RECORDS OF MEETING
OPERATIONS COMMITTEE
The Commonwealth Automobile Reinsurers held a meeting of the Operations Committee at the offices of CAR on -
WEDNESDAY, JULY 24, 1996 AT 10:00 A.M.
The following members attended:
Carrier/Agency / RepresentativeAmica Mutual Insurance Company / Ms. Cleo Anderson*
Arbella Mutual Insurance Company / Mr. Robert Littlewood*
Berkshire Mutual Insurance Company / Mr. James Fleming
Commerce Insurance Company / Mr. John Kelly*
Commercial Union Insurance Company / Ms. Sherry DeBeradinis
Educators Service Corporation / Mr. Theodore Downey
Hanover Insurance Company / Mr. Wayne Howard
Holyoke Mutual Insurance Company / Ms. Margaret Batchelder
John Hancock Insurance Company / Ms. Tammi Johnson*
Liberty Mutual Insurance Company / Mr. Joseph Giblin
National Grange Insurance Company / Mr. Thomas Baird
Plymouth Rock Assurance Company / Mr. Geoffrey Arnold*
Safety Insurance Company / Mr. Edward Patrick
Trust Insurance Company / Mr. Mark Sweeney
* Ms. Cleo Anderson substituted for Mr. Bruce Thomas.
* Mr. Robert Littlewood substituted for Mr. Dennis Morris.
* Mr. John Kelly substituted for Mr. Michael Richards.
* Ms. Tammi Johnson substituted for Mr. Warren Boise.
* Mr. Geoffrey Arnold substituted for Mr. Keith Rodney.
1
Also attending were:
Commonwealth Automobile ReinsurersFinancial Manager / Ms. Susan Basilesco
Data Operations Manager / Ms. Wendy Browne
Statistical Supervisor / Ms. Mary Capprini
Production Systems Manager / Mr. Jack Haran
Statistical Manager / Ms. Natalie Hubley
Staff Analyst / Ms. Cindy Kottas
Vice President and General Counsel / Mr. Joseph Maher
Systems Quality Assurance Administrator / Ms. Anne Rezendes
Data Operations Supervisor / Ms. Lynne Rosenburg
Underwriting Manager / Ms. Pamela Wallace
Carrier/Agency
CNA / Ms. Dianna Dawson
Commerce Insurance Company / Mr. David Cochrane
Crum & Forster / Mr. Chris Battiston
Mr. Michael Broyles
Ms. Candy Connell
Ms. Beverly Dix
ISI / M. McManamon
Mr. Paul Peddle
Ms. Deb Sparrow
Fitzburgh & Associates/Middlesex Insurance / Mr. Lawrence Slotnick
Lumber Mutual Insurance / Ms. Coleen Capprini
Pilgrim Insurance Company / Mr. John Delano
Ms. Carol Willis
Plymouth Rock Assurance / Ms. Stephanie Tuscano
PMSC / Ms. Roberta Smith
O.C.
96.1RECORDS OF MEETING
On a motion made by Mr. Patrick and seconded by Mr. Downey, the minutes of the March 27, 1996 records were accepted unanimously.
O.C.
96.2APPEALS
The committee heard four appeals at the meeting, described below in the order in which they were heard.
Middlesex Insurance Company
Ms. Browne gave a little background on Middlesex’s appeal, noting briefly that Middlesex had originally appealed to the Operations Committee for premium reimbursement and had been denied. They appealed to the Governing Committee, and the Review Panel remanded the appeal back to the Operations Committee. Middlesex had in the meantime supplied more documentation on the policy in question, all of which had been distributed to the members to review.
Mr. Slotnick, representing Middlesex Insurance Company, stated that Middlesex was appealing an $11,985 premium overcharge. From 1988 through 1995, Lovey’s Auto was insured through Middlesex
O.C.
96.2APPEALS (cont’d)
Middlesex Insurance Company (cont’d)
and ceded to CAR. The business had 10 repair plates, which could be moved from vehicle to vehicle,
and a few other vehicles which were insured on a per-vehicle basis. Lovey’s, because of the nature of its business ( a repair shop), had changes to its policy all the time.
