On April 3, 2019, the Commissioner of Insurance disapproved Commonwealth Automobile Reinsurers’ (“CAR”) proposed amendment to CAR Rule 29E to reduce the assigned risk quota share credits allowed to insurers for voluntarily writing automobile risks in Chelsea, Hyde Park, Dorchester, Roxbury, East Boston/Charlestown, Holyoke, Lowell, Springfield, Lynn, Lawrence, and Brockton.
This decision is the second decision in under three years disapproving a proposed CAR amendment to Rule 29E intended to reduce the assigned risk quota share credits for voluntary writings in urban areas. See Agency Checklists’ article of June 7, 2016, “MA Commissioner Agrees With Plymouth Rock On Rule 29 Credit Appeal.”
CAR must conduct a yearly review of credits rewarding carriers writing assigned risk business voluntarily
Under CAR’s enabling act, G.L. c. 175, § 113H, CAR has a mandate to control the number of assigned risks. CAR reduces these risks by providing for territorial and classification credits to auto insurance carriers that voluntarily write private passenger automobile insurance in territories or for classifications, that without such credits, would have a disproportionately greater likelihood of having to obtain automobile insurance through CAR’s assigned risk plan, the Massachusetts Automobile Insurance Plan (“MAIP”).
Carriers that underwrite and accept such risks voluntarily can use the credits generated to avoid random future assignments of assigned risks or, if they have a surplus of credits, they can defray their losses on such accepted policies by selling their surplus credits to carriers that do not wish to accept MAIP policies.
As a result of this credit rule in the MAIP, Massachusetts motorists who principally garage their vehicles 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.
Proposed Rule Change was part of a plan to phase out credits over five years
CAR’s proposal to amend Rule 29 E, subsection 3, title “Credit Factors by Territory and Operator Class” consisted of a graphic matrix each representing a combination of operator class and rating territory. The matrix identified the territories and operator class combinations that were credit eligible and the applicable credit factor for each.
The proposed amendment would have reduced the credits for many eligible risks by at least twenty percent or more in each operator-class/territory for the first year if allowed. The projected effects of the amendment for the year beginning April 1, 2019, would have been a 0.2 percent increase to credit eligible exposures but a 15.5 percent decrease to potential credit premium.
Although not part of the proposed amendment, CAR acknowledged the amendment would generally reduce the value of the existing by twenty percent for the year beginning April 1, 2019, but with similar reductions over five years to eliminate excess credits.
Plymouth Rock exercises its right for a hearing on the proposed amendment
On November 14, 2018, CAR Governing Committee passed by a six to four vote the proposed amendment of Section E of CAR Rule of Operation 29.
On November 26, CAR submitted the proposed amendment to the commissioner of insurance (“commissioner”) for his approval. On November 27, 2018, under Article X of the CAR Plan of Operation, the Plymouth Rock Assurance Company requested a hearing on CAR’s proposed amendment which the division of insurance scheduled for January 24, 2019.
Plymouth Rock was the carrier that successfully appealed to the commissioner CAR’s 2016 proposed amendment to Rule 29E to reduce the credits for writing voluntary risks in selected urban territories.
Insurance carrier split over the proposed amendment to Rule 29
The hearing on January 24, 2019, proceeded before two hearing officers, Jean F. Farrington, and Kristina A. Gasson.
The witnesses testifying before the two hearing officers in opposition to CAR’s proposed rule change were:
We remain unpersuaded that the proposed amendment to Rule 29.E will affect the disparities”
- Paula Gold, Esq., Chief Regulatory Counsel for Plymouth Rock;
- Glenn Kaplan, Esq., Chief of the Insurance and Financial Services Division at the Attorney General’s Office;
- John Olson, an insurance producer from Lynn representing himself and three other Lynn producers; and
- Nick Fyntrilakis, President of the Massachusetts Association of Insurance Agents
Also, four CAR member companies: Progressive Insurance, Preferred Mutual, GEICO and the Liberty Mutual submitted statements opposing CAR’s proposed Rule 29 amendment.
The witnesses speaking in favor of the amendment were:
- John Kelly, Executive Vice President of MAPFRE;
- Lynellen Ramirez, Chief Actuary of Arbella and Chair of CAR’s Actuarial Committee; and,
- Roberta Fitzpatrick, Esq., Counsel for Arbella.
CAR submitted a written statement describing the 2018 process for reviewing MAIP quota share credits, attaching to statement the records of three Actuarial Committee meetings and relevant portions of the transcript of the Governing Committee meeting which approved the proposed Rule 29 amendment. It noted that a majority of these two committees believe the volume of credit premium in the quota share system is excessive and detrimental to the fair and equitable distribution of the MAIP residual market burden among CAR Members. In their opinion, according to the statement, in the current healthy competitive marketplace, these credit premiums are not needed to avoid disproportionality of any class or territory in the assigned risk pool.
The hearing officers—“not persuaded that adjustments are needed”
The hearing officers April 3 decision reiterated that CAR’s statutory goal is for the credit eligibility system to control the size of the MAIP by providing to companies that voluntarily write private passenger automobile credits for writing policies in territories and operator classifications that would otherwise be “disproportionately represented” in the MAIP’s residual market.
The hearing officers noted that since the implementation of a competitive market in April 2008, the overall size of the MAIP has declined on a statewide percentage basis, from 4.3 percent at the end of 2007 to 1.25 percent in 2018.
After reviewing the disparate presentations and arguments at the hearing, the hearing officers commented that no statements in the hearing record specified how the proposed Rule 29 E amendment would reduce disproportionate representation in the MAIP as required by statute.
To the hearing officers, CAR’s proposed amendment to reduce credits to encourage carriers to write more business in the eleven urban credit territories voluntarily appeared, on its face, “counterintuitive.”
The hearing officers concluded:
We remain unpersuaded that the proposed amendment to Rule 29.E will affect the disparities between the percentage of MAIP risks in the [urban credit] Territories and the statewide percentage [of risks in the MAIP].”
Based on their review and analysis the hearing officers’ decision concluded
For the above reasons, pursuant to the commissioner’s authority under Article X of the CAR Plan of Operation, the proposed amendments to Rule 29 E that CAR submitted November 26, 2018, are hereby disapproved.”
Commissioner Gary Anderson concurred in the hearing officers’ ruling, so the present credit schema for urban territories will remain in effect.