On May 9, 2018, the Commercial Automobile Residual Market Standards Subcommittee (Subcommittee) of Commonwealth Automobile Reinsurers (CAR) will meet to discuss further documentation prepared by CAR staff to implement:
- Standards for servicing carriers and exclusive representative producers (ERPs) to use in validating principal place of business;
- Standards for servicing carriers and exclusive representative producers to use in validating non-fleet private passenger type risks;
- Potential enhancements to car’s producer management system that could assist staff and servicing carriers in identifying questionable practices, including:
- The development of a producer profile that shows the distribution of the agency’s book by classification; and,
- reports that highlight those producers with significant volumes of any classification or with significant increases in any classification.
The Subcommittee will also review updated information relative to a proposed online information sharing system for canceled, declined, or non-renewed risks.
New guidelines, forms, and database to root out fraudulent or ineligible risks
The proposed guidelines for producers and forms for insureds will substantially enhance the ability of Servicing Carrier to identify fraudulent or ineligible risks. The new database for declined, non-renewed, or canceled risks will do much to curtail ineligible risks moving from one servicing carrier to another following cancellation or non-renewal.
A summary of the guidelines, forms, and the ineligible risk database being considered applicable to (ERPs by the Subcommittee follows.
ERP standards for Determining and Substantiating Principal Place of Business
At earlier meetings, the Subcommittee recommended changes to Rule 2 – Definitions of CAR’s Rules of Operation to include the nerve center test. See Agency Checklists’ article of February 27, 2018, “CAR Approves “Nerve Center Test” For Commercial Auto Risks’ Place Of Business.” This change to Rule 2 became effective on March 29, 2018.
The revised rule, with the nerve center language underlined, provides:
PRINCIPAL PLACE OF BUSINESS, as it applies to the definition of an Eligible Risk, is defined as the chief or usual place of business. It is the head office; corporation’s nerve center, its center of direction, control, and coordination, the place where the principal officers generally transact business, and the place to which reports are made and from which orders emanate. It is also the place where the majority of executive and administrative corporate functions are performed. It is where executive offices are located, and corporate decisions are made.”
The Subcommittee will review the following standard applicable to exclusive representative producers validating the nerve center tests for their commercial auto risks.
Exclusive Representative Producer Standards for Determining the “Nerve Center” Principal Place of Business
Standards for the validation of Principal Place of Business (“Nerve Center”): In determining whether a risk is eligible for placement in the commercial automobile residual market, Exclusive Representative Producers and Servicing Carriers are required to validate whether or not the risk’s declared principal place of business meets the “nerve center” test. As such, operations taking place in the corporation’s “nerve center” would include, but not be limited to:
- Computer/monitoring systems that track the location of the vehicles
- Scheduling systems for vehicle operations and corresponding routes
- Systems for responding to vehicles requiring roadside or emergency assistance
- Payroll systems
- Depending upon the business operation, commensurate hours of operation
- Telephone systems to handle customer service, driver assistance, maintenance and repair, vendor and/or employee communications
- Treasury management systems for disbursing and collecting funds
- Administrative activities to support business operations
Note that a mail drop box, a bare office with a computer, or a location where executives only occasionally meet, does not qualify as Principal Place of Business for the purpose of determining eligibility for cession to the MA residual market.
Exclusive Representative Producers must provide a signed Principal Place of Business Certification Form on all risks to their Servicing Carrier attesting to the information submitted on the application for insurance pursuant to the insured’s principal place of business. The certification form must be signed and dated by the insured and the writing producer to confirm that the risk meets the definition of Principal Place of Business as specified in CAR Rule 2.
Risk Evaluation Tools and Opportunities: Exclusive Representative Producers should ascertain the following in determining risk eligibility relative to the principal place of business and “nerve center” prior to submitting a risk to their Servicing Carrier for placement in the commercial auto residual market:
1) Proof of Principal Place of Business
- Whether the company is headquartered in Massachusetts and meets the definition of Principal Place of Business as specified in Rule 2–Definitions of CAR’s Rules of Operation
- Whether company reports, documentation and financial records originate in the Massachusetts office
- How long has the company been at the Massachusetts location
- Whether the company has officers, directors, partners and/or managers residing in other states, and, if so, where
- Whether business/corporate decisions and orders solely emanate from the Massachusetts principal place of business of the company, and if not, describe the corporate communications
- Whether the principal owner, officers, directors, partners and/or managers all reside in Massachusetts and if not, describe residency of each.
- The number of employees working out of the Massachusetts principal place of business. In Massachusetts? Out of state?
- Identify the registration of all vehicles. Registered in Massachusetts? Other states?
