Citing Millions in Increased Costs for Drivers, AG Coakley Calls for Suspension of Anti-Consumer Auto Insurance Rule
MAIP Customers are Receiving Notices that their Policies will not be Renewed, Resulting in Higher Upfront Fees and Confusion
In the letter sent today, Coakley asked Commissioner Joseph Murphy to suspend Rule 29D governing the state's residual market system, known as the Massachusetts Auto Insurance Plan (MAIP). In the letter, Coakley said that the newly effective rule exposes MAIP customers to price shock through excessive down payment requirements. Last year, more than 100,000 vehicles were insured through the MAIP, which charges Massachusetts consumers approximately $150 million in auto insurance premiums annually.
At Attorney General Coakley's urging, the insurance industry board that manages the MAIP, known as CAR, convened a working group to study these concerns regarding Rule 29D. However, CAR would not suspend the new rule while performing this review. Because the rule took effect in April, and a number of consumers are now receiving non-renewal notices, Attorney General Coakley today requested that the Commissioner intervene to suspend the rule until a better system is designed. The Attorney General's Office, the insurance industry, the Massachusetts Urban Agent Association and the Division of Insurance are actively participating in the working group.
"This newly effective rule unfairly stacks the deck against consumers who are forced into the MAIP," said Attorney General Coakley. "Under Rule 29D, even those MAIP customers with perfect payment histories and driving records can be 'non-renewed' by their insurance companies, and then forced to pay significantly higher premium deposits in order to get another MAIP policy. In addition, the 'non-renewal' notices being sent to consumers lack specificity and are likely to result in an increased number of uninsured motorists on Massachusetts roadways. We want to address this problem now, before it gets any bigger."
Under Rule 29D, insurance companies have the option of "non-renewing" drivers assigned to them through the MAIP every three years-even when a driver has a perfect driving record. Those drivers are sent a "legal notice of non-renewal." If those drivers re-apply to the MAIP, they will be assigned to a new insurance carrier. Under Rule 29D, they must pay significantly higher premium deposits than they were previously required to pay (even if they had perfect payment histories on their prior MAIP policies).
As part of the CAR working group, and at a hearing before the CAR board which designs the MAIP rules, Attorney General Coakley's Office raised a variety of concerns including:
- The CAR rule will result in price shock by increasing the required premium deposits. Because returning MAIP consumers will be treated as if they are "new" MAIP customers under Rule 29D, they will be required to pay significantly higher deposits. These higher premium deposits will be 25% of the MAIP price, rather than 20% of the carrier's voluntary price. Sometimes this differential can be hundreds of dollars.
- The CAR rule increases consumer confusion. Many consumers will find the "non-renewal" notices stressful and confusing. Many of the "non-renewal" notices cite confusing reasons for the non-renewal such as "MAIP Assignment Expired." Some consumers may understand such language to mean that they cannot re-apply to the MAIP and as a result, their auto insurance coverage may end up lapsing. In addition, some insurers have reportedly withheld copies of the non-renewal notice from consumers' agents. In such cases, consumers may not get the benefit of their agent's assistance in securing a new insurance policy.
- The CAR rule may increase the number of uninsured drivers. Some consumers will not fully complete their paperwork in a timely manner and will end up losing their insurance coverage. This not only harms the consumer, but also puts other Massachusetts drivers at risk by increasing the number of uninsured motorists on the road. A better system can be devised so that fewer people fall through the cracks and end up uninsured.
- The premium deposits required under Rule 29D may result in violations of Massachusetts law. Massachusetts law prohibits insurance companies from charging consumers premium deposits that exceed 30% of the annual premium. Since Rule 29D currently requires that returning MAIP customers be charged 25% of the MAIP rate, in some cases this amount will exceed 30% of the carrier's voluntary rate. Per M.G.L. c. 175, § 113H, known as the Lane Bolling Amendment, an insurance company operating in the MAIP must charge MAIP customers its voluntary rate whenever its voluntary rate is lower than the MAIP rate.
This matter is being handled by Attorney General Coakley's Insurance and Financial Services Division.