Insurance agents say auto shift spells doom

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.”

Burnes said that the Division of Insurance (DOI) wasn’t seeing the geographic discrepancies that Webster and the other agents alleged. She showed several graphs and charts that she said showed agents without contracts are spread across the state. She also said that urban ERPs are getting voluntary contracts, including about half of producers in Boston and 13 of the 31 in Dorchester and Roxbury.

Those without contracts, like Paul D. Wasgatt, must now operate with slashed business in a terrible economy.

“What you’re saying to us is, ‘Send your customers that you’ve developed over 23 years in the business to other companies,’” said Wasgatt, owner of Safeside Insurance Agency in Worcester.

Because ERPs “spent all these years writing the business that nobody wanted to touch,” Wasgatt added, they typically have higher loss ratios, which makes them less attractive to insurers — and reduces their chances of getting contracts.

Many agents said they had tried to get voluntary contracts, but were unsuccessful. Some said they’d been promised pacts, only to see carriers back out.

A representative for one carrier referenced by several agents, MetLife Auto and Home, said the company “has extended voluntary appointments to exclusive representative producers … across the state over the last several years.”