
The Massachusetts statute involved in the interim legislation, G.L. c. 175, §193R, allows insurance companies to give discounts to approved groups for automobile and homeowners insurance if the group meets certain statutory requirements.
The law as written requires a 35% penetration requirement for groups after two years
The group statute, §193R, allows any employer, trade union, association or organization to offer to its employees or members on a group basis automobile insurance and homeowners insurance. The initial requirement is simply that the employer, trade-in, association or organization “has…in any way affiliated itself with, assisted, encouraged or participated in the sale of such insurance to its employees or members through a payroll deduction plan or otherwise.”
After the initial requirement has been met, the statute, however, has a more onerous requirement:
…that at least thirty-five percent [of the group’s total employee’s or members] are insured within two years of the effective date of the plan, such percentage to continue so insured at all times thereafter…”
Without the Legislature’s last-minute stay, insurers could not give group discounts after December 31, 2015
The failure of the Legislature to suspend the application of 35 % rule to group insurance marketing plans would have resulted in carriers that offered discounted insurance to groups that had less than 35% participation having to cease offering such discounts. This discount loss for groups that could not satisfy the 35% rule would have affected approximately 320,000 insured vehicles and 142,000 insured homes eventually.
The following graphs from the Division of Insurance show the effect by type of group marketing plans sponsors for auto insurance group marketing plans and for homeowners insurance group marketing plans.
The new waiver of the 35% rule affects most of the approximately 5500 group marketing plans in effect
At the beginning of 2015, Massachusetts had almost 3500 approved group marketing plans for automobile insurance and just under 2000 approved group marketing plans for homeowners insurance. Insurers offer insureds purchasing through approved group marketing plans discounts from 1.0% to 20.0% depending on the group’s composition.
However, as of January 1, 2016, only five percent of the homeowner insurance group marketing plans and eleven percent of the automobile insurance group marketing plans would have complied with the statutory requirement of 35% member or employee participation after two years.
The primary purpose of this participation requirement is to ensure that a group marketing plan’s premium credits have a reasonable relationship to marketing expense savings generated by offering insurance to a relatively homogeneous group of insureds. Additionally, the 35% penetration rule was designed to avoid carriers unfairly competing by using pseudo-groups to arbitrarily reduce premiums for specific members of the general insurance buying public.
The following chart from the Division of Insurance shows the history of the plan numbers over since 2006.
The law extended compliance with statutory requirement that 35% of a group has insurance in group within two years
The Act, St. 2015, c. 164, effective January 1, 2016, provided that:
- Notwithstanding any general or special law to the contrary,
- any group marketing plan in effect during calendar years 2015 to 2017
- could be approved for renewal by the Division of Insurance
- even if less than 35 per cent of group sponsors’ employees or members are insured by the group.
Whirlwind approval of two-year extension
The original bill filed with the Legislature in January 2015 titled an “Act to preserve the competitiveness of group auto insurance plans” had a simple remedy to the problem caused by the 35% penetration requirement for group automobile and homeowners insurance plans. This bill proposed to amend the group statute by amending it striking out the words “and that at least thirty-five percent are insured within two years of the effective date of the plan, such percentage to continue so insured at all times thereafter”.
This bill languished in committee until late December. On December 28, the House Ways and Means Committee reported the bill out favorably with the recommendation that it “ought to pass with an amendment, substituting therefor a bill with the same title”. The substituted bill removed the repeal of the 35% rule and just continued the waiver of the 35% rule for an additional two years.
On the same day the House and the Senate took ten procedural steps that usually take days, if not weeks, rushing the final bill to enactment and laying it on the Governor’s desk. The Governor with equal alacrity signed the extension into law the next day, December 29, 2015.
No resolution of the need for yet another extension of the 35% participation rule
As a result of the late session amendment of the original bill, substituting the Legislature effectively took no action to resolve the 35% issue. Instead by tacking on an additional two-year waiver, the solons simply deferred into its 20th year (1997 to 2017) taking any action to ensure that group marketing discounts continue.
Unless some definitive action is taken before December 2017, insurance carriers as well as the group sponsors still run the risk, slight though it may be, that the discounts could disappear for most, if not all, the groups approved by the Division of Insurance under G.L. c. 175, §193R.