On Wednesday, November 16, 2016, the Governing Committee of Commonwealth Automobile Reinsurers (CAR) will take up the recommendation of the Actuarial Committee to allow the placement of clean-in-three risks pursuant to Rule 21(D)(6) (hereafter, Rule 21D). The recommendation, approved at Acturial Committee’s November 3, 2016 meeting, would allow carriers to nonrenew any automobile insurance policies issued to clean-in-three risks on or after April 1, 2017 .
Rule implemented to avoid wholesale non-renewals at the start of “Managed Competition”
From the start of “Managed Competition” on April 1, 2008, CAR Rule 21D barred insurance carriers from refusing to renew policies for so-called, “clean-in-three” drivers. For those unfamiliar with the term, “clean-in-three” drivers were primarily those customers of former exclusive representative producers (ERPs). These drivers were drivers who had had no accidents or traffic violations in three years (five years for some major violations) and who had not had a lapse of coverage for more than sixty days.
The purpose of the rule was to prevent carriers from non-renewing drivers who had a clean driving record, but who might have other underwriting characteristics that could have resulted in them becoming assigned risks, thereby, artificially inflating the size of the new assigned risk pool.
Since April 1, 2008, the number of drivers protected by the clean-in-three rule has dropped dramatically. Initially, at the start of “Managed Competition”, over 174,000 drivers were classified as “clean-in-three” and protected by Rule 22D.
At the Actuarial Committee meeting on November 3, CAR staff advised that during the prior year, only 623 “clean-in-three” exposures were written through 12 remaining Assigned Risk Producers (ARPs) without a voluntary contract or brokerage agreement.
These “clean-in-three” exposures represented approximately 31% of the total exposures written through these producers. (By Agency Checklists’ calculations, these 12 ARPs would have a total of approximately 167 automobile policies in their agencies on average).
The above chart to the right illustrates the decline of clean-in-three risks since 2008. This decline is based upon risks losing their clean-in-three status by changing carriers, by being involved in at-fault accidents, traffic violations; or by their ARPs acquiring voluntary markets.
Rule has already received three one-year expiration reprieves from the Governing Committee
Originally, the Governing Committee had scheduled the provisions of Rule 21D for clean-in-three drivers whose insurance was placed through former ARPs who had no voluntary markets in 2014. The Actuarial Committee had in 2013, 2014 and 2015 recommended to the Governing Committee that the rule be extended for an additional year. In each year, Sumner Gilman, a member of the Governing Committee and an urban agent, had urged the Actuarial Committee to recommend extending the rule for the benefit of the remaining ERPs. See Agency Checklists’ December 3, 2013 article, “CAR Governing Committee Votes To Extend Clean-In-Three For Another Year.”
Under its latest iteration, Rule 21D, stipulated that no later than December 1st, 2016, “CAR shall confirm that the end date [April 1, 2017] should be ratified based on a review of current data relating to clean-in-three risks.”
In this case, the Actuarial Committee decided against any further extensions. It is now up to the Governing Committee to decide whether the rule should be granted a reprieve for another year.
Governing Committee member, Sumner Gilman, opposes clean-in-three rule termination
Mr. Sumner Gilman, of Economy Insurance, in Springfield, who sits on the Governing Committee has stated that he will argue against the Actuarial Committee’s decision at Wednesday’s Governing Committee meeting stating: “I think the Actuarial Committee has made a mistake. If they non-renew these risks they will effectively put these small agencies out of business.”
Mr. Gilman had again submitted a letter to the Actuarial Committee requesting a one-year extension to April, 2018, of the non-renewal restriction for clean-in-three risks for those producers without a voluntary outlet. In his letter, Mr. Gilman had pointed out the importance of the clean-in-three business of the 12 ARPs, since this business comprised a significant portion of their customer base.
Affected ARPs notified of Governing Committee meeting on allowing clean-in-three rule to expire
In approving the recommendation to the Governing Committee, the Actuarial Committee provided that that those ARPs currently without a voluntary contract would be notified of the Actuarial Committee’s proposal prior to the November 16, 2016 Governing Committee meeting, when the question of allowing Rule 21D to terminate will be considered.
As of November 14, no written objections from any of the ARPs involved had been placed on the Governing Committee agenda for the Wednesday, November 16 meeting.