2000.05.24 - Records of Meeting

RECORDS OF MEETING

OPERATIONS COMMITTEE

Records of Meeting Instructions

Records of Meeting Sample

A meeting of the Operations Committee was held at the offices of Commonwealth Automobile Reinsurers, 100 Summer Street, Boston on

WEDNESDAY, MAY 24, 2000

Members present -

Mr. Edward N. Patrick, Jr. – Chairman

Safety Insurance Company

Mr. Thomas L. BairdNational Grange Mutual Insurance Co.

Ms. Margaret J. BatchelderHolyoke Mutual Insurance Company

Mr. James P. CoxenLiberty Mutual Group

Ms. Sherry DeBeradinisCGU

Mr. Edward F. Downey, Jr.Edward F. Downey Insurance Agency

Mr. James C. FlemingBerkshire Mutual Insurance Company

Mr. Russell E. FurlongAmica Mutual Insurance Company

Mr. Michael J. HusseyThe Hanover Insurance Company

Ms. Tammi JohnsonFireman’s Fund Insurance Company

Mr. Robert P. LittlewoodArbella Mutual Insurance Company

Mr. Kenneth M. QuickThe Premier Insurance Co of MA

Mr. Michael J. RichardsThe Commerce Insurance Company

Mr. Mark A. SweeneyPlymouth Rock Assurance Corporation

Commonwealth Automobile Reinsurers present -

Mr. Michael J. TrovatoExecutive Vice President & Treasurer

Mr. Joseph J. Maher, Jr.Vice President, General Counsel & Secretary

Records of Meeting-1-May 24, 2000

Operations Committee

Commonwealth Automobile Reinsurers (continued)

Ms. Susan BasilescoDirector of Financial Services

Mr. Donald BergamascoAudit Manager

Ms. Wendy BrowneSenior Operations Services Manager

Mr. John DePhillipsStatistical Analyst

Ms. Natalie HubleySr. Manager of Actuarial/Statistical Services

Ms. Jennifer PikarskySenior Data Analyst

Ms. Lynne RosenburgOperations Services Supervisor

Ms. Tina ThibodeauData Analyst

Ms. Pamela WallaceDirector of Data Quality Services

Also present –

Ms. Katherine W. BarryCGI

Mr. Owen GallagherGallagher, Gallagher & Gallagher, P.C.

Ms. Eileen GilHolyoke Mutual Insurance Company

Ms. Donna JarominskiThe Commerce Insurance Company

Ms. Mary ReesPilgrim Insurance Company

Ms. Mary Jo StaffordSt. Paul Insurance Company

Ms. Stephanie TuscanoPlymouth Rock Assurance Corporation

Operations Committee Chairman Mr. Patrick called the meeting to order at 10:00 a.m.

00.01Records of Previous Meeting

A motion was made by Mr. Downey and seconded by Ms. DeBeradinis to approve the Records of the Operations Committee meeting of January 26, 2000, as written.

99.08Holyoke Request – Reimbursement of Uncollected Premium/Legal Expenses

Ms. Batchelder recused herself from the discussion. Joseph Maher, CAR Counsel, outlined that at their October 27, 1999 meeting, the Operations Committee denied, without prejudice, Holyoke’s request for reimbursement of uncollected premium and legal expenses. Holyoke further appealed this decision to the Governing Committee Review Panel, which voted to continue this matter for 90 days, as a court finding appeared imminent. Since then, USF&G and Metropolitan has requested that they be added to Holyoke’s original appeal and that the Operations Committee approve their proposed settlement (for all three companies) with First City Acceptance Corporation, and its principal, Anthony Visone, insofar as it affects CAR.

Mr. Owen Gallagher of Gallagher and Gallagher represented Holyoke, USF&G, and Metropolitan in its request. Mr. Gallagher stated that this case is a unique situation and is not precedent setting. Mr. Gallagher stated that Holyoke, USF&G, and Metropolitan are requesting that the Operations Committee approve their proposed settlement with First City Acceptance Corporation and its principal, Anthony Visone.

99.08Holyoke Request – Reimbursement of Uncollected Premium/Legal Expenses (continued)

Ms. DeBeradinis asked what specifically the three carriers are asking of the Committee. Mr. Gallagher responded that they were looking for the Committee’s approval to proceed forward with the

settlement which includes approximately $230,000 in owed premium to Holyoke, approximately $220,000 in owed premium to Metropolitan, and about $450,000 in legal fees. Furthermore, Mr. Gallagher stated that USF&G was specifically looking for the Committee to allow them to terminate their efforts at pursuing all outstanding and uncollectible premiums due from the insured. Mr. Maher stated that this is a question of how the carrier handled the account. Mr. Richards stated that this is a matter of the carrier collecting earned premium from the insured. Mr. Maher noted that in 1986 and in 1989 two similar requests were brought forward to the Committee regarding premium not collected by the carriers. Ms. DeBeradinis asked if these requests were approved. Ms. Wallace responded that both petitions were denied.

