- Why did the Commissioner decide to end the "fixed and established" system of rate making?
- Does the Commissioner's ruling herald the advent of competition in the auto insurance marketplace?
- What is managed competition?
- How will urban drivers fare under the system of managed competition?
- How will the Commissioner implement the system of managed competition?
- Why not delay discontinuing use of the "fixed and established" system until all elements of managed competition are in place?
- What assurances do consumers have that they will not be harmed in the transition to managed competition?
Under Massachusetts General Law, the Commissioner has a three-prong test that she must apply as part of her decision as to whether she continues use of the "fixed and established" system. She only can continue with the "fix and established system" if at least one of the following conditions exist: (1) the resulting rates would be excessive; or (2) the rates would be harmful to the solvency of any insurer or detrimental to the insurance marketplace. The Commissioner has found that none of such conditions exist and she has ruled accordingly.
The Commissioner, through her ruling and subsequent regulatory actions she will take, plans to introduce managed competition to the Massachusetts auto insurance marketplace beginning in April 1, 2008.
Managed competition represents movement away from the current over-regulated market without adoption of unfettered competition. It has the following benefits to consumers and the marketplace: (1) It should ensure that consumers with good driving records, irrespective of where they live, will enjoy lower rates; and, (2) it will permit insurers more flexibility, within defined parameters, to introduce flexible and competitive products to better serve the consumers.
Also, under managed competition, the Commissioner retains a regulatory oversight function to ensure that good drivers enjoy the benefits of such managed competition, regardless of where they garage their cars.
Based on the proceedings before the Division, the Commissioner anticipates rate declines in 2008, particularly for good drivers, irrespective of where they live.
The Commissioner will introduce a regulatory framework to provide guidance to insurance companies as we move forward. This regulatory framework will set forth the parameters within which insurance companies will be free to propose premiums, considering such factors as driving record, number and severity of at-fault accidents, and traffic violations. In Year 2, the Commissioner will review the number of territories that are currently in use.
The Commissioner will conduct at least one public hearing as part of introducing the regulatory framework to support the transition to managed competition. At this public hearing, consumers, advocates, industry representatives, producers and other interested parties will be able to comment and help shape the outcome to achieve the objectives of managed competition.
The primary elements in the law that call for the Commissioner to discontinue the "fixed and established" system are in place (see above). It would be inconsistent with statutory requirements to continue the fixed and established system. Most of the elements that are required to make the transition to managed competition are in place or will be after introduction of the regulatory framework. The Commissioner would have preferred to implement territory reform simultaneously with the introduction of the first phase of managed competition; however, the assessment of territories requires further careful analysis and more time, which is not available in the context of the current proceedings.
The Commissioner retains broad statutory authority and regulatory powers to take corrective actions should any insurer seek to take advantage of consumers under the system of managed competition. The Commissioner can disapprove rates before they become effective. The Commissioner also has the power to prevent rates that are unfairly discriminatory; and, the Commissioner retains the power to step in after the fact if evidence indicates that rates are excessive in any given territory.
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