Personal lines automobile insurance dramatically changed when Massachusetts moved to managed competition and an assigned risk plan. The assigned risk plan, the MAIP, actually marked a return to the residual market system that Massachusetts had had in place from 1939 until 1972 that was called unofficially the “Assigned Risk Board,” or just the ““Board.”
A form that recently turned up from a 1960 assigned risk transaction caused Agency Checklists to do a little research on the assigned risk plan then and now. This article, hopefully, will interest people who now work in the insurance industry with a look back at what placing automobile insurance and assigned risks in 1960 involved compared to today. The complete 1960 form can be seen by clicking on the form thumbnail to the right..
Purchasing automobile insurance in 1960
The form attached relates to an assigned risk agency run by Thomas F. Gallagher, in Roxbury Crossing, now the site of Roxbury Community College, between 1956 and 1972. Thomas Gallagher was the grandfather of the present Editor of Agency Checklists, Julia Ybarra.
In 1960, all automobile registrations and insurance expired on December 31. Mister Andrewski, the applicant on the form, would only have insurance from July 11, 1960, until the following December 31. He then would have to renew for a full year starting January 1, 1961.
In 1960, the registry issued license plates every two years. Every two years an insured had to purchase new license plates as part of the insurance and registration process. This two-year license plate renewal actually relieved a lot of pressure on insurance agents and assigned risk brokers. Until several years before 1960, license plates were reissued every year.
For the $7.50 fee, the assigned risk broker was expected to conduct the whole renewal process
Insurance availability circa 1960 for assigned risks
Today, under the MAIP, the residual market offers a complete package of automobile insurance. Assigned risks can purchase not only compulsory coverages, but increased bodily injury limits of $250 thousand per person and $500 thousand per accident, uninsured motorist coverage equal to the bodily injury limits selected, $50 thousand per accident of property damage, medical payments, physical damage coverage, including collision, fire and theft, and comprehensive.
In 1960, the assigned risk plan had a more limited insurance menu. The plan only offered compulsory bodily injury liability with limits of $5,000 per person and $10,000 per accident, extraterritorial and guest coverage, and $5,000 in property damage coverage.
Mister Andrewski purchased compulsory liability for $76.80 for the remaining 5 ½ months of the year and extraterritorial and guest coverage for six dollars.
Responsible assigned risk brokers would always attempt to have their insureds purchase extraterritorial and guest coverage. In 1960, compulsory insurance only covered insureds for accidents occurring “upon the ways of the commonwealth.” Not only were auto accidents occurring outside Massachusetts uncovered, but accidents within Massachusetts in church, school, or store parking lots as well as public garages were not covered. However, even after this risk was explained many applicants simply stated they would not buy the coverage because, “I just want to buy the minimum I need to get on the road.”
It was not until 1964, that the legislature expanded compulsory coverage to include places in Massachusetts, “to which the public has a right of access.”
Compared to today, compulsory bodily injury insurance cost a significant portion of the average wage earner’s income. The full year premium for the same coverages would have cost Mister Andrewski approximately $170. By comparison, 20/40 bodily injury compulsory coverage on a vehicle garaged in Boston cost in 2014, $180. This amount excluded the cost of compulsory personal injury protection coverage, since that coverage did not exist in 1960.
The comparison chart below with some representative statistics between 1960 and 2013, shows the disparate impact of those nominally equivalent premiums for compulsory bodily injury for 1960 and 2013 based on some standard measures.
|1960||2013||% + or –|
|Average annual wage||$4,007.12||$44,321.67||+1,106%|
|Minimum Wage -Federal||$1.00||$7.25||+725%|
|Auto deaths (Mass)||21.3 per 100,000||5.3 per 100,000||-75.2%|
|Gallon of gas||$.25 (cents)||$3.49||+1560%|
|Average new car price||$2,275||$31252||+1373%|
Assigned risk broker service fees and commissions
A major improvement between the present day MAIP and the 1960 assigned risk plan lay in the area of commissions.
In 1960, assigned risk brokers placing business through the assigned risk plan received a 4% commission for the assignment. After any risks had been assigned to an insurance company, the assigned risk broker received no commission for renewing the business with that carrier.
