§ 4 — Joint underwriting insurance; compulsory membership; powers; plan of operation; participation ratio; board

Section 4. (a) All insurers licensed to write and engaged in writing in this commonwealth, on a direct basis, basic property insurance or any component thereof in multi-peril policies, shall cooperate in organizing a joint underwriting association which shall provide basic property insurance to eligible applicants who are otherwise unable to obtain such coverage in the voluntary market. Every such insurer shall be a member of the association and remain a member as a condition of its authority to transact such insurance within the commonwealth.(b) Such association shall be authorized to inspect properties, issue policies, collect premiums and accept payment in installments under plans approved by the commissioner consistent with plans offered by voluntary market insurers, adjust claims and pay losses on behalf of its members, employ officers, agents and other employees, enter into contracts, sue and be sued in its own name and take all other actions necessary or appropriate to carry out its functions hereunder.(c) The association shall submit to the commissioner a proposed plan of operation, consistent with the purposes of this chapter, to provide for the prompt and efficient provision of basic property insurance to eligible applicants who meet reasonable underwriting standards and are otherwise unable to obtain coverage from insurers in the voluntary market. Such plan of operation shall provide for economical, fair and nondiscriminatory administration including, but not limited to, provisions for preliminary assessment of all members for initial expenses necessary to commence operations, establishment of necessary facilities, management of the association, assessment of members to defray losses and expenses, commissions, reasonable underwriting standards and limits of liability, purchase of reinsurance and procedures for determining amounts of insurance to be provided.(d) The plan of operation shall be subject to approval by the commissioner and shall take effect ten days after having been approved by him. If the commissioner disapproves the proposed plan of operation, the association shall, within thirty days, submit for review an appropriately revised plan of operation and, if the association fails to submit such a plan or if the revised plan is also disapproved by the commissioner, the commissioner shall promulgate a plan of operation consistent with this section. The association may, on its own initiative or at the request of the commissioner, amend the plan of operation, subject to approval by the commissioner.(e) (1) All members of the association shall participate in its writing, expenses, profits and losses in the proportion that the premiums written by each such member for basic property insurance, as defined in section one, except premiums for insurance on automobile and manufacturing risks excluded from the plan and that portion of the premiums attributable to the operation of the association during the preceding calendar year, bear to the aggregate premiums for such insurance written in the commonwealth by all members of the association. Such participation by each insurer in the association shall be determined annually on the basis of such premiums written during the preceding calendar years as disclosed in the annual statements and other reports filed by the insurer with the commissioner.(2) The participation of each member of the association writing personal lines coverage shall be adjusted based on the homeowners premiums written by such a member in any credit-eligible territory in accordance with the following clauses:(i) The participation ratio of each member writing personal lines insurance shall be recalculated, in accordance with the procedures set forth in subparagraph (1) but subtracting the premium written by members of the association writing only commercial lines insurance from the aggregate premiums written in the commonwealth by all members of the association.(ii) The participation ratio of each member writing personal lines insurance as recalculated in clause (i) shall be multiplied by the sum of the total premium written by the association in the commonwealth and the total industry homeowners premium written in credit-eligible territories, as defined in this chapter.(iii) In determining the total industry homeowners premium written in credit-eligible territories, premium written in the territory in which the association's homeowners insurance market share is largest shall be weighted at one. The weight assigned to premium written in other credit-eligible territories shall be calculated by determining the ratio expressed as a decimal, between the percentage market share of the homeowners premium written by the association in such territory and the percentage market share of homeowners premium written by the association in the territory in which the association's market share is the largest, and then rounding such ratio to the nearest tenth. All such calculations shall be based on an average of the premiums written in the three most recent calendar years. Weights calculated in accordance with this clause shall be adjusted whenever a territory becomes or ceases to be credit-eligible, or every three years if no adjustment has been made in the two preceding years.(iv) The product of the multiplication described in clause (ii) of this subsection shall be reduced by subtracting therefrom the homeowners premium written by each member in any credit-eligible territory adjusted in accordance with the weights set forth in clause (iii).(v) The result of the calculation described in clause (iv) shall be divided by the total premium written by the association in the commonwealth. The resulting ratio shall be the adjusted participation ratio for the member.(vi) The adjusted participation ratio of those members whose participation ratio is calculated as provided in this subparagraph shall apply to that portion of the writings, expenses, profits and losses of the association not recovered by applying the participation ratios of the remaining members of the association as calculated, as provided in subparagraph (1).(3) On or before November first, nineteen hundred and ninety-eight, the association shall file an amendment of the credit system applicable to homeowners insurance, as set forth in section four, for approval by the commissioner, who shall approve such a credit system effective on or before January first, nineteen hundred and ninety-nine, so as to award credits based upon homeowners premiums written in postal zip codes, rather than territories. The revised credit plan shall identify any credit-eligible zip codes by the percentage of the total homeowners premium written in such zip codes by the association, shall require a higher market share penetration by the association than set for credit-eligible territories, shall provide that the percentage of the statewide homeowners premium written by the association in such credit-eligible zip codes does not exceed the percentage of such premium written by the association in territories which are credit-eligible in nineteen hundred and ninety-seven and shall set forth the appropriate weights for such zip codes in accordance with the provisions applicable to weighting premium in credit-eligible territories.(4) The participation of any member of the association writing personal lines insurance shall be further adjusted if such member has written homeowners insurance during the preceding calendar year, hereafter called the ''base year'', on property that was insured by the association in the year immediately preceding such base year and which is located in any coastal territory in which the rate of increase in the market share of the association has exceeded sixty percent in the base year and in the preceding calendar year. The participation of such a member shall be adjusted by reducing the amount of premium written by such member in subparagraph (1) by twenty percent of the total homeowners insurance premiums written by the member on property described in this clause. Such adjustment shall not apply to any insurance written on property that was insured by the member or any affiliate or subsidiary member in either of the two years preceding the base year.(f) The association shall be governed by a board of eighteen directors, who shall serve without compensation, ten to be elected annually by the members of the association by cumulative voting, and two representatives of associations of insurance agents and brokers doing business in the commonwealth and six public representatives not affiliated with the insurance industry to be appointed annually by the commissioner of insurance. Cumulative voting by members shall be permitted at all such elections.