8 - State Rating Bureau

8.1 Mission

The mission of the State Rating Bureau (SRB) consists of three primary functions:

  • Monitoring insurance markets
  • Developing technical reports and analyses for the Commissioner on emerging trends in support of the Division's regulatory responsibilities
  • Reviewing policy forms, rules and rates filed by or on behalf of insurance companies to ensure that insurance coverage and rating practices are actuarially sound and fair to consumers

The Bureau includes three major subdivisions - the Bureau of Managed Care, the Health Care Access Bureau, and the Policy Form Review Section. The State Rating Bureau participates on behalf of the Commissioner in numerous intra-governmental and public policy groups to evaluate policy options. The Bureau works closely with the Division's legal staff to develop insurance industry bulletins and filing guidance documents to clarify rating and coverage rules and to develop consumer documents that explain features of various insurance products.

8.2 2008 Goals

Take steps to facilitate the implementation of the reformed market for private passenger auto insurance by establishing guidelines that promote the entrance of new companies and a wider diversity of products and rates that improve the availability of choices for Massachusetts consumers.Complete

Coordinate the Division's efforts to implement health insurance reform as identified in Chapter 58 of the Acts of 2006 and related statutes.Complete

Regulate insurance policy forms, rates and programs. Take steps to revise regulatory processes - including transition to electronic systems such as the System for Electronic Rate and Form Filing (SERFF) and Electronic Funds Transfer (EFT) - to promote more efficient and effective business practices and communications with consumers. These efforts are intended to reduce the average reviewing time for policy, form and rate filings to 60 days or less.Complete

8.3 Primary Activities

As the technical advisor to the Commissioner, the work of the State Rating Bureau covers many different areas of the insurance marketplace. In 2008, the State Rate Bureau performed reviews and analyses in the following areas of insurance:

  • Private Passenger Automobile
  • Workers' Compensation
  • Home
  • Medical Malpractice
  • Credit
  • Health
  • Policy Form Review

8.31 Private Passenger Automobile



Private passenger motor vehicle insurance accounted for over $4 billion in Massachusetts written premium dollars in calendar year 2007 - this is over twice the level of premiums collected for any other line of property and casualty insurance.


On July 16, 2007, the Commissioner found that market conditions for private passenger automobile insurance supported a move to competitive rating. This change was effective on April 1, 2008, in a market affecting approximately 4 million vehicles. In the 18-month period between July 2007 and December 2008, State Rating Bureau and Legal Division staff worked closely to ensure that companies' new rates and forms were available for consumers to benefit from the new competitive market.

Managed Competition



After 31 years, the rigid fix-and-establish ratemaking process was replaced with a managed competitive rate process on April 1, 2008. Instead of being required to use standard policy forms and rates, companies were also permitted to submit their own policy forms and rating plans provided that the products satisfied Division policies established by regulations, rules and bulletins. Special one-year transition rules were developed that facilitated the change and allowed Massachusetts residents a wider array of choices already available in most other states.

On the first day of managed competition, 20 company groups offered rates and forms in the newly competitive market. During the remainder of the year, four additional companies (Peerless, AIG Private Client Group, Vermont Mutual and Progressive) received approval to offer products in the market. During this process, State Rating Bureau staff, including those in the Policy Form Review Section, completed reviews in an exceptionally quick fashion so that products could be available by the scheduled date.

Residual Market Reform

In addition to introducing competitive rating, the Commissioner also changed the residual market for private passenger automobile insurance from a cession-based system to an assigned-risk system beginning on April 1, 2008. In order to minimize disruption in the market, the Commissioner implemented the residual market change in two stages. In the first transition year, companies were able to decline coverage for new drivers and very high risk drivers. Such drivers could then be assigned through the Massachusetts Assigned Insurance Plan (MAIP).

The MAIP is administered by Commonwealth Automobile Reinsurers (CAR) according to rules that are approved by the Division. CAR rules mandate that the service provided to drivers in the MAIP must be comparable to coverage and service provided to drivers in the voluntary market. Drivers assigned through the MAIP pay the lower of the MAIP premium or the company's voluntary premium.


8.32 Workers' Compensation




Workers' compensation insurance covers lost wages, medical costs and rehabilitation costs associated with work related accidents or illnesses. With few exceptions, employers are required to purchase workers' compensation coverage for their employees.

SRB staff review all industry bureau and individual company rate, rule, and form filings - including rate deviation filings. The coverage and rates are established according to the processes established under M. G. L. c. 152. Industry filings are coordinated through the Workers' Compensation Rating and Inspection Bureau of Massachusetts (WCRIB) - an entity licensed as a Rating Organization under M. G. L. c. 174A. The WCRIB also acts as the Division's Statistical Agent and Pool Administrator.