In February 1989, Lovey’s added a wrecker to the policy. The endorsement request did not indicate that this vehicle was to be operated with a repair plate, and consequently, Middlesex issued coverage on a specified vehicle basis. The error was not discovered until Lovey’s went with a new agent in 1995. CAR reimbursed the overcharged premium for the open years, but not the years closed for premium reporting. Accordingly, CAR still had almost $12,000 in overcharged premium, which Middlesex had already paid to its insured.
Mr. Slotnick noted that the M.A.P. states that a company is entitled to a bulk adjustment reimbursement if the problem was outside the control of the company. Given that the agent admitted it was the agency’s mistake, not Middlesex’s, Mr. Slotnick asked the committee to reimburse the remaining overcharged premium.
Mr. Patrick moved to approve the appeal, based on the documentation. The motion was seconded, and all members voted in favor.
Please see attached documentation related to the appeal. (Because of the amount of documentation, only summary documentation is included.)
Trust Insurance Company
Mr. Sweeney recused himself from the appeal.
Paul Mui, representing Trust Insurance Company, explained Trust’s request to backdate 21 cessions. He stated that Trust had experienced a problem transmitting some cessions to CAR. All five criteria needed for an intent-to-cede appeal were met, he noted, except that the decision to cede could be documented back to 2/23/96 - not back to the effective date. Accordingly, Trust was appealing for backdates to that date.
Mr. Patrick, noting that the 2/23/96 clarification was a point made after the appeal had been placed on the Operations Committee agenda, asked CAR Staff whether Staff would have approved the appeal on their own if the point of clarification had been made earlier. Ms. Browne responded that Staff could not have done that, since the committee had specifically requested to see each intent-to-cede backdate appeal regardless of whether all criteria were met.
On a motion from Mr. Baird and a second from Mr. Littlewood, the appeal was approved with all in favor.
Please see attached documentation relating to the appeal.
Commerce Insurance Company
Mr. Kelly recused himself from the discussion.
Ms. Browne stated that Commerce was appealing for approximately 793 transaction 5 cession backdates on new business policies. Commerce said they intended for the policies to be voluntary but mistakenly ceded them to CAR through a systems error. Ms. Browne noted that CAR approved backdates to 270 policies where Commerce showed intent to keep as voluntary prior to the effective date, but Staff could not approve 793 policies where intent to retain voluntary was documented into the policy term. She
O.C.
96.2APPEALS (cont’d)
Commerce Insurance Company (cont’d)
noted that with new business policies, it is often difficult to prove intent prior to the effective date when the policy is received at the company a few days already into the policy term..
Mr. Cochrane noted that the systems error at Commerce was strictly operational and that it was caught and fixed quickly. He opined that the Manual of Administrative Procedures wording that refers to backdates on renewal business only is outdated, and he argued that the M.A.P. needs to be modified to reflect automated processing, especially in the context of providing incentives to companies to depopulate the market.
Mr. Giblin asked if CAR Staff agreed with Mr. Cochrane that the M.A.P. needed to be updated. Ms. Browne responded that she agreed with Mr. Cochrane’s assessment that the M.A.P. does not provide specifically for new business transaction 5 backdates after the effective date, but she stated she did not know how to prevent last-minute backdate requests if the M.A.P. wording were to be changed to allow new business transaction 5 backdates within 23 days of the effective date.
Mr. Arnold pointed out that companies already do not need to decide until Day 23 whether to cede a policy, so that putting in place a procedure to allow unceding within 23 days as well would be redundant.
Ms. DeBeradinis asked Mr. Cochrane if all 1063 policies were affected by the systems error, and Mr. Cochrane confirmed that they were. Mr. Sweeney asked what kind of error had occurred, and Mr. Cochrane answered that it was a simple coding flaw: the program was reading in a wrong table, and the problem affected only new business motorcycle policies. Ms. Johnson asked if the systems logic had been that way all along, or if a systems update was responsible for the coding flaw. Mr. Cochrane stated that the decision systems are updated annually, and that there had been no changes made after the annual update. Hence, the problem affected policies back to 1/1/96. However, the problem did not show up until the motorcycles involved began being used a few months later, when the claim experience caused the errors to be noted. Mr. Cochrane emphasized that no ceding strategy change had been made.
Mr. Patrick said that the only issue for him was the timeframes: Commerce could have appealed a year from now with no repercussions. He noted that he would not want to set a precedent for such appeals to come in years after the fact.
