By Ethan V. Torrey
Massachusetts Insurance Commissioner Joseph G. Murphy and First Deputy Commissioner Elizabeth Brodeur spoke to the Boston Bar Association on October 15, 2012. The Commissioner presented an overview of the Massachusetts Division of Insurance, and discussed several current priorities of the Division, including: insurance rate regulation; enforcement actions; coordination with other regulators; credit for reinsurance; licensing of third party administrators; and consumer outreach programs.
- Overview of the Division.
The Commissioner explained that the primary mission of the Division is to monitor the financial solvency of insurers licensed to do business in the Commonwealth, to promote a healthy marketplace for consumers who purchase insurance products. The Division focuses on several major areas:
- Health Care. The Division oversees the small group and individual health insurance markets (the “Merged Market”). It reviews policy forms and rates, and endeavors to provide access to affordable insurance products.
- Financial Regulation. The Division monitors the financial condition of insurance carriers through ongoing analyses of quarterly and annual financial filings, as well as periodic on-site financial examination, to value assets, determine liabilities and verify compliance with applicable statutes and regulations.
- Market Conduct Regulation. The Division examines insurers’ business practices such as policy underwriting and rating practices, cancellations and non-renewals, claim settlements, agent licensing and sales and advertising. The Division also regulates insurance policy forms, rules, rates, and associated program procedures and operations. With respect to market practices of the industry relative to the tornadoes that struck Central and Western Massachusetts in June of 2011, the Commissioner noted that insurers had paid 98.2% of tornado-related claims within 10 months.
- Legal Unit. The Legal Division provides legal advice to the agency, consumers, executive and legislative branch members, and other interested parties in the Massachusetts insurance marketplace. The Commissioner conducts hearings on a range of issues, including insurance rates, actions taken by the Division against its licensees, and proposed financial transactions. The Division’s Special Investigations Unit investigates allegations of misconduct within the insurance industry, brings enforcement actions, and refers certain matters to federal and state agencies.
- Consumer Complaints. The Division assists consumers in resolving insurance complaints against insurers, producers and other licensees. It maintains a hotline that receives several hundred consumer complaints per week, and typically resolves over 2,000 written consumer complaints each year. The Division investigates complaints and refers appropriate cases to the agency’s Special Investigations Unit, as well as other federal and state agencies for enforcement.
The Division operates with a staff of 124 people, and a budget of $13.5 million, to oversee the tenth-largest insurance market in the United States, and the 26th-largest in the world. 94 domestic insurance companies operate in Massachusetts, and 1500 other insurance companies are licensed to do business in the Commonwealth, and the insurance industry directly employs roughly 100,000 people in the state. The Commissioner noted that the Division generates $124 million in revenue for the Commonwealth.
- Current Priorities of the Division.
The Commissioner and First Deputy Commissioner discussed several priorities of the Division, including: insurance rate regulation; enforcement actions; coordination with other regulators; credit for reinsurance; licensing of third party administrators; and consumer outreach programs.
- Insurance Rate Regulation.
- Small Group Health Insurance Rates. The Commissioner noted that in the spring of 2010, the Division changed the way it reviewed small group health insurance rates and disapproved a significant number of small group rate filings. Thereafter, litigation ensued in Massachusetts Superior Court, in actions that sought to enjoin the Division from disapproving these rate filings. These matters were returned to the agency for administrative hearings, most of which were resolved through settlement. In August 2010, Massachusetts enacted Chapter 288 of the Acts of 2010, which provided for significant changes in the regulation of the small group market. The Commissioner explained that, in the current rate review process, the Division examines submitted rates to ensure that they are not excessive, inadequate, unfairly discriminatory, or unreasonable in relation to the benefits provided. He noted that 17 state agencies deal with health care issues, and that the Division coordinates with those agencies and meets with them frequently.
- Automobile Insurance Rates. The Commissioner noted that former Commissioner Nonnie Burnes partially deregulated the private passenger automobile insurance market, effective April 2008. The Commissioner explained that since that time, twelve new companies have entered the Massachusetts market, and as a result, new products have been offered to Massachusetts consumers, and that consumers have saved hundreds of millions of dollars. New products available to consumers include accident forgiveness, mileage-based coverage, and pet coverage. The Division carefully reviews all automobile insurance rates, to ensure that they comply with state regulations and are not excessive, inadequate or unfairly discriminatory. The Commissioner noted that the Division’s website maintains some comparative information on auto insurance rates for interested consumers.
- Enforcement Actions. The Commissioner noted that the bulk of the hearings conducted by the Division are enforcement action hearings involving licensees. He noted that current enforcement actions mostly involve issues such as lapsed licenses, selling products that those entities are not licensed to sell, or instances where licensees have failed to disclose certain criminal history or administrative actions taken against them in other jurisdictions. He noted that most of the hearings do not go to full hearing, but instead result in settlements with the Division. He explained that Division staff attorneys act as hearing officers, with a different attorney advocating for the Division, and that the Division’s determinations may be appealed to the Massachusetts Superior Court or the Massachusetts Supreme Judicial Court, depending on the statute.
- Coordination with Other Regulators.
- Interstate Insurance Product Regulation Commission. Massachusetts is one of 41 members states in the Interstate Insurance Compact designed to foster coordination among state insurance regulators. The Compact established a multi-state public entity, the Interstate Insurance Product Regulation Commission, which serves as a central point of electronic filing for certain insurance products, including life insurance, annuities, disability income and long-term care insurance, which are subject to uniform product filing standards.
- Supervisory Colleges. The Commissioner explained that the Division participates in “supervisory colleges,” which allow the lead regulator of internationally active insurance entities to meet with the company’s primary regulators and discuss issues related to the company. The Division participated in a college concerning the MAPFRE Group, which includes Commerce Insurance Company, in Spain in 2011, and intends to host a college concerning Liberty Mutual Group in November 2012, as well as a college involving MassMutual Group in early 2013.
- Credit for Reinsurance. The Commissioner noted that the Division is considering pursuing legislative changes to be consistent with the NAIC’s current model law relative to credit for reinsurance.
- Licensing Of Third Party Administrators. The Division has supported legislation that would grant the Division the power to regulate Third Party Administrators (“TPAs”). Under Chapter 288, TPAs must register and make certain filings with the Division. However, the Division does not otherwise regulate TPAs. The Commissioner noted that direct regulation of TPAs could protect vulnerable consumers and ensure fair market practices.
- Consumer Outreach Programs. The Division has focused on proactive consumer outreach programs to educate policyholders. The Division will be holding insurance awareness events in Boston, Springfield, and Worcester in the coming months to encourage consumers to review their insurance coverage, to determine whether they have sufficient coverage for various exposures.
Roughly thirty audience-members attended the lunch-time event, and a lively discussion ensued following the Commissioner’s and First Deputy Commissioner’s remarks. Ethan Torrey, the Co-Chair of the BBA’s Insurance Law Committee, presented Commissioner Murphy and First Deputy Commissioner Brodeur with Certificates of Appreciation on behalf of the Boston Bar Association, and expressed the hope that they might return to the BBA next year to resume the discussion of these and other important issues facing the Massachusetts insurance industry.
 Ethan V. Torrey is a Partner at Choate Hall & Stewart LLP, in the firm’s Insurance & Reinsurance Practice Group, and is Co-Chair of the Insurance Law Committee of the Boston Bar Association. This article does not necessarily reflect the views of Choate Hall & Stewart LLP or its clients.