Rate Review



The Bureau negotiated a final stipulation with the Attorney General's Office and representatives of the WCRIB to reduce average statewide workers' compensation rates by 1% for coverage effective September 1, 2008. The negotiated settlement also included modifications to certain administrative expenses that are paid by employers and premium adjustments for employers that have had losses in the past several years. Both of these changes resulted in even greater rate decreases for small employers in Massachusetts. This stipulation is estimated to save policyholders approximately $12 million annually, and is the ninth time rates have decreased since 1994.


Statistical Plan and Residual Market Changes

During 2008, the SRB - in coordination with the WCRIB - made revisions to the Massachusetts Statistical Plan that will replace Individual Case Reporting with a simpler national Detailed Claim Information Program. The new Detailed Claim system will provide more and better data regarding medical services and costs. Staff also developed a data remediation plan for the state's largest carrier in order to ensure that the data used to determine appropriate industry-wide rates will be based on accurate loss and premium information.

In continuation of previous efforts to improve the quality of collected data to be used for ratemaking purposes, SRB staff worked closely with WCRIB staff to review audit reports on the quality of submitted data, and advised WCRIB staff on methods that may improve the compliance of certain large carriers. Additional accomplishments included the implementation of new financial incentives to ensure the timely reporting of data and requirements for the cooperation of employers in insurer payroll audits, so that better premium data may be collected.

The SRB also assisted the WCRIB in a transition to a paperless system for residual market pool applications, and in the development of new "premium algorithms" so all companies can calculate premium in the same manner.

Monitoring the Workers' Compensation Residual Market



Massachusetts has a Workers' Compensation Assigned Risk Pool to provide compulsory coverage for employers that cannot find insurance in the voluntary market. The Division monitors the size of this residual pool.




8.33 Home Insurance

Home insurance covers the cost of damage to one's home, as well as personal liability claims that may be filed against the owner of the home. The State Rating Bureau is responsible for:

Monitoring the market for coverage
Reviewing the activities of the residual market administered through the Massachusetts Property Insurance and Underwriting Association (FAIR Plan)

Reviewing all company and FAIR Plan form, rule and rate submissions

Commissioner's Report on Home Insurance




Each year, the Bureau staff completes a report that examines the market for home insurance, the causes of home insurance loss, trends in cancellations/non-renewals, and emerging trends in the availability of coverage - especially in coastal areas. A copy of the report is available in the Publications & Reports section of the Division website - www.mass.gov/doi.

Among the findings of the annual report is that the number of Massachusetts home insurance policies written between 2005 and 2007 increased by approximately 39,000 policies.

Among the three major types of coverage - condominium, homeowners and tenant - the biggest relative change occurred in the market for condominium coverage, with 46,000 additional condominium policies written in 2007 compared to 2005. While homeowner's policies represent the lion's share of home insurance policies, condominium policies represent the area of growth in the marketplace.

Between 2005 and 2007, the average premiums for condominium and tenant policies decreased, but the average premium for homeowners insurance policies increased from $864 per policy to $1,050 per policy.




Availability of Coverage



In Massachusetts, the FAIR Plan provides coverage for home insurance when a homeowner cannot locate coverage in the open market. Beginning in 2003, the number of policies covered under the FAIR Plan increased dramatically as licensed companies began non-renewing their coastal exposures in the Cape, Islands and southern Bristol and Plymouth Counties. By the end of 2007, the FAIR Plan had grown to over 204,000 policies, and covered 14.5% of all coverage written in Massachusetts in 2007.



FAIR Plan Rate Hearing

The FAIR Plan submitted a rate filing on March 21, 2007, requesting new rates that would have increased statewide homeowner's multi-peril average rates by 13.2%, and rates in the Cape and Islands area by as much as 25%. State Rating Bureau staff actively participated in the rate hearing held between April 2007 and February 2008 to consider the actuarial merits of the filed rates. In addition to scrutinizing FAIR Plan filing materials and cross-examining FAIR Plan and Attorney General witnesses, SRB staff submitted advisory filings and briefs to argue the position of the Bureau.

The Commissioner decided on May 8, 2008 that the FAIR Plan failed to meet its burden of proof in the proceeding and the rate filings were disapproved. The chart on the left chronicles the FAIR Plan rate changes from 1996 through the 2008 decision.

