Mass. to Hear Revised High Risk Plan Nov. 10; April 2007 is Target Start Date

October 20, 2006

Massachusetts Insurance Commissioner Julianne Bowler has set Nov. 10 for a public hearing into her guidelines for moving the state’s auto insurance system for high risks from a reinsurance plan to an assigned risk plan.

If her guidelines remain as she has proposed, the new assigned risk plan will begin accepting risks starting April 1 of next year.

The upcoming hearing will address changes in the rules for the assigned risk plan—known as the Massachusetts Assigned Insurance Plan, or MAIP — and the timetable for transitioning from the existing reinsurance system to the MAIP.

In August, the Supreme Judicial Court unanimously upheld the commissioner’s authority to implement an assigned risk plan over a challenge by several insurers. Bowler’s MAIP guideline, which was first proposed in December, 2004, is not expected to be dramatically altered but Bowler has indicated a desire to amend the transition plan to reflect marketplace changes that have occurred while the ARP was held up by legal challenges. The original schedule called for the new ARP to be in place by January, 2008. Many of the agents who deal exclusively with the high risk system for their auto insureds, known as exclusive representative producers, have been reassigned since the first plan was introduced, a situation Bowler says needs to be taken into account.

In her revised plan, new business could be written in the MAIP as of April 1, 2007 and renewal business as of July 1, 2007. This would apply to all agents, including ERPs and agents with voluntary markets.

Bowler’s revised plan also addresses a controversial provision — the so-called clean-in-three rule — affecting drivers with good records who insurers may not want to voluntarily insure for other reasons. The court said the rule combined with the 1983 repeal of the state’s take-all-comers law might leave these drivers without an insurance company. The rule held that the MAIP could not insure drivers whose records are incident-free for the past three years. The idea was to protect clean drivers from being placed in the MAIP. But insurers in the voluntary market would not have to insure them either. In the only part of the ruling siding with plaintiffs, the court ordered that this provision be fixed so that clean drivers don’t end up without any coverage.

“The SJC was clear on the ‘take all comers’ law. We can’t have that language,” Bowler acknowledged following the court ruling.

To fix this situation, Bowler has removed the prohibition for clean-in-three risks from being written in the MAIP, but to guard against them being trapped without a company, she wants to require the MAIP to shop them to all carriers after their third clean year. If no carrier voluntarily writes them, then CAR is required to notify the drivers and give them the option of staying with their current assigned risk company or being reassigned.

An ARP operates by assigning drivers to the pool, rather than by assigning agents to insurers as does the existing mechanism, Commonwealth Auto Reinsurers, which it would place.

Bowler has argued that implementing an ARP would align the Massachusetts system with those of 46 other states and improve the chances of attracting new insurers.

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