In response to a question from Mr. Giblin as to any legal issues or precedent arising out of the timing of these backdates, Mr. Maher said that due to the nature of the vehicles involved (motorcycles), some time lag could occur before the company became aware of the problem, since use and arguable registration follow seasonal patterns. The same type of time lag might occur with snowmobiles, as another seasonal vehicle. Therefore, an appeal occurring well into the policy year might not be out of line due to the particular facts of such situations.
Mr. Arnold noted that his concern was not so much timeframes as the precedent of the transaction 5 backdates. Mr. Arnold said that while he was sympathetic to Commerce’s case, he did not want to set a general rule for fear the rule would allow backdates based on previous wrong decisions.
Ms. Batchelder inquired whether the committee hadn’t approved similar appeals before. Ms. Browne stated that the committee had both approved and denied similar appeals.
Mr. Baird opined that backdate appeals are by nature individualized cases, and as such should continue to be decided by the committee members on a case-by-case basis.
On a motion from Mr. Patrick to grant the appeal and a second by Ms. Batchelder, the committee voted unanimously in favor.
O.C.
96.2APPEALS (cont’d)
Commerce Insurance Company (cont’d)
Mr. Patrick stated that, based on Mr. Baird’s previous comments about appeals being decided on a case-by-case basis, he would suggest that the M.A.P. wording remain as is. The other committee members agreed.
Please see attached documentation relating to the appeal.
Crum & Forster Insurance Company
Mr. Patrick and Mr. Arnold recused themselves from discussion of the appeal.
Mr. Battiston, representing Crum & Forster, acknowledged that his appeal was unusual. Crum & Forster was not appealing a specific penalty; rather, they were appealing for a penalty-free window of time during which they could concentrate on fixing their CAR reporting and error correction process. Mr. Battiston stated that Crum & Forster had been through a reorganization and a large amount of turnover and, as a result, all CAR activities had fallen behind. He noted that Crum & Forster had paid the penalties accrued so far.
Ms. Rosenburg handed out to the committee members a summary of the penalties incurred and accruing for Crum & Forster. She figured the potential amount of penalties in question, as of this point in time, was $389,559. In response to a question from Mr. Sweeney, Ms. Rosenburg stated that Crum & Forster, like other companies, had been notified of all new statistical penalties as soon as they cropped up (reviewed weekly), and that notification of the other types of penalties occurred quarterly, bi-annually, or annually, depending on the particular penalty program. She noted for Mr. Baird that no special notification to any higher authorities in the company occurred until penalties began to be fairly substantial, at which time Crum & Forster’s financial area was contacted. That is when Crum & Forster began to take action and respond to their penalty situation.
Mr. Fleming asked about the timing of Crum & Forster’s problems relative to the 12/94 Company Reporting Profiles. He noted that their marks were low on both the 12/94 and the 12/95 Profiles and, while it was fairly obvious that this problem would affect their 12/95 marks, he wondered if it would have shown up on the 12/94 profiles already. Ms. Rosenburg responded that some of this might have shown up, but most of this problem would not have hit the Profile scores until 1995. Ms. Browne added that the company may have had large penalties in 1994, affecting their Profiles, even before this problem began.
Mr. Sweeney then moved to deny the appeal, and Mr. Baird seconded. They noted that there seemed to be no evidence that Crum & Forster’s predicament was outside its control.
Mr. Kelly pointed out that of the potential penalties listed, the 1994 Net Negative Premium Write-Off was the largest amount by far ($229,268). He asked Ms. Browne when that write-off takes place. Ms. Browne answered that the 1994 Write-Off takes place in April 1997. Mr. Kelly noted, then, that the company can still make corrections in time to avoid that particular penalty. Ms. Browne agreed, as the deadline for corrections is not until the 12/96 shipment.
The committee then voted with 1 opposed, 2 recusals, and the remaining present members in favor to deny the appeal.
Mr. Maher informed Mr. Battiston that he could further appeal to the Governing Committee. If he wished to do so, he should notify CAR Staff within 30 days.
Please see attached documentation relating to the appeal.
O.C.
96.3REINSURANCE OPERATIONS SUBCOMMITTEE
As the Reinsurance Operations Subcommittee had not met since the last Operations Committee meeting, there was no report.
O.C.
96.4STATISTICAL SUBCOMMITTEE
Ms. Hubley gave the report of the Statistical Subcommittee meeting of June 25, 1996.