Danvers Special Examination

Beginning April 11, 2007, the State Rating Bureau coordinated a special examination to review the processing of claims related to a November 22, 2006, Danvers chemical plant explosion. The blast from the explosion and the resulting fire accounted for insurance company claims filed on damages affecting over 500 homes, businesses, boats and motor vehicles either in the immediate vicinity or locale of the blast. The Division completed its exam in March 2008, and found that of the 531 claims filed, only six remained unresolved within 12 months of the explosion. Companies paid a total of $14,346,778 for damage to homes and associated personal property, businesses, motor vehicles, and boats damaged by the explosion.


8.34 Medical Malpractice Insurance

Medical malpractice insurance covers medical malpractice claims and the expenses associated with defending alleged medical malpractice. The State Rating Bureau is responsible for:

  • Monitoring the market for coverage
  • Analyze and collect data
  • Reviewing the activities of the residual market pool
  • Reviewing all company-filed form, rule and rate filings

In 2008, the State Rating Bureau completed a report that examined the costs of medical malpractice coverage for health care practitioners. Based upon information presented at hearings held in Boston and Worcester and additional research, the SRB presented the cost and availability of coverage and examined options for changing the market. A copy of the report is available in the Publications & Reports section of the Division website - www.mass.gov/doi.



New Legislation

On December 30, 2008, Chapter 444 of the Acts of 2008 amended the medical malpractice statutes to require that medical malpractice coverage offered to physical therapists and physical therapist assistants be available on a "take-all-comers" basis beginning March 30, 2009.


8.35 Credit Insurance




Credit insurance is offered with many non-mortgage loans and credit card applications. Depending on the coverage, these products will pay all or some portion of outstanding loan balances in the event of the death, disability or involuntary unemployment of the covered person. Insurance companies offering these policies must issue special disclosures that make the covered persons aware that they are not required to purchase the coverage to obtain the loan or credit. Insurers must also comply with special statutory loss ratio requirements.

Starting this year, the SRB developed an annual report based upon information submitted by the individual carriers. In general, the level of coverage issued in Massachusetts has continued to drop as other non-insurance debt relief products ( e.g., debt cancellation products) are available from banking institutions. Between 2005 and 2007, total reported incurred credit insurance premium for Massachusetts fell from $40 to $35 million.




In the course of reviewing annual submissions, the Bureau examined the filings to determine whether companies continued to satisfy the statutorily required minimums of a 50% loss ratio for credit life, 55% loss ratio for credit accident and sickness, and 60% loss ratio for credit involuntary unemployment insurance. Based upon this review, the SRB contacted companies whose rates fell below those statutory minimums to revise their premiums. The charts on the left illustrate the number of rate deviations filings received during 2008 - highlighting the instances when a company changed their rates because their loss ratios fell below the statutory minimum.




8.36 Health Insurance



Bureau of Managed Care

The Bureau of Managed Care (BMC) reviews health insurance company materials to determine whether their operations satisfy managed care protections required under Massachusetts General Laws chapter 176O. These protections include those related to:

  • Consumer disclosures
  • Evidences of coverage
  • Provider contracts
  • Network directories
  • Utilization reviews
  • Quality assurance and credentialing
  • Internal appeals systems

In addition, the Bureau of Managed Care advises the Commissioner on emerging issues associated with health reform, company operations and administrative practices, managed care practices, and mandated health benefits.

Health Maintenance Organizations (HMO) provide the vast majority of all insured health plan coverage in Massachusetts. More than 2 million people receive health care coverage through an HMO plan from one of 10 companies. Relative market share during the 3 rd quarter of 2008 is shown by the chart to the right.




Managed Care Accreditation Reviews

The BMC is responsible for conducting a comprehensive review of all insured health plans with managed care systems every two years in order to determine compliance with the requirements of M. G. L. c. 176O. Companies that are not accredited are not permitted to offer managed care plans in Massachusetts. During 2008, the BMC completed the review of 37 existing health insurance companies and completed the initial accreditation review of two companies: Delos Insurance Company and Boston Medical Center Health Plan, Inc.

In addition to annual accreditation reviews, the BMC completed the review of 751 material change filings to already completed accreditation filings. Most of the materials submitted were changes to existing health insurance evidences of coverage. During 2008, the BMC implemented the SERFF system being used by the Policy Form Review section to facilitate the review of BMC filings. All filings submitted after December 31, 2008 are required to be filed via SERFF.

