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Robert C. MacNicholl Acting Director, State Rating Bureau MA Division of Insurance Session REG-41 Regulatory Update CAS

Massachusetts Personal Auto Insurance Limited Competition In A Fixed & Established State. Robert C. MacNicholl Acting Director, State Rating Bureau

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Robert C. MacNicholl Acting Director, State Rating Bureau MA Division of Insurance Session REG-41 Regulatory Update CAS

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  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 1980’s • Rate Adequacy

  6. MA Residual Market Mechanism in 1980’s • 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 1990’s • 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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