Effects of Reforms on Major Writer, Commerce

The leading writer of auto insurance in Massachusetts says it opposes the changes to the state’s residual market not because it fears competition or dislikes the assigned risk plan but because it sees a liability exposure from the way the changes are being handled.

Commerce Insurance Co. says it is worried about lawsuits over conflicts with existing consumer protections laws if those statutes are not addressed before the new residual market, the Massachusetts Assigned Insurance Plan (MAIP), is implemented.

“All we are asking is not to create a liability exposure for companies,” James A. Ermilio, Commerce senior vice president and general counsel, told Insurance Journal.

As laws potentially in conflict, Commerce has cited the state’s “take-all-comers” law, a law banning disparate treatment of agents, and another preventing disproportionate representation of certain territories or classifications in the residual market system.

As for costs of the MAIP, Commerce said its costs would rise $3.6 million in the first phase’s 18 months of implementation, assuming the plan is implemented retroactive to July 1, 2004 and substantially as submitted. Ermilio suggested that this is not a big concern for a company that reported $88.4 million in net earnings for the first six months of the year. The company said it would incur additional expense for the final six months of 2004 of $2.4 million, and in 2005 of $1.2 million.

Ermilio scoffs at the notion that Commerce dreads an assigned risk plan, noting that the company already uses similar systems in California and the Midwest states.

Commerce also disputes complaints about a gap between its market share and its share of high risks. He says its residual market participation ratio is in line with its market share: a 28.6 percent market share matched against a 24.0 percent participation ratio. Ermilio maintains there are companies with larger gaps.