Health Reform

During 2008, the BMC coordinated many of the Division's efforts to implement health reforms created under Chapter 58 of the Acts of 2006, as well as Chapters 257, 305 and 321 of the Acts of 2008. The BMC worked closely with other state agencies - including the Commonwealth Health Insurance Connector Authority (Connector), Department of Public Health, Department of Mental Health, and the Executive Office of Health and Human Services - to revise regulations and develop bulletins and guidelines to assist consumers and insurance carriers in complying with the new policies.

In 2008, the Division issued bulletins that provide guidance on:

  • Expanded coverage for family dependents, in some cases up to age 26
  • Disclosure of whether a plan satisfies the Connector's Minimum Creditable Coverage standards

The BMC also convened the first meeting of the Advisory Committee on Uniform Billing and Coding in December, 2008. Representatives from local providers and payers make up this committee that is charged with providing recommendations to the BMC for the adoption of policies and procedures on uniform billing and coding of health claims. The advisory committee will hold additional meetings in 2009 to continue the development of the recommendations.

As required under Chapter 58, the BMC coordinated the administrative steps necessary to complete the phase-out of the existing Small Group and Non-Group Health Reinsurance Plans. In December, 2008, the Governing Committee held its last meeting to close down plan operations, distributed the remaining surplus to those companies who participated in each plan and took steps to audit the final plan distributions.

Health Care Access Bureau

The Health Care Access Bureau (HCAB) is responsible for monitoring the market for health insurance coverage - concentrating on the availability and affordability of coverage. Members of HCAB represent the Commissioner on a number of health insurance committees and task forces, including:

  • Health Care Quality and Cost Council
  • HealthyMass Compact
  • Interagency Analytic Work Group
  • Long-Term Care Financing Advisory Committee

During 2008, the HCAB worked actively with the Bureau of Managed Care and with other state agencies, including the Executive Office of Health and Human Services, the Connector, and the Division of Health Care Finance and Policy, to implement reforms created under Chapter 58 of the Acts of 2006 and Chapter 305 of the Acts of 2008 and examine ways to address health cost and quality.

Access: Merger of Small Group/Individual Markets



Two essential componants of Health Care Reform were the the July 1, 2007 merger of the small group and individual markets and the development of Young Adult Plans to provide additional coverage options for individuals in Massachusetts. The HCAB examined the number of people covered in individual plans before and after the merger and found that coverage in individual health plans increased by 28,220 from 2006 to 2007.





Affordability: Actuarial Reports

From time to time, the Bureau will identify important issues or questions that require a level of analysis beyond the capabilities or resources of existing staff. On these occasions, the Division will contract with outside actuarial consultants with appropriate expertise to conduct high-level analyses under the direction the HCAB, and issue a report on behalf of the Division.

The HCAB staff contracted with actuarial consultant Oliver Wyman to study the cost factors driving increases in the cost of health care and health insurance. In one study, Oliver Wyman looked at trends in Massachusetts' HMOs' paid health care claims. As illustrated in the report, the claims cost per member per month for medical services increased by 55%, from $154 in 2002 to $239 in 2006.



Oliver Wyman conducted a second study to examine Massachusetts HMOs' administrative expenses compared to those of HMOs in other states. As illustrated in the report, the administrative expense ratio for Massachusetts health carriers is similar to that of HMOs in other Northeast states and nationwide.

Mercer Consulting conducted a third study to examine the features of health plans bought by large employers in Massachusetts. As illustrated in the report, the consultants found that Massachusetts survey respondents are dropping closed network HMO plan options, but have been slower to drop HMOs than respondents from the Northeast and the US as a whole. Approximately 77% of Massachusetts respondents offered HMOs in 2007, compared to 86% in 2001, the year HMO offerings peaked.



Copies of both Oliver Wyman reports and the Mercer report are available in the Publications & Reports section of the Division website - www.mass.gov/doi.

Health Care Quality and Cost Council

Staff from the HCAB represented the Commissioner on the Health Care Quality and Cost Council created under Chapter 58. Council members are responsible for creating and maintaining a website that presents the cost of receiving certain procedures by health care provider, and for examining ways to improve quality and address increases in overall health care costs.


Council activities focused primarily on the collection of claims data from all licensed health insurance plans, analyzing the submitted data and developing a website that illustrates the relative quality and cost of receiving a procedure, supply or service from one health care provider as opposed to another. The website - http://hcqcc.hcf.state.ma.us - was created and launched on December 10, 2008.


HCAB members actively participated on the Council's Communications and Transparency, Cost Containment, and Data Release Review Board Committees. Each committee is examining ways to improve communications with consumers, developing cost containment strategies and new data collection guidelines.