Ms. Browne asked if Metropolitan and Holyoke were looking for reimbursement of the earned premium that they had paid CAR or will the settlement cover this amount. Mr. Gallagher responded that the carriers are not waiving their right to return to CAR in regard to this matter.

Mr. Patrick asked why this matter needs the Committee’s approval. Mr. Gallagher responded that USF& G believes it needs the Committee’s approval because they were acting as a Servicing Carrier and therefore the money they have been attempting to recover belongs to CAR. Mr. Patrick asked if USF&G owes CAR any premium. Ms. Wallace responded that it is unclear if CAR is owed money due to the inability to determine the gross receipts.

Ms. DeBeradinis made a motion to approve the request for the USF&G, Metropolitan, and Holyoke to go forward with the settlement and not to pursue USF&G for further premium that may be due to CAR. Mr. Littlewood seconded the motion.

Mr. Richards stated he is not comfortable in stating that USF&G has done enough. Mr. Gallagher stated that Holyoke and Metropolitan made a business decision to proceed forward with the settlement. Mr. Maher stated that it is a company’s responsibility to collect the premium for risks they insure. Metropolitan and Holyoke satisfied their obligation to CAR by paying CAR the correct premium based on the experience rating modifications. Mr. Maher stated that USF& G cannot be certain of its liability to CAR unless it is satisfied that it has complete underwriting information. They reported the policy as a ceded risk and CAR paid losses, therefore USF&G has a responsibility to report adequate premium to CAR and collect this premium from the insured.

Mr. Gallagher responded that USF&G cannot determine the premium amount that is due CAR. He stated that the three carriers have made numerous attempts to obtain the correct gross receipts information from the insured. Mr. Gallagher stated USF&G does not want to enter into the settlement until the Committee has said that they have done enough in trying to collect the money. Mr. Gallagher stated that this is not precedent setting because the rating plan has since been changed.

Mr. Hussey asked if CAR is satisfied with USF&G’s actions. Ms. Wallace responded that this matter regarding USF&G is being presented for the first time today. She stated that Staff has not reviewed the actions they have taken.

Mr. Patrick stated that it appears that the carriers involved have done a good job, retained counsel, and will get their money from the settlement, therefore, they should not need CAR’s help.

99.08Holyoke Request – Reimbursement of Uncollected Premium/Legal Expenses (continued)

Ms. Gil of Holyoke stated that it is not likely that the companies will be paid. The companies are entering into judgement so they will have the legal paper work. Ms. Gil emphasized that the 3 companies

have paid out $450,000 in legal fees which is extraordinary. She stated that CAR could create liability by not closing this matter.

Mr. Richards asked if it was possible for Staff to review the actions of USF&G and report to the Committee if they feel reasonable and appropriate actions have been taken.

Mr. Maher requested a recess at 10:45 a.m. to consult with Mr. Trovato and Ms. Wallace regarding the underwriting and financial aspects of this issue. Upon resuming discussion, Mr. Maher stated it was his opinion that it would be inappropriate for the Committee to take action to approve, or disapprove, the settlement agreement since CAR is not a party to the agreement. He noted his understanding that, by virtue of the settlement, the companies would be indemnified for the money that they had paid to CAR. He stated that a question remains as to whether USF&G reported the premium correctly to CAR. Mr. Gallagher has indicated his belief that USF&G has, in fact, stated the correct premium. Mr. Maher noted that USF&G has represented that it has spent in excess of $450,000 in expenses for investigation, auditing, and legal review on all data available on this particular risk. He continued that it would seem that CAR would not be in a position to access more complete data than USF&G, since CAR would be auditing USF&G’s information, rather than auditing the risk itself. He did indicate that CAR could give a more complete opinion as to the likelihood of additional premium being owed if Mr. Gallagher could provide a synopsis of the activity undertaken by USF&G in its efforts to obtain all relevant underwriting information. On this basis it would seem that if CAR were not able to suggest any additional avenues of investigation, then the Committee could be satisfied that USF&G had taken all reasonable steps and the likelihood of USF&G owing any further premium would be negated.

Ms. Johnson asked if CAR confirms that USF&G has done an adequate job, would the Committee meet again to decide on this issue. Mr. Trovato stated that this issue is being brought before the Operations Committee and, therefore if the Committee develops a course of action, it should be recommended to the Governing Committee for approval.

Mr. Patrick asked if the Committee denied the request today, and CAR reviews the synopsis of USF&G’s actions, could the companies still move forward with the settlement. Mr. Gallagher stated that the critical element today is the USF&G issue. Mr. Sweeney stated that he felt that this matter is a business decision for the companies involved as to whether or not they should accept the settlement.

