Every five years, Commonwealth Automobile Reinsurers (CAR) issues a request for proposals to automobile insurers for their interest in acting as servicing carriers for CAR’s commercial automobile residual market pool.
As opposed to the personal lines MAIP, the commercial auto pool does not operate as an assigned risk pool. Instead, exclusive representative producers must place their residual market commercial automobile risks with the commercial servicing carriers to which CAR assigns them.
CAR issued its last RFP in 2016. for selecting the servicing carriers for the five years from January 1, 2017, to December 31, 2021. This year the process has begun again for an RFP to issue in 2021 for selecting the servicing carriers for the commercial residual market pool for the period from January 1, 2022, until December 31, 2026.
A CAR committee will draft terms of the new RFP for commercial auto servicing carriers
The CAR committee charged with drafting the new RFP, with the assistance of CAR staff, is the Commercial Program Oversight Committee.
The members of the Commercial Program Oversight Committee are: Mr. William Cahill, Jr., General Counsel, Vermont Mutual Insurance Group – Chair; Mr. Charles Boynton, III, Boynton Insurance Agency, Inc.; Mr. Brian Hayes, Quincy Mutual Group; Mr. Bryan Hurwitz, Norfolk and Dedham Group; and, Mr. John Olivieri, Jr., J.K. Olivieri Insurance Agency, Inc.
On November 4, 2020, CAR published the record of this committee’s October meeting. The meeting summary shows some of the committee’s issues and the timetable for the whole RFP process.
Timetable for the RFP Process
At the meeting, John Metcalfe of CAR staff outlined for the committee a proposed timetable for the request for proposal and servicing carrier selection process.
- January 2021 — Meeting of the Commercial Program Oversight Committee to finalize the approved draft request for servicing carrier proposals.
- February 2021 — Meeting of the CAR Governing Committee to approve the request for servicing carrier proposals.
- March 1, 2021 — The notice of the request for servicing carrier proposals distributed to CAR carrier members.
- March 2021 — CAR staff will hold pre-response conferences with interested carriers.
- Mid-April 2021 — Servicing carriers responding to the request for proposals must submit their proposals to the Commercial Servicing Carrier Selection Committee.
- May 2021 — The Commercial Servicing Carrier Selection Committee will evaluate proposals
- June 2021 — The Governing Committee will vote on the recommendations of the Commercial Servicing Carrier Selection Committee and select the servicing carriers.
- June 2021 — Selected servicing carriers will be notified the day after the Governing Committee meeting
- September 1, 2021 — ERP reassignment notifications sent to the selected servicing carriers.
- October 31, 2021 — Selected servicing carriers must have contracted with all reassigned ERPs.
- December 31, 2021 — Current Commercial Servicing Carrier Program is set to expire
- January 1, 2022 — New servicing carrier appointments take effect.
Four possible changes to the present commercial servicing carrier program in the new request for proposals
The notice of meeting for the committee identified, among other issues, four items that CAR staff needed deciding before they could proceed with drafting a final RFP for the CAR Governing Committee to consider. These issues included:
- Whether to combine the taxi/limo/car service classes into the full Commercial Automobile Program
- The appropriate number of servicing carriers to service business for each program or the combined programs if the committee votes to merge the taxi/limo program with the commercial automobile program/
- New approaches for Servicing Carrier compensation, and
- Methods for the equitable distribution of among servicing carriers of commercial automobile business that minimized the market disruption associated with the reassignment of ERP books of business.
The summary of four issues that the committee wishes to decide before CAR staff can write the RFP
At their meeting, the committee began addressing the issues about which CAR staff indicated that they would need guidance from the committee to draft an RFP on time.
- Combining the present Taxi/Limo/Car Service Program into the Commercial Auto Program
In the committee’s discussion, CAR staff advised that current market conditions, including the growing mixed-use of private passenger and other vehicles for transportation network services, the committee should consider whether such challenges would be better managed in a combined program.
The separate Taxi/Limousine Program was initiated in 1995 when all Massachusetts commercial auto writers were servicing the commercial residual market business. Staff advised the committee that at that time, the taxi and limousine classes contributed significantly to the residual market deficit and presented concerns relative to rating, classification, and loss control challenges. Now, however, present conditions required the committee to decide whether the historic taxi-limo risk would be better managed in a combined program.
CAR’s President, Natalie Hubley, and her staff noted that the current size of the taxi book of business had decreased significantly, with many taxi risks now finding placement in the voluntary market. Staff advised the committee that presently, 129 ERPs write taxi/limousine/car service business, with approximately $5.7 million in written premium in total between the two servicing carriers and with about $1.3 million for taxi business and $4.4 million of combined limousine and car service business.
The committee deferred action on this question pending CAR staff providing at the committee’s next meeting a volume breakdowns between the taxi, limousine, and car service classes, as well “the identification of any other trends that may assist the Committee in its evaluation of this topic.”
- The number of servicing carriers under the new RFP
The Committee members discussed but did not decide the number of servicing carriers needed to service the commercial auto residual market for the five-year period commencing January 1, 2022.
Ms. Hubley advised, in response to Chair Cahill’s question on the historical size of the commercial pool, that presently the commercial auto residual market has $200 million in premium. This, she stated, was like the pool’s size when the servicing carrier first began in 1996. Although the pool shrunk to approximately $100 million by the early 2000s, the pool began to gradually increase back to its present $200 million in premium.
The consensus of the committee was that this size of the residual commercial market and the possibility of combining the commercial auto program with the taxi-limo program might require four servicing carriers to service the market.
The committee deferred any final decision on the number of servicing carriers for the next five-year term until they had evaluated all the proposals received in response to the RFP.
- Possible compensation alternatives for servicing carriers under the new RFP
The committee also discussed possibly providing in the RFP alternative compensation schemes for compensating servicing carriers. While there was support for continuing the current compensation system where servicing carriers receive paid $420 per PDL exposure, the committee examined alternative compensation plans. These payments schemes included percent of the premium, a flat dollar amount for all services, a flat dollar amount augmented by a percentage of premium, variable compensation based on risk classification, and a loss ratio incentive program.
The committee deferred action on the compensation issue pending feedback at a future meeting on the proposed compensation alternatives from the present servicing carriers after they had considered each of the alternatives. The committee also requested CAR staff to give additional feedback after further review of each of the possible compensation options.
- The issue of exclusive representative producer assignments
CAR staff advised the committee that they had investigated alternative methods for distributing ceded books of business among servicing carriers to reduce the market disruption associated with prior ERP reassignments.
CAR staff asked the committee to consider the merits of replacing the current model of assigning producers, with their existing books of commercial auto business, to servicing carriers with an assigned policy distribution model. Under this model, each ERP would have to work with multiple servicing carriers. However, the random distribution of risks would create an equitable distribution of risk eliminating the need for ERP reassignments.
The committee noted that this plan, while accomplishing some desirable ends, would convert the commercial pool to a modified assigned risk plan, like that of the MAIP, but with only a limited number of servicing carriers.
The final consensus of the committee was that while they would like to identify other approaches to help mitigate the need for regular redistributions of ERPs’ books of business, “the conversion of the commercial pool to an assigned risk plan would be a major change, and absent a compelling reason to do so, appears to be more than is necessary at this time.”
Agency Checklists will watch this RFP process
Agency Checklists will keep its readers posted on any changes that will affect the placement of commercial auto risks through the residual market.