04/10/2008 Hearing on Emergency Commonwealth Automobile Reinsurers Rules TESTIMONY
Good afternoon. My
name is Stephen D’Amato, and I am a consultant to the Center for Insurance
Research, a consumer research and advocacy non-profit organization. I worked at the Division of Insurance for 12
years, including seven years as the Director of the State Rating Bureau. I am here today to offer the joint testimony
of the Center and MASSPIRG relating to Docket Number C2008-01, the Hearing on
Emergency Commonwealth Automobile Reinsurers Rules – Amendments to CAR Rules
21-24 and 26-38.
The Center and MASSPIRG stand by all of their previous
criticisms of the rules governing the residual market and today identify three
new issues raised by the emergency rules promulgated on February 6, 2008. First, the emergency rules deal illegally and
unfairly with the situation in which an insurer – typically a smaller one –
contracts with a second insurer to handle the residual market customers of the
first insurer. Under the Division’s
emergency rules, these customers are charged the rates of the second
insurer. This allows a smaller insurer
to game the system and charge higher rates to its residual market customers simply
by contracting with a second insurer that has higher rates. Not only does this violate the Lane-Bolling
amendment (G.L. c. 175, s. 113H[D]), but this is also clearly unfair to the
residual market customers receiving the higher rates, as well as to the larger
insurers, which are not generally permitted to enter into these kinds of
contracts under the rules. I would note
that this issue was handled fairly in the original rules presented to the
Division by Commonwealth Automobile Reinsurers, but the Division rejected those
rules and replaced them with emergency rules producing the opposite result.
The second problem with the new rules is the loophole, mentioned by others
here today, that allows new entrants in the market to avoid participation in
the Massachusetts Automobile Insurance Plan for a period of up to three
years. Massachusetts, unfortunately, has a
reputation for creating financial benefits to new entrants at the expense of
other insurers. New entrants should be
on a level playing field with all other insurers. Otherwise, the Division of Insurance will be
sending the message that insurers are not treated equally in Massachusetts.
The third problem with the new rules is the lack of clarity
on the issue of whether an insurer can refuse coverage to a driver during the
transition period. For the past month,
the Division’s own website has stated, with respect to the transition period:
During this time, a driver can
only be refused coverage if he\she:
- Has 10 or more surcharge points,
- Is a newly licensed driver seeking his\her own policy, or
- Has not had a Massachusetts automobile policy during the last 12 months
When
the Center and MASSPIRG pointed out that USAA and State Farm were not following
these rules, it is my understanding that several members of the press were
informed that the website was inaccurate.
Moreover, on March 30, the Lowell
Sun reported the following:
“In the voluntary market, insurers can decline to write people so
long [as] it isn’t for one of the forbidden reasons,” Burnes said, referring to
age, race and other social factors.
Insurance companies cannot refuse
to renew someone’s policy if that driver’s record and car have not changed from
the year before.
A copy of that story is attached to this testimony.
It is our view that the Division should support the rule set forth on its
website; but if the website misrepresents the Division’s position, the Division
should immediately clarify when consumers may be refused coverage by an
insurer.
Thank you for the opportunity to
testify today.
Submitted by:
Stephen D'Amato Deirdre
Cummings Consultant Legislative
Director Center for Insurance Research MASSPIRG Cambridge, MA Boston, MA (617) 441-2900 (617)
292-4800