Long-Term Care Insurance

Long-term care insurance covers the cost of community and facility-based care services provided to those who are unable to perform certain Activities of Daily Living due to chronic illness. Companies offering individual coverage in Massachusetts are required to offer certain benefits and make detailed disclosure of the coverage features.

During 2008, the federal Government Accountability Office (GAO) issued a report entitled "Long-Term Care Insurance: Oversight of Rate Setting and Claims Settlement Practices" that pointed out differences in rate review standards and claim paying practices from one state to another. Following a review of the summary information included in the report, the Division initiated market studies to examine the following:

  • The number of Massachusetts residents who buy long-term care, the product benefits that they buy and the relative costs of coverage
  • The rate review standards used by other state insurance regulators when examining company requests to increase rates on existing long-term care insurance products
  • The claims paying practices of long-term care insurance companies operating in Massachusetts.

Results of these studies will be released in 2009.


8.37 Policy Form Review

The Policy Form Review Section is responsible for reviewing property & casualty, life & annuity, and accident & sickness filings made by insurance companies to ensure they are consistent with Massachusetts law. The focus of these reviews is on consumer protection, adequate reserving for claims, and justification of rates.

Process Changes



Working closely with the insurance industry, the Policy Form Review staff took numerous steps in 2008 to streamline filing requirements in order to:

  • Eliminate unnecessary administrative materials
  • Collect consistent types of materials necessary to review filings
  • Improve efficiency and consistency in reviewing policy forms, rules and rate filings

In addition to holding Policy Forums with industry trade groups, the Division issued two bulletins making specific changes to the review process.

In May of 2008, the Division issued Bulletin 2008-08 to eliminate many previously issued administrative filing requirements and clarify filing procedures. The goal of this change was to streamline the process so that the Policy Form Review staff could approve, disapprove, place on file or reject filings within 60 days of their filing date. The Division also indicated in the Bulletin that it would accept filings from property & casualty, life & annuity and health companies beginning with January 1, 2009 only if the filings were sent in electronically via the SERFF (System for Electronic Rate and Form Filing) system. The Bulletin discussed taking the steps necessary to implement the Electronic Funds Transfer (EFT) capability so that companies would no longer need to make administratively burdensome filings to the Division's bank lockbox system. All the noted changes were implemented prior to December 31, 2008, and all filings are now being received and reviewed electronically.

In December of 2008, the Division issued Bulletin 2008-19 to clarify the method that insurance companies use to calculate fees for filings submitted to the State Rating Bureau. Prior to the bulletin, varying fee filing rules applied to property & casualty, life & annuity and health insurance filings. The bulletin clarified that all companies, including fraternal benefit societies, Health Maintenance Organizations, Blue Cross and Blue Shield of Massachusetts, Delta Dental of Massachusetts and Massachusetts Vision Service Plan, would need to submit $75 for each company using the policy forms in a filing and $150 for each company using the rates or rules in a filing. The resulting change streamlines the time necessary to recover the appropriate fees for a filing so that it can then be reviewed by Policy Form Review staff.




Throughout 2008, in anticipation of Bulletin 2008-08, the Policy Form Review staff devoted substantial time and resources to convert previously submitted property & casualty and individual accident & sickness paper filings to electronic documents. This conversion took place according to a process approved by the Secretary of State's Records Conservation Board. By creating these electronic files and uploading them to the SERFF system, the filing materials are then immediately available to examiners and the general public. Pending future approvals from the Secretary of State, the Policy Form Review section will discard paper documents that have been electronically stored, thereby reducing the Division's overall storage needs.

Finally, the Policy Form Review section implemented new reporting systems by the end of 2008 that will enable staff to keep track of the number of forms, rules or rates processed within reasonable timelines. This new reporting system was necessary since companies may submit many forms, rules or rates within the same filing. This annual report includes statistics for both filings, as well as form, rule or rate materials for comparison with prior years. This data helps the section prepare for future filings.



The noted steps have improved the overall efficiency of policy review by facilitating staff's retrieval of files and communication with company filing staff. These changes have resulted in time service goals being achieved in 83% of our received filings. As we continue to refine our processes and utilize available technologies, we anticipate continued improvements in this area.

The Policy Form Review section implemented procedures in 2007 and 2008 to monitor the time that staff takes to review policy form, rule and rate filings. Due to steps taken to reduce unnecessary procedures and improve electronic filings, 92.75% of all 2008 forms and rates were reviewed and closed in less than 60 days.


The following illustrates the proportion of filings reviewed in the target time period of 60 days or less during 2008.