Insurance agents say auto shift spells doom

Dan Devine | 3/18/2009, 6:20 a.m.

Tempers flared during a meeting last Wednesday at the State House about the next step in Massachusetts’ transition to a competitive auto insurance market.

The furor’s most frequent target: Insurance Commissioner Nonnie S. Burnes, who listened for two hours to more than 100 insurance agents express fear and anger that the changes will force them to close up shop.

“Look at the people in this room,” said Marie-Armel Theodat of Theodat Insurance Agency in Dorchester. “These are the people you’re putting out of business. And we’re here to tell you: It’s not fair.”

Theodat and the other agents in attendance operate as exclusive representative producers (ERPs). Since the 1970s, ERPs have been charged with writing car insurance policies for drivers placed into Massachusetts’ “high risk” pool — the customers that insurers wouldn’t voluntarily cover because they believed the drivers posed too high a risk. That non-voluntary market has been governed by the industry-operated Commonwealth Automobile Reinsurers (CAR).

Under that system, drivers could go to any insurance carrier they chose to get coverage. However, if insurers didn’t want to take full responsibility for drivers they deemed “high risk,” they could “cede” those drivers to CAR.

The ERPs had contracts with CAR, through which they were assigned to work with different carriers. The agents would basically play middle-man, writing policies for ceded drivers that the insurers were required by law to accept. Through the reinsurance plan, net losses insurers suffered due to ceded drivers would be spread out, with individual companies getting reimbursed by the industry.

In sum, nobody could be denied insurance, drivers could choose their insurers, companies weren’t stuck paying for losses caused by drivers they didn’t want to cover, and ERPs had a stream of business.

But come April 1, the rules change. All insurers will be required to write policies for drivers assigned to them in the non-voluntary market, cutting out the middle-man and making ERPs victims of what state Sen. Jack Hart called reform’s “unintended consequences.”

Several agents used another term —  collateral damage.

Burnes said the changes are part of the rollout of “managed competition,” which was announced in the summer of 2007 and began last April.

“Unfortunately, I didn’t hear about the issues you’re raising until a couple of weeks ago — which is not to say I’m not listening, because I am,” Burnes said. “We do want to help you in this transition.”

Things look particularly grim for ERPs who don’t have contracts with insurance carriers to write policies in the voluntary market. The agents presented a map that they said showed the locations of most of the producers without contracts — mostly low-income, urban areas like Boston, Worcester, Brockton and Springfield.

After the meeting, Linda L. Webster of Pacific Insurance Agency in Dorchester said the map indicates the kind of drivers that insurers would prefer to cover.

“Insurance companies are looking for people that live in Wellesley and Newton with $500,000 homes,” said Webster. “They’re not making the money that they want on our customers.”