- Operators/Drivers for the company licensed/hired in Massachusetts
- How often the principal/owner of the company is in the company’s Massachusetts headquarter office
- Whether the payroll for the company is handled through the Massachusetts principal place of business location
- Hours of the Massachusetts principal place of business location of the company
2) The ERP/risk will be required to provide, at the Servicing Carrier’s request, information included but not limited to the following:
- Pictures of the MA location and garaging locations if different from MA mailing address
- Name and location of shop providing repair and maintenance on the vehicles
- Percentage of revenue derived from MA operations versus other states
- Tax returns
- A copy of the risk’s lease and/or other documents pursuant to the establishment of an operational office location in Massachusetts (utility bills, bank statements, tax documents, payroll records, workers comp. policy, )
- A list of any other address locations from which the business operates and what type of activities occur at those locations
ERP standards in validating non-fleet private passenger type risks
In its prior meeting, the Subcommittee has also focused on the growth of non-fleet private passenger vehicles ceded to CAR’s commercial auto pool. Besides considering certification forms for applicants, the Subcommittee will consider at its meeting the following standards for ERPs placing these risks with their Servicing Carriers.
Exclusive Representative Producer Standards for Non-Fleet Private Passenger Type Classifications
Exclusive Representative Producers will be responsible for:
- Obtaining a completed and signed Non-Fleet Private Passenger Type (NF-PPT) Certification Form for each NF-PPT risk submitted to their Servicing Carrier for placement in the commercial auto residual market.
- Listing all permissive operators of the vehicle(s) on the application for insurance and note any operator listed on the application with a valid license from a country of territory approved by the Massachusetts RMV, on the Non-Fleet Private Passenger Certification Form.
- Obtaining a completed Driver Exclusion Form if the owner(s) is/are not listed as an operator(s).
- Reiterating to the insured that the Certification Form requires the insured’s cooperation in notifying the insuring carrier of any change to information presented in the application, including information pertinent to the ownership and permissive operators of the vehicle(s), during the policy period.
The ERP will also be responsible for assisting in the verification and confirmation of information regarding the risk’s eligibility for commercial automobile residual market coverage including, but not limited to:
1) Proof of Business Entity:
- Corporate Documentation – Use of the Secretary of Commonwealth’s Corporations Division website to obtain:
o Validation of the risk and/or the risk’s Federal Employer Identification Number (FEIN) being registered with the Corporations Division and includes, the Date of Origination, Current Status, the identity of the risk’s officers, directors, partners and/or managers–ownership and address information and who signed the organizational documents for the risk
- Use of an Internet search engine may be used to reflect that the risk has a website for its stated business entity/operation.
- Vehicle usage: Use the RMV systems to determine if the registration of the vehicle(s) is consistent with the name of the business entity/operation.
- Operators of the Vehicle(s): List all operators and associated license information. If the owner is not listed as an operator, please explain. Note: a Drivers Exclusion Form will be required to be signed by the owner(s), if not listed.
- Provide prior insurance coverage for the business entity/operation and the history of that coverage (e. cancellation/non-renewal reason, etc.)
2) The ERP/risk will be required to provide, at the request of the Servicing Carrier, information included but not limited to the following:
- Contract for services with a customer relative to the listed business entity/operation
- Tax filing information for the business (Schedule C if filing an individual return)
- Workers Compensation Insurance Policy
- General Liability Insurance Policy
- If prior insurance coverage, copy of declarations page
- Copies of leases and utility bills
Online information sharing for declined, non-renewed, or canceled risk
The committee’s proposed online information system will collect information on ceded risks and allow Servicing Carriers to share information relative to risks they have declined, non-renewed, or canceled as a result of being ineligible for coverage in the Massachusetts commercial residual market.
As presently proposed companies would enter a record into the new database within 48 hours of any declination, non-renewal, or cancellation. Companies would also be expected to update the original record if they rescind the declination/non-renewal/cancellation. CAR will develop an automated daily notification summarizing the activity for that day.
The system would collect the risks:
- Business Name **
- Business Address
- Owner License Number **
- Federal Employer Identification Number (FEIN) **
- US DOT Number (required for interstate buses, interstate TTTs, and intrastate TTTs hauling hazardous materials) **
- Company Code Number
- Policy Number
- Effective Date
- Declination/Non-Renewal/Cancellation Date
- Class Type (as selected from drop-down list)
- Reason for Declination/Non-Renewal/Cancellation (as selected from drop-down list)
- Reinstatement Check-Box and Reinstatement Date (explanation should be provided in the Notes text box)
- Agency Name & Code (as selected from drop-down list)
- Notes (free form text box)
The searchable fields have a double asterisk.
Additional documentation for Servicing Carriers and Applicants
Besides the standards for ERPs, the Subcommittee will also review standards for Servicing Carriers and certifications for applicants. Copies of those standards and certifications may be found on the Subcommittee’s meeting notices on the CAR website.