In addition to unanimously approving Daniel R. Judson as the new President of CAR, the Governing Committee also made the following decisions at its September 21st meeting:
- The LAD Agreement between Pilgrim Insurance and Bankers Standard Insurance Companies was approved with one recusal.
- The Governing Committee unanimously approved Allstate Insurance Company’s appointment as an ARC pursuant to Rule 30.A.1. CAR says the Company is now required to receive assignments as of November 2, 2011, which is the 24-month anniversary of the effective date of its initial rate filing
The CAR Governing Committee also approved The MAIP Steering Committee’s recommendations to accept the Commissioner of Insurance’s modifications to Rules 29.D.1 and 29.D.2. The changes were outlined in correspondence the Commissioner sent to the Governing Committee on August 26, 2011. In that letter, the Commissioner expressed his reservations about the implications of the rule as it now stands.
I am concerned, however, that some of the language in Rule 29 allows for policy assignment procedures that may result in an unfair distribution of high risk drivers across insurance companies. MAIP Rule 29.D.1 states that a policy assigned to an Assigned Risk Carrier (“ARC”) through the MAIP shall be insured by the ARC for a period of three consecutive years. It further states that the designated ARC may offer to continue the risk’s assignment beyond the first three consecutive years by offering to write a third of subsequent renewal….
…It is reasonable to assume that an ARC that presently elects to extend the assignment period of a policy beyond the three year requirement does so because the risk has improved over the past three years, but may not have improved enough to qualify for insurance with that ARC on a voluntary basis. If policies are truly assigned on a random basis, all insurers will observe this type of improvement in some of the risks assigned to them three years prior. Extending the assignment period of such policies, however, serves to dissuade policyholders from shopping to test the market’s willingness to provide insurance on a voluntary basis and deprives those policyholders of the real benefits of a competitive market. Complete and consistent testing of the market’s willingness to accept risk at all levels at the end of a MAIP policy’s three year assignment period is critical to ensure that the costs of the residual market are shared fairly among insurers, and that the benefits of competition to consumers are maximized. Without it, the size of the residual market likely will increase as the percentage of policyholders completing their initial three-year assignment period increases.
The second sentence of Rule 29.D.1. has the undesirable and unintended consequence of allowing an insurer to quasi-underwrite their residual market obligations at the expense of their competitors, which is contrary to the fundamental purpose of the residual market. It presents an opportunity for an insurer to avoid its true fair share of residual market risk by “manufacturing” its own MAIP assignments. Such actions also have the potential to adversely affect competition in the voluntary market because residual market costs are passed through to the voluntary market in each insurer’s premiums. This result is inconsistent with the mandate of M.G.L. c.175 §113H that the residual market plan provide for the fair and equitable apportionment among insurance companies of premiums, losses or expenses, or any combination thereof…
…In order to preserve the integrity of the MAIP’s policy assignment process and provide incentives for consumers to regularly shop for insurance, the MAIP Rules of Operations must clearly indicate that an ARC may issue a third “renewal” of a policy originally issued through the MAIP only as a voluntary “take out” policy subject to the requirements of MAIP Rule 30.C. Accordingly, pursuant to the provisions of Article XI of the CAR Plan of Operation, I ask the CAR Governing Committee to submit the following amendments to MAIP Rule 29.D> by October 26, 2011
- Delete the second sentence of Rule 29.D.1., and
- Delete the first sentence of Rule 29.D.2. and replace it with “For policies effective January 1, 2012 and subsequent, if the designated ARC does not intend to offer to write the policy on a voluntary basis at the end of the three year assignment period, the following procedures shall apply.”
While the Governing Committee unanimously approved the MAIP Steering Committee’s recommendation to accept the modification to Rule 29.D.1. and Rule 29.D.2, it decided to amend the effective date of such changes from January 1, 2011 to April 1, 2012. This new date will be sent to the Commissioner of Insurance along with the selection of Mr. Judson for final approval.
