SJC upholds rule in which auto insurers are not assigned high risk drivers for their first two years in the Commonwealth

In my last post I wrote about Arbella Mut. Ins. Co. v. Comm'r of Ins., 456 Mass. 66 (2010), in which the Supreme Judicial Court addressed the interplay between auto insurers that have recently entered the Massachusetts market and the Massachusetts Automobile Insurance Plan (MAIP), under which high-risk drivers obtain automobile insurance issued by private insurers.

The background to this case is changes to auto insurance regulations a couple of years ago which resulted in many new insurance carriers entering the Massachusetts market.

The court addressed a challenge by Arbella, a long-standing insurer in Massachusetts, to MAIP Rule 30.A. That rule delays the assignment of high-risk drivers to companies new to Massachusetts for two years after they enter the Massachusetts market.

Arbella first argued that Rule 30.A exceeded the statutory authority given to the insurance commissioner, which requires allocation to be "fair and equitable."

The court rejected Arbella's argument. It noted that newly writing companies do participate in MAIP from the time they enter Massachusetts by paying assessments for the operating expenses of MAIP. It discussed the fact that in the past new insurers were allocated fewer high-risk policies than established insurers.

The court also rejected Arbella's argument that Rule 30.A permits newly writing companies to poach less-risky policies from established insurers without worrying that their increased market share would result in a proportional increase in their assignment of high-risk drivers. The court stated that Arbella had not demonstrated that the formula unbalances competition any more than the former rules did. It noted that the Commissioner stated that insurers face start-up costs when entering the Massachusetts market, so that the two year delay was a fair and equitable formula.