Plymouth Rock Assurance Corporation (“Plymouth Rock”) request for a hearing by the commissioner of insurance on its objections to the proposed amendments to Rule 29 of the Massachusetts Automobile Insurance Plan (MAIP) has been scheduled for February 25, 2016.
The statutorily required credits induce carriers to write voluntarily in urban areas.
Plymouth Rock has disputed the January 13, 2016 CAR Governing Committee vote that reduced the credit premiums under the Massachusetts Auto Insurance Plan (“MAIP”) required by statute.
This law contained in the enabling act of CAR mandates that:
To control the size of the population of the plan, the plan shall annually provide for territorial and classification credits for those companies voluntarily writing private passenger automobile insurance within those territories and classifications that would otherwise be disproportionately represented in the plan. The size of the credits shall be such as to enhance the prospects that no classification or territory is disproportionately represented in the plan.
Until the vote of the Governing Committee the existing credit plan allowed territorial credits for up to 429,355 insureds. The new plan will reduce that number of credit eligible insureds by 22.6%, to 332,145.
The size of the available credits directly affects the willingness of auto insurance carriers to write voluntary policies in the credit eligible territories. Carriers that write such risks voluntarily can sell their credits to carriers that do not wish to accept MAIP policies to defray their losses on such policies. As a result, Massachusetts motorists whose vehicles are principally garaged in credit eligible territories obtain access to voluntary policies of insurance through carriers seeking credits and, thus, avoid having to obtain their policies through the MAIP.
However, since the advent of managed competition, the market share of the MAIP has declined. Presently, the MAIP provides automobile insurance to less than 2% of the motoring public. This reduction in the MAIP’s size led CAR’s Actuarial Committee to suggest that the need for the present level of credit assistance to depopulate the MAIP and to induce voluntary writings in credit eligible territories no longer existed.
Credits reduced by 22.6 percent overall
The Actuarial Committee at CAR originally proposed in November 2015 to reduce the credits available for writing voluntary business. At the Governing Committee meeting in December 2015, a number of questions raised at the CAR Governing Committee, including a letter from the Attorney General’s Office (“AGO”) questioning the proposed reductions, resulted in the CAR Governing Committee remanding the proposal back to the Actuarial Committee to review that committee’s recommendations.
Later in December, the Actuarial Committee reviewed the plan in detail and “after considerable discussion” approved the plan by a vote of eight to one.
The Actuarial Committee in reporting its December meeting results to the CAR Governing Committee stated, “The Actuarial Committee believes that its proposal complies with the statutory requirement regarding disproportionate representation in the involuntary market.”
On January 13, 2016, the Governing Committee again reviewed the plan and passed it over the objections of Plymouth Rock by a vote of nine members in favor and three opposed.
Plymouth Rock requests Commissioner to disapprove credit reduction rule
Following the CAR Governing Committee vote, Plymouth Rock filed a request for the commissioner of insurance to hold a hearing and to reject CAR’s amendments to Rule 29.
Plymouth Rock’s request detailed the company’s objections and attached the November 13, 2015 letter from the AGO voicing concerns about the proposed credit rule change. Plymouth Rock’s arguments against the rule change echoed the AGO’s letter and expressed the company’s opinions that:
- The proposed rule change fails to comply with M.G.L. c. 175, §113H (the “CAR Enabling Statute”) that states “the size of the credits” should not only operate “To control the size of the population of the plan” but must also “enhance the prospects that no classification or territory is disproportionately represented in the plan”
- Although the MAIP’s market share has decreased to under 2%, that does not change CAR’s statutory responsibility to provide a credit structure that has a reasonable chance of eliminating territorial overrepresentation in the MAIP.
- The eleven major credit-bearing territories, Plymouth Rock states, based on census data, are, “low income, largely minority communities, with many disadvantages compared to the rest of the state. Poverty rates, percentage of foreign born residents, and households where a language other than English is spoken, are well above the state average. These territories also have lower percentages of high school and college graduates, lower rates of home ownership, lower property values, and higher levels of unemployment than the rest of the state.”
- The rate of MAIP overrepresentation in these territories ranges from 166% (East Boston/Charlestown) to 453% (Roxbury) of the statewide rate. Despite the overrepresentation of these territories in the MAIP, the rule change would reduce the number of credit-eligible exposures from a current statewide level of 429,355 to 332,145 — a 22.6% reduction overall.
- In three of the eleven territories — Lowell, Lynn and Brockton — residents are at least twice as likely to be insured through the MAIP as other citizens of Massachusetts. Lowell would lose 87.6% of its credits, Lynn would lose 88.0% of its credits, and Brockton would lose 87.6% of its credits. Of the 119,381 insureds who would lose credit eligibility under the rule, 117,059 insured, or 98% of the insureds losing credit eligibility, reside in these three territories.
- Without the credits, according to Plymouth Rock, the no longer credit eligible insureds in the affected territories will lose access to the voluntary market where they may find lower costs than MAIP policies offer and “additional coverages and programs only available to voluntary customers, such as accident forgiveness, reduced deductibles, roadside assistance, and multiple payment plans.”
Hearing scheduled for February 25, 2016 on Plymouth Rock’s objections to rule change
The Commissioner of Insurance has issued a hearing notice on Plymouth Rock’s request.
A public hearing will be held on February 25, 2016 at 10:00 a.m. at the offices of the Division of Insurance. Under the notice, any person who wishes to provide oral comment concerning the proposed amendments to Rule 29 is requested submit to the Docket Clerk at the Division of Insurance, no later than February 22, 2016, a Notice of Intent to Comment, referring to Docket No. C2016-01.
The official notice appears on this link to the Division of Insurance’s website: Hearing Notice; C2016-01; Issued 2/2/2016.
