Mass. May End Auto Insurance Appeals; Agents Balk

October 13, 2008

The Massachusetts insurance commissioner, addressing a concern of some insurers, is considering eliminating the unique right under which Bay State drivers have been able to appeal auto premium surcharges they consider unfair for accidents caused by bad weather, road problems or some other abnormal circumstance.

Each year some 50,000 Massachusetts drivers seek relief from the Division of Insurance’s Board of Appeals. Roughly 20,000 people succeed, saving themselves $8 million in insurance surcharges at roughly $400 a pop. There’s a 20,000-case backlog at the state Board of Appeals.

But in the latest wrinkle in the “managed competition” insurance system she instituted in April, Insurance Commissioner Nonnie Burns is considering eliminating surcharge appeals as a vestige of the “fixed-and-established” insurance system under which drivers operated for 30 years before last spring.

Insurers argue the appeals process is no longer valid because it is not written into the managed competition law. The law is aimed at lowering premium costs and expanding the number of, and competition between, insurers in the state.

Massachusetts was the only state in the country with an insurance commissioner who set the premium rates that all insurers had to charge. It also was the only one with an appellate board to hear complaints when drivers felt they weren’t, in the industry’s term, “at fault” in an accident. In other states, aggrieved parties use the court system, an additional option available in Massachusetts.

Insurance companies also say with the state now requiring them to compete for business through premium prices, how and whether they levy additional surcharges — or repeal them — should be an additional point of competition between them.

Some insurers like Liberty Mutual are already touting “accident forgiveness” plans, in which drivers with an otherwise good record would not face a surcharge if they have an accident. Under the old system, the insurers say, those drivers would have automatically faced a surcharge calculated by the state based on the type and severity of their accident.

Maintaining a standardized set of accident descriptions and penalties “could have the unintended consequence of affecting competition between insurers,” said James Harrington, executive director of the Massachusetts Insurance Federation, which represents some of the state’s major insurance companies.

Spokesmen for Liberty Mutual as well as Commerce Insurance, the state’s largest auto insurer, did not return calls for comment.

Burns and her staff were reluctant to discuss the issue publicly, but she said in a statement: “We continue to examine the many different transition issues carefully and expect to issue further guidance over the next few months on topics ranging from cancellation procedures to surcharges and appeals in order to ensure as smooth a transition as possible.”

Experts do not expect the Board of Appeals to disappear entirely, since it also holds hearings on insurance cancellations and license decisions made by the Registrar of Motor Vehicles. Redress through the courts would also maintain an option, although the Board of Appeals was created, in part, to speed up the appellate process and conserve court resources.

Drivers who have not renewed their policies also continue to be eligible for surcharge appeals. Even those who have taken advantage of the competition to switch insurers since April 1 are still governed by the existing rules, under a one-year transition period between the old and new systems.

But under the rules Burns still must promulgate, people who have switched policies, and everyone who must renew them in the future, could lose their appellate right under the new regulations.

“Our opinion is that for policies that were issued under the new managed competion, that that appeal has gone away,” said Frank Mancini, president and chief executive officer of the Massachusetts Association of Insurance Agents.

The association, which represents the agents who sell policies written by the insurers, sent its members a newsletter last month that said, in part, “This news regarding surcharges and appeals will, no doubt, catch some off-guard. But there were just so many other changes this year that it was easy to miss.”

The association went on to say, “We’ll just have to wait and see what happens.”

Mancini said in a telephone interview that the association favors retaining some sort of appeals process.

“From our standpoint, if a person has a problem with being at fault, our feeling is that they should have the ability to appeal that to an impartial third party to hear that complaint,” he said.

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