On the form, there is a $7.50 “Service Charge” that the form state was, “as approved by the Commissioner.” Since insurance companies would not pay assigned risk brokers any commission on renewals, the brokers charged various fees for the services they provided to the insureds on renewal. In order to prevent these fees from getting out of hand, the legislature passed a law giving the Commissioner of Insurance authority to set them by regulation. In 1960, the commissioner’s allowable fee was $7.50.
For the $7.50 fee, the assigned risk broker was expected to conduct the whole renewal process with the insured that would include getting signatures on a completed renewal application, a new registration, and physically bringing the renewal application with the registration to the company’s assigned risk desk and getting them approved with the company certification stamp on the registration. Then, the assigned risk broker would have to get the registration validated at the registry office and obtain new plates every other year (in 1960).
This lack of renewal commissions resulted in the assigned risk brokers splitting any coverage possible between carriers to obtain commission income. This primarily occurred with some specialized property damage carriers. A number of companies, some legitimate, some infamous, entered the market to write business for assigned risk brokers. The form evidences this procedure where it states at the bottom for the insured to sign that, “I understand that my coverages may be in different companies…”
Usually these companies offered a 5% deviation in the property damage premium that the assigned risk broker would use for obtaining from the insured a consent to split coverage. The competition for this property damage business around this time became quite intense. A year or two after 1960, commission rates for this type of split property damage business actually reached 30%. However, commission rates subsequently stabilized in the range of 20 to 25%, after one of these companies went into rehabilitation and eventual liquidation.
Likewise fire, theft, collision, and comprehensive would only be placed by the assigned risk brokers with what would now be considered substandard market carriers. The premiums would be higher and the claim service less than stellar, but in many cases this was the only market these assigned risk brokers had for their insureds.
How the old assigned risk Bureau worked
In an earlier interview for Agency Checklists, John Gallagher, a former exclusive representative producer in Dorchester, spoke about the old Assigned Risk Bureau and the difference between then and now. To read this interview click here.
Essentially, the two systems are night and day with regard to operational efficiencies.
In 1960, an assigned risk broker attempting to obtain an assignment faced a completely manual and tedious. There was nothing comparable to the Internet, allowing a broker placing an assigned risk policy to simply log onto the system at the MAIP and upload the application and obtains an assignment immediately.
After the insured filled out and signed a new risk application, the assigned risk broker had to obtain one or more company rejections of the risk.
Originally, in order to submit an application through the Assigned Risk Board the broker had to obtain three rejections before the risk could be eligible for assignment. That was not necessarily easy since almost all assigned risk brokers at the time did not have any agency contracts. By 1960, assigned risk brokers only needed to obtain one rejection before they could bring the application to the assigned risk Board. .
There was only one assigned risk board for the whole state. The Board was located at the corner of Batterymarch and Franklin Street in Boston. It probably could be best described as a big waiting room.
In order to submit an application for assignment, the assigned risk broker or a runner he or she hired would have to bring the application to the Board, sign in, and wait to be called for initial review of the application.
The Board would not accept applications from an applicant who had a cancellation during the calendar year. This often caused rejections of applications upon their initial review if the application evidenced a cancellation. In 1960, there were no statutory restrictions on cancellations such as those that exist today. Accident frequency and underwriting reasons were sufficient grounds to issue cancellations and companies issued cancellations in the ordinary course of business at a far greater rate than they could today legally.
Once the application passed an initial review, it disappeared into a back room for anywhere from 1 to 5 hours depending on the volume of applications and staffing at the Board.
If an application were submitted after 2 PM on a given day there was a better than even chance that the broker or the runner would have to be back the next day to get the assignment.
If the assignment was approved, the premium had to be paid by cash, a broker’s check or by a premium finance company check. There was no down payment and installment billing through the Board or through insurance companies in 1960.
Once the premium had been paid, the Assigned Risk Board certified the registration with the stamp of the particular company to which the risk had been assigned. The assigned risk broker or the runner would then have to go across town to the North station area to the registry to have the registration validated and the new plates issued for the insured.
For this work the assigned risk broker received the $7.50 fee from the insured and a 4% commission from the Assigned Risk Board out of that first year’s premium for compulsory coverage.