Automobile Insurance Plans (AIPs)

In 43 jurisdictions, applicants who cannot obtain insurance in the voluntary market are shared equitably among all insurers in a state. The applicants are distributed to insurance companies in proportion to the amount of business each insurer writes voluntarily in the state. Each insurer then services the policyholders as it services its other customers, and absorbs the profit or loss.

Generally, this procedure is applicable to private passenger and miscellaneous non-fleet risks. Except for relatively few jurisdictions, risks applicable to other classes of business are shared in accordance with the commercial programs described in the following pages.

In some jurisdictions, within the framework of the automobile insurance plan, there is a provision for modification of the risk distribution procedure, the Limited Assignment Distribution (LAD). Under this program, smaller volume companies that wish to be  relieved from servicing private passenger and miscellaneous non-fleet direct assignments may do so by executing agreements with the Plan (or in some states with the servicing companies) and by payment of buy-out fees. The servicing companies process assignments of buy-out companies in addition to their own, while some companies continue to process only their own assignments. The objective of this program is to reduce the number of companies processing direct assignments.

In several jurisdictions with direct assignment of commercial risks, a similar provision for modification of the risk distribution procedure is the Commercial Limited Assignment Distribution Procedure (CLAD). As with the Limited Assignment Distribution (LAD), companies that wish to be relieved from servicing commercial direct assignments have the opportunity to negotiate with CLAD servicing companies to buy out of their quota of such risks.

The AIP mechanism originally was conceived to service private passenger vehicles. Assigned risk programs provided coverage to meet minimum requirements of financial responsibility laws in a given jurisdiction. Commercial exposures were included in this
coverage as they did not generate more than a minimal amount of premium and included very few, if any, large risks. Special Risks Distribution Programs (SRDPs) and a Servicing Carrier Program (SCP) were introduced in nine jurisdictions in the mid 1970s to provide a special program to deal with the larger commercial risks.

At the same time, insurers were experiencing a sharp increase in the number and size of commercial risks. This trend accelerated with passage of the Motor Carrier Act of 1980 and the Bus Regulatory Reform Act of 1982. These two legislative acts required much greater minimum financial responsibility limits of liability and coverage than previously provided by the Plans.

Methods to handle the expected increase in commercial risks were studied. The study encompassed the anticipated growth of commercial auto business; capacity of companies and Plans; skills necessary to handle the business; limited commercial writers who would be unable to service all commercial applicants; the cost of implementing and operating a residual market mechanism; quota distribution; coverages including limits required by statute or regulation; and the ability of the Plans, companies and producers to provide the expertise to insure proper handling of the business. The result of the study was the creation of a pooling mechanism known as the Commercial Automobile Insurance Procedure (CAIP). The first CAIPs were introduced in 1982.

With the Commercial Automobile Insurance Procedure (CAIP), a limited number of companies act as servicing carriers for eligible risks on behalf of all insurers writing commercial automobile business in the voluntary market. These carriers record CAIP experience as direct business and then cede 100 percent to the appropriate state Plan. The Plan subscriber companies assume their proportionate share of the pool's operating results.

New York introduced an SRDP in 1986. A special program for handling that state's taxis and limousines - the Taxi and Limousine Pool (T/LP) - was also introduced. This program was later redefined as the Public Automobile Pool (PAP) to include all vehicles classified as a public automobile. Participation in the New York SRDP and PAP is voluntary; a company may elect to receive direct assignment of SRDP and PAP type risks, or to share in the results of the programs.

A modified approach to the CAIP, known as the Commercial Assignment Procedure (CAP), was developed in Pennsylvania in 1991. This program is very similar to the early SRDPs. Under this program, eligibility for application of the pooling concept is restricted to specific classifications which require specialized expertise (e.g. truckers, taxis, buses) and to risks requiring maintenance of limits higher than those generally available under the state Plan.