massachusetts personal auto insurance limited competition in a fixed & established state robert...
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![Page 1: Massachusetts Personal Auto Insurance Limited Competition In A Fixed & Established State Robert C. MacNicholl Acting Director, State Rating Bureau MA Division](https://reader036.vdocuments.site/reader036/viewer/2022082613/5697bfd81a28abf838caf37e/html5/thumbnails/1.jpg)
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
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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
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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%
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Alternative Auto Rate Options Available under MA Law
1968--113B classification deviations (downward) 1973--group marketing deviations (downward)
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MA Personal Auto Market Experiences Low Point in 1980’s
Rate Adequacy
CALENDAR I/E LOSSYEAR RATIO1984 0.711985 0.821986 0.881987 0.821988 0.751989 0.75
SOURCE: NAIC ANNUAL STATEMENT, STATE PAGE DATA
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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
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Insurers Exit Market
Combination of C.A.R. Assessment Rules & Rate Adequacy Exit Rules Make Withdrawal Difficult
WITHDRAWAL SETTLEMENTINSURER NOTICE AMOUNTAETNA 1991 $87.5MALLSTATE 1989 $29.0MCIGNA 1990 $33.6MFIREMEN'S FUND 1987 $4.0MHARTFORD 1991 $7.7MROYAL 1990 $37.8MST. PAUL 1990 $8.8M
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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
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MA Personal Auto Market in Early 1990’s
Improved Rate Adequacy
CALENDAR I/E LOSSYEAR RATIO1990 0.771991 0.701992 0.621993 0.591994 0.601995 0.561996 0.661997 0.671998 0.68
SOURCE: NAIC ANNUAL STATEMENT, STATE PAGE DATA
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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
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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
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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
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Subsidies in MA Auto Rates
Relativity Tempering Flat Loading of Residual Market Deficit Pure Premium Rate Cell Capping (5% & 13%) Class Constraints
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GroupsMASSACHUSETTS GROUP AUTOMOBILE INSURANCE
NUMBER OF APPROVED GROUPS BY YEAR
132
329
1179
2127
22332159
2209
0
500
1000
1500
2000
2500
1993 1994 1995 1996 1997 1998 1999
YEAR
# O
F G
RO
UP
S
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Other New Issues in MA Personal Auto
OEM Parts Endorsement Vehicle Replacement Cost Endorsement Managed Care Endorsement