RESIDUAL MARKETS A BURDEN:

A new report by the Property Casualty Insurers Association of America (PCI) shows that residual market plans for private passenger auto insurance continue to result in significant losses for insurance companies. All states and the District of Columbia have systems in place—commonly known as “assigned risk plans”—that guarantee coverage for motorists who cannot obtain insurance in the private market. The assigned risk plans and similar programs are part of what’s known as the shared, or residual market. Policyholders are assigned to various companies that write business in that state. Insurers must provide coverage and pay claims for these policyholders. According to the report, the private passenger auto residual market increased from 1.5 percent of premiums nationwide in 2000 to 1.8 percent in 2001. That reverses a trend that has seen an annual decline in the residual market share since 1992 when it was at 5.6 percent. In the vast majority of states, the market share is less than one percent, but seven states have more than the average market share, such as North Carolina at 15.4 percent and Massachusetts, at 11.2 percent. South Carolina was noted as a “bright spot.” Its residual market share “dropped from over 25 percent of all policies in 1998, to 1.2 percent in 2001” after reforms were implemented in the late 1990s. The report found that automobile business written by residual market plans in nine states—Florida, Hawaii, Maryland, Massachusetts, Michigan, Missouri, New Hampshire, North Carolina and South Carolina—generated an underwriting loss of $596 million in 2001. Losses in North Carolina amounted to $171 million and in Massachusetts, which has a unique plan, losses totaled $337 million for both personal and commercial auto policies.