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Massachusetts Personal Auto Insurance Limited Competition In A Fixed

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Massachusetts Personal Auto Insurance Limited Competition In A Fixed – PowerPoint PPT presentation

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Title: Massachusetts Personal Auto Insurance Limited Competition In A Fixed


1
Massachusetts Personal Auto Insurance


Limited Competition In A Fixed
Established State
  • Robert C. MacNicholl
  • Acting Director, State Rating Bureau
  • MA Division of Insurance
  • Session REG-41
  • Regulatory Update
  • CAS Seminar on Ratemaking
  • March 9-10, 2000

2
MA Personal Auto Rate Law
  • MA--only fixed established state for personal
    auto in U.S.
  • fixed established state--insurance commissioner
    determines one set of rates and classifications
    to be used by all insurers operating in MA

3
MA Personal Auto History
  • 1925--first state in U.S. to enact compulsory
    auto liability insurance
  • 1928--enacted fixed established rate law for
    compulsory auto liability insurance
  • 1976--enacted law that ended state set rates as
    of 1/1/77
  • 1977 (January)--open competition begins
  • 1977 (July)--open competition ends with rebate
    legislation that capped all increases over 1976
    at 25

4
Alternative Auto Rate Options Available under MA
Law
  • 1968--113B classification deviations (downward)
  • 1973--group marketing deviations (downward)

5
MA Personal Auto Market Experiences Low Point in
1980s
  • Rate Adequacy

6
MA Residual Market Mechanism in 1980s
  • Reinsurance Facility (C.A.R.)
  • Assessments Tied to Base Year 1982
  • Cession Rate Increases to 68 in 1989

7
Insurers Exit Market
  • Combination of C.A.R. Assessment Rules Rate
    Adequacy
  • Exit Rules Make Withdrawal Difficult

8
MA Auto Insurance Reform Act of 1988
  • Consensus Flows from Crisis
  • Major Reforms
  • Monetary Tort Threshold Increased from 500 to
    2000
  • Increased PIP Limit from 2000 to 8000 with
    Health Insurance Primary in 2001-8000 Layer
  • Allowed Insurers to Establish Direct Payment
    Plans with Referral Body Shops
  • Directed Residual Market Mechanism to Come Up
    with Depopulation Plan

9
MA Personal Auto Market in Early 1990s
  • Improved Rate Adequacy

10
Reform in Residual Market Assessment Methodology
  • Assessment Based upon Voluntary Market Share and
    Utilization
  • Phase-In from Base Year Methodology to
    Utilization (1990-93)
  • Cession Rates Decrease to 10 Range

11
Competitive Turning Point in 1995
  • Open Groups First Approved in Late 1994 (Greylock
    Credit Union)
  • AAA Group Deviation Applications Filed by
    Commerce Ins Co Approved in Mid 1995
  • 1,000,000 AAA Members Approved Eligible for 10
    Rate Deviations
  • Brief Panic Occurs Among Insurers
  • Timing of Approval Gives Competitors Time to
    Develop Reaction

12
Competitive Responses in MA Auto Market
  • 113B Classification Deviations
  • Liberty Mutual SDIP Step Deviation
  • Group Marketing Plans
  • Open Closed Groups
  • Mutual Insurer Dividends
  • Auto Payment Plans
  • No Finance Charges or Installment Fees

13
Subsidies in MA Auto Rates
  • Relativity Tempering
  • Flat Loading of Residual Market Deficit Pure
    Premium
  • Rate Cell Capping (5 13)
  • Class Constraints

14
Groups
15
Other New Issues in MA Personal Auto
  • OEM Parts Endorsement
  • Vehicle Replacement Cost Endorsement
  • Managed Care Endorsement
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