CAARP Introduction, Part I: What is CAARP?


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Plan Administration

CAARP Advisory Committee - Their Role and Duties
The CAARP Advisory Committee is composed of 15 members who advise the Insurance Commissioner with the operation and administration of CAARP and the LCA Program. The Committee consists of the following:

Eight insurance company representatives - Elected yearly by all California insurance companies.
Four consumer members - Appointed each year by the Insurance Commissioner.
Two producer members (insurance agents) - Appointed each year by the Insurance Commissioner.
Department of Insurance representative

CAARP is administered and operated by the Insurance Commissioner as authorized by law. The Commissioner is required to consult with the CAARP Advisory Committee on a regular basis on policy matters affecting the operation of the Plan. The CAARP Advisory Committee meets in California every other month and its meetings are open to the public. The Committee's duty is to recommend changes to CAARP and to ensure that all rules and procedures are current and that rates are adequate. Once the Committee recommends a change to CAARP's regulations or rates the Commissioner is required to hold public hearings to determine whether any changes or rates are in keeping with the intent and purpose of CAARP

Cost of Administration
Every licensed insurance company in the state is assessed money to pay the expenses of that state plan, which includes personnel, office expenses and contracting costs. That assessment is based on their voluntary auto premiums compared to the statewide industry. Each year the Manager will develop a budget and then assess each company their share of the expenses based on this calculation. The minimum annual assessment is $250 per company.

Company Quotas and Application Assignments
The Plan office assigns applications received from producers/agents that are eligible for coverage based on each company's quota. A "quota" is based on a company's proportion of auto liability written premiums compared to the statewide written auto premiums. AIPSO develops this quota (or %) and adjusts it on a quarterly basis. Each day applications that are entered into the system are run through the quota program and are assigned to companies to fulfill their individual quotas. The assignment process is done on a random basis. No applicant can choose the company they get assigned to.

There are two exceptions to the random assignment of applications. Those are:

Household Rule - If there are other insured vehicles in the household the agent should attach a photocopy of the declaration page of those vehicles so that the assigned risk application can be assigned to the same company. This will ensure that all vehicles in the household are insured with the same company.
If the applicant owes money to a company for prior coverage the new application will be assigned to the same company so that the new business deposit can be applied to the current debt.

Limited Assignment Distribution (LAD)
Some companies decide that they do not want to handle or be involved with the assigned risk plan. The Plan provides for those companies what is called a "Limited Assignment Distribution", or LAD. That company is allowed to sell their assigned risk quota to a LAD servicing carrier, a company that specializing in processing auto assigned risk business. The company wanting to sell their business or quota negotiates with the LAD servicing carrier and pays a fee for their services. The LAD servicing carrier then takes over the business as if it was their own, issues the policy in their name and handles any claims.

The LAD servicing carriers must meet certain requirements in order to be appointed by the Commissioner and must continue to meet those requirements on an annual basis as reviewed by the CAARP Advisory Committee.

Rate Determination
All risks placed through CAARP are subject to the approved rules, rates, surcharges, minimum premiums and classifications filed on behalf of all insurers subscribing to the Plan by AIPSO.

The CAARP Advisory Committee reviews the rates annually and recommends to the Insurance Commissioner any necessary rate revisions. Rates are not to be excessive or deficient in any way but are designed to support the losses developed from the programs. The Commissioner holds public hearings on all CAARP/LCA rate proposals prior to approving any rate increase or decrease.

Appeals Process
Per Section 16 of CAARP's Manual, any applicant, producer, insured, or insurer who is affected by any act, ruling, decision, or order of an insurer, the Manager, or the Committee, and believes that it is in conflict with or not authorized by law may request review by the Appeals Subcommittee. The Appeals Subcommittee is made up of members of the CARRP Advisory Committee (one consumer representative, one producer representative, one insurer representative and a Commissioner representative).

The appeal requests must be in writing and will be reviewed by the Appeals Subcommittee on a monthly basis. The full CAARP Advisory Committee then makes a recommendation to the Insurance Commissioner, who has the final decision to approve or disapprove any decision the Committees makes.

When an appeal is pending resolution the insured/applicant/appellant must continue to remit all undisputed premiums on schedule to the assigned company if such premium is due.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation.
The authors, LunchTimeCE, Inc. and AIPSO, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.