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All About Rules

By: ELA (Wed, May/13/2009)

The Massachusetts Division of Insurance recently released an eagerly awaited decision on emergency rules that were promulgated back in February, without the result that many insurers in the Commonwealth had hoped for.

Several companies that have been in the Massachusetts personal auto market for years objected to new, seemingly unnecessary rules that made a small change that could have much more significant ramifications. The change provided for separately managed companies within a larger group of companies to elect to be treated as a different company for the purposes of taking on assigned risk business.

Insurers and agents speaking at a hearing back in March worried that such companies would technically be treated as newly writing insurers, meaning they would be allowed a two-year delay in accepting high-risk assignments from the Massachusetts Automobile Insurance Plan (MAIP).

“Speakers at the hearing posited various negative possibilities, but provided no substantive information on the likelihood that an insurer group would adopt such strategies,” stated Hearing Officer Stephen M. Sumner and Commissioner of Insurance Nonnie S. Burnes in the decision.

That’s very trusting of the regulators to give the benefit of the doubt to insurers, but given that insurers offered up those scenarios, it’s likely that they know exactly how they could benefit from such strategies and that they wouldn’t be against employing them, particularly if other insurers are getting a better deal by doing so.

The Division feels it has the ability to monitor the proper sort of playing field by keeping competitive practices in check. Burnes cites “rational business practices” as the way to “control the remote potential for abuse.”

Speakers at the hearing also said that two companies within a group could both appoint an agent and have the agent steer all voluntary business to the newly writing company part of the group, so that the new business and higher market share would not prompt a resulting rise in the company’s MAIP responsibility. The Division also disagrees with that.

What the Division states about the practicality and the sense of setting up companies to avoid MAIP assignments is all true. That’s how it should work, with insurers not looking to exploit funky rules for their own benefit. Unfortunately, it’s a bit naïve as the Massachusetts automobile insurance market has always provided a way for companies to game the system. There was never a need for this change. It just adds an odd little rule that could vastly expand the creativity and options of the players of the game.
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