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requirements; (2) availability or guaranteed issue requirements, obliging the insurer to offer coverage to all members of the group; and (3) non-cancellation and non-renewal provisions, under which the insurer may not cancel or refuse to renew the policy of any group member without cancelling or refusing to renew the policy for the entire

group.

The restrictions on group eligibility, quite simply, limit the number of persons to whom collective plans may be offered. These restrictions may, by themselves, be sufficient to preclude collective merchandising. Under the New Hampshire statute, for example, in order to qualify for a group plan a group must have 500 or more members and have seventy-five percent participation in the plan. 557/ Certainly, many groups would be disqualified by the minimum size requirement. In any event, it is doubtful that a collective auto insurance plan would achieve seventy-five percent participation: past experience suggests that 25 percent participation is a

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The guaranteed issue, non-cancellation, and renewal
individual underwriting

clauses aim at a different aspect:

selection. Typically, insurers seek to control losses

through the careful selection of risks. The guaranteed issue requirements, and to a lesser extent the non-cancellation and renewal requirements, deny the insurer's underwriting control. While an insurer might be able to mitigate the deleterious effects somewhat through its rate structure, the restriction of its selection ability could deter its collective merchandising efforts.

In the late 1960's, a pseudo-enabling bill prepared by the Independent Mutual Agents of New England (IMANE) 558 was enacted in Connecticut 559 and New Hampshire. Seemingly similar legislation has been adopted in at least three other states, Massachusetts, 560 New Jersey, 561/ and Louisiana, 562/ and as discussed below, many states have adopted at least Some of the components of the pseudo-enabling acts.

558 Webb, Regulation, supra note 556, at 495.

559 Id. Many of the restrictions in the Connecticut Statute were removed in subsequent legislation.

Gen. Laws $ 38-185m.

560/ Mass. Gen. Laws ch. 175

S 193R.

See Conn.

561/ New Jersey Insurance Regulation, Mass Marketing of Property and Liability Insurance, 1974.

562/ Louisiana R.S. 22:

1534-1535.

(3) Other Restrictions

There are a number of other restrictions which may be directed at the marketing of collectively merchandised

plans. Three seem worthy of attention:

(i) Credit card laws prohibit insurers from

employing the facilities of any firm engaged in the credit card business to solicit or negotiate any contracts of insurance, or to bill and collect premiums, from cardholders. Professor Webb found that these laws had "very little effect" on the distribution of automobile insurance; at the time of his writing, only one major attempt had been made to sell auto insurance through credit card facilities. 563/ There are no figures available to indicate what cost savings, if any, could be realized through credit card service utili

zation.

(ii) Agency laws

-

Under some agency laws, an employer in a group plan might be considered an "insurance

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agent" and subject to state licensing requirements. 564/ Agency laws do not seem to have posed a serious obstacle to collective merchandising. 565/

563, Webb, Senate Report, supra note 551, at 161.

564 See, Texas Insurance Code, ch. 21 art. 21.14 (V.A.T.S. Insurance Code, art. 21.14).

565 S. Kimball and H. Denenberg, "Mass Marketing of Property and Liability Insurance", (Report for the Department of Transportation) (Hereinafter DOT], 108.

(iii) Limits on group purpose

-

Several

states, including some which have sought to facilitate collective merchandising, have included the proviso that collective plans may not be offered to groups formed principally for the purpose of obtaining insurance. 566/ restrictive effects of this provision are uncertain. Department's Survey of State Restrictions on Collective Merchandising

b.

The

In March 1976, questionnaires were sent to the insurance departments of the fifty states and the District of Columbia to determine what restrictions, if any, are imposed against mass merchandised and true group auto insurance plans. Forty-five jurisdictions responded, representing a predominant segment of the nationwide market in private passenger automobile insurance.

566 See, e.g., Hawaii R.S. § 431-755; Insurance Department of the State of New York Regulation No. 58 (11 NYCCR 13) (4). See also NAIC Model Regulation for the Mass Marketing of Property and Liability Insurance [Hereinafter NAIC Model Reg.], $ 4, which states: approval of the (Commissioner) sell insurance pursuant to a "No insurer shall, without the mass marketing plan to members of any association or organization formed principally for the purpose of obtaining

insurance."

88-934 0-77-pt. 1-28

Essentially, the survey of state statutory and reg

ulatory restrictions on collective merchandising may be summarized as follows:

(1)

(2)

"mass merchandised" auto insurance 567/

is prohibited in 9 respondent states
and restricted in some manner in at
least 12 other states; and

"contributory true group" auto
insurance 568/ is proscribed in

18 respondent states and restricted
in some manner in at least 5 other
states.

We will examine the findings in greater detail below.

567/ The survey used the following definition for mass
merchandised plans:

For purposes of this inquiry, "mass
merchandising" is characterized by individual
rating based on essentially the same class
and territory structures used for non-group
merchandised business and by individual under-
writing selection of participants in the group.
The plan may be sponsored by an employer or
other third party, but there is no employer
contribution.

568 Contributory true group plans are defined, as follows:

For purposes of this inquiry, "contributory
true group merchandising" is characterized by
group experience rating in which coverage is
available to a number of otherwise independent
individual risks on a guaranteed issue basis
under a single program, without individual
underwriting selection or individual proof
of insurability, and in which the employer
contributes to the cost of the coverage.
Also, for purposes of this inquiry, the
policies are issued individually and not
through a master contract.

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