Massachusetts will permit auto insurers to sell six-month policies in another change under the state’s newly operational managed competition system that gives insurers more freedom.
Independent agents have balked at the decision to permit six-month policies, maintaining they’re against the law and against consumers’ best interests.
Insurance Commissioner Nonnie Burnes on April 3 signed off on a bulletin outlining the rules for insurers wishing to offer endorsements for six-month policies. Insurers must offer 12-month policies; they can’t offer only six-month terms and they can’t refuse to insure anyone based on the length of a policy.
Also, insurers must obtain written acknowledgment from any policyholders accepting the offer of a six-month policy. This has to indicate that they understand they can’t be forced to accept only a six-month policy and that the premium for the half-year policy will be half of the annual premium.
An endorsement for six months may not modify any other terms and conditions of coverage.
Agents see a number of pitfalls for consumers in this latest option.
They warn that insurers will be tempted to adjust premiums every six months rather than annually. “This isn’t bad thing when rates are going down, but this change would also allow insurers to implement rate increase more quickly,” Frank Mancini, president and CEO of the Massachusetts Association of Insurance Agents, said in a letter to Burnes.
Agents also note that merit rating surcharges and discounts, credits and other options will be affected more quickly under six-month policies.
But Kimberly Haberlin, spokesperson for Burnes, said those are among the reasons for permitting the shorter policies.
“Six-month policies will give consumers more freedom and flexibility to take full advantage of the wide range of benefits managed competition has to offer,” she said. “Companies can file new rates and enter the market at any time. It is important that consumers have the option of benefiting from these types of opportunities if they wish to.”
Even though the state is requiring insurers to get written approval from policyholders, Mancini said agents are concerned that “consumers will feel pressured to sign the acknowledgment because of their uncertainty about the availability of coverage unless they agree to the shorter policy.”
Mancini also said his group believes six-month policies are barred by state law, which he says mandates that policies be for a year but not more than two years.
But Burnes and her staff do not agree.
“The Division did receive inquiries from insurers seeking to offer six-month policies to their customers. We have no plans to revisit or make changes to an important new option Massachusetts consumers should have available to them under managed competition,” Haberlin told Insurance Journal.