Insurance News

Court OKs insurers’ high-risk exemption

Posted on: February 18, 2010

The state?s highest court yesterday upheld the Massachusetts Division of Insurance?s decision to temporarily exempt auto insurance companies that are new to the Bay State from having to cover high-risk motorists.

The Supreme Judicial Court?s ruling was the result of a lawsuit filed by Arbella Mutual Insurance, a Quincy carrier that claimed Nonnie S. Burnes ?exceeded her authority?? when she was insurance commissioner and favored national companies that are new to the Massachusetts insurance market. She changed insurance rules in 2008, exempting those insurers from covering high-risk drivers for two years.

Arbella, which filed the suit in 2008 with the Massachusetts Association of Insurance Agents, argued the exemption put Massachusetts insurers like Arbella at a disadvantage, because they are required to insure high-risk motorists and split the losses, based on their market shares in the state.

The court ruled that although the new companies don?t incur the losses of insuring bad drivers, they contribute to the administrative costs to the Massachusetts Automobile Insurance Plan, which provides insurance for high-risk drivers.

The court also upheld the right of insurers to stop paying commissions to agents on policies that are eventually moved out of the Massachusetts Automobile Insurance Plan – a regulation Arbella and the plan had challenged in the suit.

Burnes, who left office last year, led the state?s move to a so-called managed competition auto insurance system.

The goal was to attract new insurers to the market and, in turn, give Bay State drivers more choices.

Eleven companies, including Progressive Insurance, Allstate Insurance Co., and Geico, have entered the market since the deregulation, according to the Division of Insurance.

?This is further good news that managed competition is properly rewarding consumers and providing more flexibility and choice in the market,?? said Joseph G. Murphy, who took over as insurance commissioner last week.

Doug Bailey, an Arbella spokesman, said the company was disappointed by the court ruling. He referred to a report released in December by Attorney General Martha Coakley?s office that said Governor Deval Patrick?s administration gave preferential treatment to some carriers in regards to establishing auto insurance rules. Coakley sided with Arbella, but included a footnote indicating she was defending the commissioner?s right to impose the rules.

?We continue to agree with the Attorney General?s report of a few weeks ago that found the DOI (Division of Insurance) had created an unfair situation by tilting the playing field against domestic insurers that provide thousands of jobs and tax dollars to the state, in favor of out of state companies that create few jobs and do most of their business over the Internet or toll-free phone lines,?? Bailey said yesterday in an e-mail.

The Massachusetts Association of Insurance Agents did not return calls yesterday.

Before the deregulation, auto insurance rates were set by state regulators, and policyholders were charged based on driving records and where they registered their vehicles.

Insurers were required to write policies for almost everyone. That led some companies to avoid doing business in Massachusetts and little variation in prices.

Burnes, now a senior fellow at Northeastern University?s School of Public Policy and Urban Affairs, was not immediately available for comment yesterday, according a university spokeswoman.

© Copyright 2010 The New York Times Company

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