Ms. Hubley stated that the Final 1995 Distributional Analysis Reports, anticipated at the subcommittee meeting to be delivered to the industry by the end of July, would probably be distributed around mid-August.
Ms. Hubley reported that, rather than duplicate the efforts of the AIB to derive claim count, CAR is instead reviewing options to assure that CAR functions which require more data from the AIB are completed more efficiently. After CAR Staff has completed its review, a recommendation will be presented to the subcommittee relative to a future project and the feasibility of eliminating claim count reporting.
The subcommittee approved three Private Passenger Statistical Plan Updates: one to page 8.1 (modifications to class code assignment procedures for inexperienced operators resulting from a change to Rule 29 of the 1996 Automobile Insurance Manual), and one to page 53 (reflecting a change to Rule 28, which modified the definition of private passenger stat and rating classes to remove references to “owner” and add references to “driver training”, respectively). There was also a motion to clarify the model/yr/age reporting on physical damage records prior to effective year 1996. On a motion made by Mr. Sweeney and seconded by Mr. Patrick, the Operations Committee unanimously approved the updates.
Continuing, Ms. Hubley informed the committee that two companies exceeded the 2% Private Passenger Rate Edit tolerance, and that Staff would have a proposal for a Commercial Rate Edit penalty program at the next subcommittee meeting.
The subcommittee considered an approach to editing Commercial VIN in the future. Because of concerns associated with the editing of Age Code 9 records, it was suggested that CAR consider editing Age Code 9 separately. The subcommittee will continue the discussion at their next meeting. In addition, the subcommittee is currently discussing excluding loss records where the VIN indicates that the insured vehicle is not involved in the claim from the S21 (Age/Model Year/Symbol) edit.
Ms. Hubley noted that she had requested input from the subcommittee on whether changes should be made to the Type of Risk code for 1996 and subsequent in order to better identify rate deviations. While the subcommittee members indicated no changes were necessary for the industry’s needs, they asked CAR to contact the AIB and Division to determine their needs.
Finally, Ms. Hubley reported that, based on a survey regarding reporting date fields at the change of the century, the subcommittee determined that there is no compelling reason to change the date field to four positions. Accordingly, the subcommittee approved to continue the reporting of two-position year fields, which CAR will convert into four positions for its files beginning in 1997.
The full subcommittee records are attached.
O.C.
96.5OPERATIONAL REPORTS
There were no questions on the June 28 Operational Reports.
O.C.
96.6INFORMATIONAL ITEMS
Since there was no Operations Committee in May, the Chairman had no new Governing Committee actions to report.
O.C.
96.7CAR COMMERCIAL UMS SYSTEM
Ms. Wallace gave the committee some background relative to the CAR Commercial UMS System. She stated that in March 1996, the Policy Edit Write-Off Subcommittee (currently called the Reinsurance Operations Subcommittee) requested CAR to look into what CAR could do to help with the industry’s earned but uncollected premiums. Ms. Wallace stated that, while CAR could not help collect monies, CAR could be a commercial data collection source. Accordingly, CAR allocated resources to develop a system to collect relevant data that would help the industry with this matter. As part of the process, four companies were selected to help with the development, to assure that the system would meet the industry’s needs.
However, at the last meeting of this industry group with CAR Staff, it was determined that due to the Registry’s recent decision to add commercial vehicles to the Registry’s UMS System, the development of a similar system by CAR would be redundant. Instead, the group decided, CAr should look at its Experience Rating applications. Accordingly, for 1997, CAR is 1) looking into changing the current paper system to an on-line application, and 2) analyzing what it would take for CAR to develop the experience rating modification factor rather than having the companies themselves continue to do it. CAR is currently experience rating taxis and limousines and that is working very well.
Based on Ms. Wallace’s report, Mr. Kelly moved to discontinue development of a CAR Commercial UMS system. Ms. DeBeradinis seconded, and the committee approved the motion unanimously.
O.C.
96.8RULE 12
Ms. Browne reported on the Rule 12 Credit Edit System. She noted that the system has been in operation for two years now, and that the Governing Committee had recently approved that the Rule 12 audit be treated as a standard operational system from this point forward. Ms. Browne informed the committee that it appears the edit is working as intended and that companies are making corrections as requested. She then outlined the differences between the edit and the audit.