Mass. Agents Seek 4% Auto Commission Hike; Defend Studies

While lawmakers wrangle with possible reforms that could make such filings unnecessary, Massachusetts independent insurance agents have filed for a four percent hike in the commission they receive on private passenger auto insurance polices and sought to put to rest doubts about how representative its membership is of all of the state’s independent agencies.

If approved by Insurance Commissioner Julianne Bowler, the increase would mean a typical commission per policy of $126.19 beginning April 1, 2007, up from the current figure of $121.34.

Whatever new commission is approved for 2007, it will not to go into effect on the traditional date of Jan. 1. Under a new law, rates and commissions for 2007 will go into effect beginning April 1 next year. This later effective date is intended to lessen the need for insurers to issue provisional invoices. Insurers have sent estimated invoices in past years because the decision on overall rates is not announced until Dec. 15, which in turn delays approvals for group and safe driver discounts until mid-February.

“This should reduce the workload for agents and companies and reduce the confusion for policyholders,” said Frank Mancini, president and chief executive officer, Massachusetts Association of Insurance Agents, on the April 1 date.

MAIA’s commission filing for 2007 uses the same 2005 cost study information utilized for 2006 but trends it forward to reflect anticipated increases in agency costs.

MAIA did not perform a fresh cost study for 2007 because it wants to settle an issue over whether its studies of its membership is fairly representative of the state’s population of independent agencies. This year’s filing seeks to establish that its membership is fairly representative because it writes more than 90 percent of the business written by independent agents in the state.

Bowler raised the representation question last year, citing a list from the state’s official statistical agent for auto insurance, Commonwealth Auto Reinsurers, which showed that some 28 percent of private passenger independent agencies did not belong to MAIA.

According to Mancini, MAIA decided to confront this issue of whether it had to include non-members before proceeding with a new cost study. Having to reach non-members promised to increase the costs (which are now about $300,00 annually) and complications of the research, he told Insurance Journal, and the group wanted to be sure this was necessary.

After some negotiating, MAIA was granted access to CAR’s list to identify the non-members. The group’s consultant, Tillinghast, found that CAR’s list included branch offices and affiliates that were not separate agencies as well as some out-of-state agencies and non-independent agency exposures, according to its filing, which was also prepared by Tillinghast.

After adjusting the data for these discrepancies, MAIA claims there are 1,751 total independent insurance agencies writing private passenger auto insurance in the state, of which 1,521 – or 86.9 percent– are MAIA members.

More to the point, claims MAIA, its members write 94.1 percent of the exposures written by independent agents, a percentage that its actuaries say should make its membership representative of the whole.

“We believe that as long as MAIA members write more than 90 percent of the policies written by Massachusetts agencies, it is reasonable to perform cost studies of MAIA members alone,” its filing states.

Mancini said his association hopes the commissioner will agree that as long as MAIA members account for more than 90 percent of exposures, a cost study that only samples its members is acceptable.

Legislation on Beacon Hill would move the state toward competitively set rates and commissions and make future MAIA filings unnecessary. Although this bill has been reported out of committee, it has not been yet been heard by either branch.