I have been discussing Arbella Mut. Ins. Co. v. Comm'r of Ins., in which the Supreme Judicial Court addressed several issues relating to the Massachusetts Automobile Insurance Plan (MAIP), under which high-risk drivers obtain automobile insurance issued by private insurers.
The Massachusetts Association of Insurance Agents (MAIA) challenged MAIP Rule 30.C. That rule establishes a process by which an insurer may opt to move a high-risk driver assigned to it under MAIP to its voluntary portfolio. Under the rule, insurers doing so must currently continue to pay a commission to the agent who submitted the application to MAIP; but after April 1, 2011 they will no longer need to do so.
MAIA argued that 1) Mass. Gen. Laws ch. 175 § 113I requires that a commission continue to be paid; 2) the rule violates Mass. Gen. Laws. ch. 175 § 162F which codifies the "American Agency System," by giving agents the exclusive right to data necessary to solicit insurance policy renewals.
The court held that policies assigned under MAIP do not come within the American Agency System because the insurance agents have a statutory rather than contractual relationship with the insurers. The agents submit the MAIP application on behalf of a high-risk driver. The application is randomly assigned to an insurer. The agent has no contract with the randomly-assigned insurer.
The court also rejected MAIA's argument that Mass. Gen. Laws ch. 175 § 113I requires the insurer to continue to pay "fair and reasonable" commissions because insurers who take advantage of the rule to offer voluntary renewals are acting "pursuant to the plan approved under § 113H." It held that the term "pursuant to" only requires insurers to pay commissions for policies involuntary assigned to them. Policies that have been transferred to the voluntary market no longer come within the statute.
Showing posts with label Massachusetts Automobile Insurance Plan. Show all posts
Showing posts with label Massachusetts Automobile Insurance Plan. Show all posts
Thursday, March 4, 2010
Tuesday, March 2, 2010
SJC rejects auto insurer's argument that different MAIP rules for large insurers than small insurers should be thrown out
I have been discussing Arbella Mut. Ins. Co. v. Comm'r of Ins., 456 Mass. 66 (2010), in which the Supreme Judicial Court addressed several issues relating to the Massachusetts Automobile Insurance Plan (MAIP), under which automobile insurers are required to issue policies to high-risk drivers.
Arbella challenged MAIP Rule 36, which regulates agreements called "limited assignment distribution agreements" or LADAs. A LADA is an agreement under which one insurer, called an "assigned risk company," or ARC, services, for a fee, all of the high-risk policies another insurer was assigned under MAIP.
Rule 36 sets out several requirements for LADAs. It states that insurers with less than five percent of the market share may assign their risks without approval from the insurance commissioner, and that insurers with more than five percent of the market share must obtain the commissioner's approval. It also states that only insurers with more than one percent of the market share may serve as ARCs.
Arbella argued that Rule 36 harms consumers because high-risk drivers whose policies are assigned under a LADA will face higher rates from the assignee insurer than they would from the assignor insurer, and that large insurers are unfairly treated differently than small insurers under the rule.
The court noted that policies issued to high-risk drivers often require a disproportionate degree of administrative attention from the companies that service them. Companies with less market share, and therefore fewer assigned high-risk drivers, may be less well-equipped to give policyholders that extra attention. The court stated that is the reason that Rule 36 allows companies with a market share of five percent or less to enter LADAs without first seeking the commissioner's permission.
The court stated that the requirement that only companies with at least one percent of market share may serve as ARCs ensures that ARCs will have the necessary resources to manage the high-risk policies. It also stated that the minimum market share requirement means that ARCs will have a competitive rate on their voluntary policies. Since insurers are required to charge the same rate for their assigned high-risk policies as for their voluntary policies, the rule ensures that the rates charged for high-risk policies are competitive.
The court held that Arbella lacks standing to object to the rule because the statute at issue was not intended to protect insurance companies, but consumers.
Arbella challenged MAIP Rule 36, which regulates agreements called "limited assignment distribution agreements" or LADAs. A LADA is an agreement under which one insurer, called an "assigned risk company," or ARC, services, for a fee, all of the high-risk policies another insurer was assigned under MAIP.
Rule 36 sets out several requirements for LADAs. It states that insurers with less than five percent of the market share may assign their risks without approval from the insurance commissioner, and that insurers with more than five percent of the market share must obtain the commissioner's approval. It also states that only insurers with more than one percent of the market share may serve as ARCs.
Arbella argued that Rule 36 harms consumers because high-risk drivers whose policies are assigned under a LADA will face higher rates from the assignee insurer than they would from the assignor insurer, and that large insurers are unfairly treated differently than small insurers under the rule.
The court noted that policies issued to high-risk drivers often require a disproportionate degree of administrative attention from the companies that service them. Companies with less market share, and therefore fewer assigned high-risk drivers, may be less well-equipped to give policyholders that extra attention. The court stated that is the reason that Rule 36 allows companies with a market share of five percent or less to enter LADAs without first seeking the commissioner's permission.
The court stated that the requirement that only companies with at least one percent of market share may serve as ARCs ensures that ARCs will have the necessary resources to manage the high-risk policies. It also stated that the minimum market share requirement means that ARCs will have a competitive rate on their voluntary policies. Since insurers are required to charge the same rate for their assigned high-risk policies as for their voluntary policies, the rule ensures that the rates charged for high-risk policies are competitive.
The court held that Arbella lacks standing to object to the rule because the statute at issue was not intended to protect insurance companies, but consumers.
Thursday, February 25, 2010
Background on the Massachusetts Automobile Insurance Plan
In Arbella Mut. Ins. Co. v. Comm'r of Ins., the Supreme Judicial Court addressed several issues relating to 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.
This post will discuss the background of MAIP, and my next posts will discuss the substantive decisions made by the SJC about certain provisions of MAIP.
Mass. Gen. Laws ch. 175 § 113H requires the Commissioner of Insurance to create a system whereby auto insurers provide insurance to high-risk drivers (generally drivers who have received a lot of tickets or otherwise shown themselves likely to get into accidents). The Commissioner has a lot of leeway over exactly what the system will be.
MAIP is the current plan enacted by the Commissioner. Under it, insurers are assigned policies issued to high-risk drivers in proportion to each insurer's share of the voluntary market.
This post will discuss the background of MAIP, and my next posts will discuss the substantive decisions made by the SJC about certain provisions of MAIP.
Mass. Gen. Laws ch. 175 § 113H requires the Commissioner of Insurance to create a system whereby auto insurers provide insurance to high-risk drivers (generally drivers who have received a lot of tickets or otherwise shown themselves likely to get into accidents). The Commissioner has a lot of leeway over exactly what the system will be.
MAIP is the current plan enacted by the Commissioner. Under it, insurers are assigned policies issued to high-risk drivers in proportion to each insurer's share of the voluntary market.
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