Ms. DeBeradinis withdrew the motion and Mr. Littlewood withdrew his second to the motion.

Mr. Sweeney made a motion to decline the request. Mr. Richards seconded the motion and it passed with 11 in favor, 1 opposed, and 1 recused.

Mr. Maher advised USF&G, Holyoke, and Metropolitan of its right to appeal the decision of the Operations Committee to the Governing Committee Review Panel within 30 days.

00.02Informational Items

Mr. Patrick stated that at its February 16, 2000 meeting, the Governing Committee discussed the AIB’s development of a private passenger endorsement for the purpose of using OEM crash parts in the repair of private passenger vehicles beyond the period allowed for in the current legislation. Mr. Patrick stated that the Governing Committee approved the Operations Committee recommendation to approve the proposed Statistical Plan changes for optional reporting for policies effective July 1, 2000 and mandatory

reporting for policies effective January 1, 2001 for this endorsement change. Mr. Patrick noted that this recommendation is pending approval from the Division of Insurance.

00.03Statistical Subcommittee

Ms. Hubley reported on the Statistical Subcommittee meeting of May 10, 2000. Ms. Hubley stated that Staff provided a more detailed analysis of the volume of data in error to the Subcommittee to show the impact of moving the VIN data comparisons into the statistical edits. The current program for comparing various data elements to those encoded in the VIN indicates acceptable quality for private

passenger business for model year, passive restraint discount, high-theft vehicle, and symbol elements. For commercial business the validity of age reporting is extremely good; however, there are some problems with passive restraint reporting. Ms. Hubley stated that as reported at the January meetings, these data comparisons will be moved into the statistical edits beginning January 1, 2001.

Ms. Hubley stated that the reporting of “commercial cost new” reflects a high volume of errors. This is due to companies’ varying practices for determining cost new, particularly with older vehicles. After surveying member companies, CAR has collected information regarding appropriate methodology, and plans to advise member companies as to preferable cost new assignment procedures. CAR will then inform the industry as to the impact to statistical reporting and CAR’s plan to move the cost new/VIN comparison to the statistical edits January 1, 2002.

Ms. Hubley stated that all this information will be published in an Accounting and Statistical Notice, in order to give the industry ample time to prepare for these upcoming changes. Ms. Hubley noted that the Subcommittee supported the plan, and requested CAR proactively work with companies to address their commercial reporting problems to ensure the feasibility of the January 1, 2002 effective date for editing of cost new data. The Subcommittee also requested that Staff contact the AIB, MRB, and HLDI to identify potential issues with eliminating these data elements from future statistical reporting.

Ms. Hubley stated that the Automobile Insurance Bureau (AIB) requested that CAR consider changes to its statistical reporting requirements to ensure that companies with a group affiliation report statistical data consistent with their Annual Statement reporting. Specifically, if an affiliate reports a separate Annual Statement, it should use a separate company number for statistical reporting. Ms. Hubley stated that the AIB has indicated that the data is relevant for their under 1% filing. Staff prepared an analysis relative to the companies impacted by this proposed change, and reviewed this information with the Subcommittee. The Subcommittee supported the concept, but requested Staff contact those companies reporting combined data to identify the financial and system impacts of the proposed change to reporting requirements. Ms. Hubley stated there will be further consideration of this topic at the next Statistical Subcommittee meeting.

Ms. Hubley next stated that Staff recommended changes to the Statistical Data Quality Program to modify penalty amounts due to the ineffectiveness of the program’s current penalties for those

00.03Statistical Subcommittee (continued)

companies who have met the reporting threshold, but have failed to statistically report data to CAR. CAR proposed moving from a flat $10,000 penalty/year to a “sliding scale” structure (see attached OPST 00.07, Exhibit 2). Under this structure, fees would increase substantially each year that the company fails to meet its reporting obligations.

Ms. Hubley stated that the Subcommittee approved the recommendation. In addition, the Subcommittee discussed the appropriateness of including language in the Statistical Plan that would

convey that the Division of Insurance would receive a Notice of Non-Compliance for any company who failed to meet these specific reporting guidelines.

Mr. Sweeney made a motion to approve the Subcommittee’s recommendation to adopt the proposed changes to the Statistical Data Quality Program concerning the increased monetary

penalties, with the addition of the Division Notice of Non-Compliance to the Statistical Plan language. Mr. Richards seconded this motion and it passed unanimously.

00.04Operational Reports

The Committee had no questions or comments relative to the Operational Reports.

00.05Rule 12 Update

Ms. Hubley stated that at the October 27, 1999 meeting, the Committee had reviewed the results of the Rule 12 audit CAR performed. Ms. Hubley stated that a portion of errors that are outside of the companies’ control are new errors occurring in the 4th quarter. In response to this, CAR provided companies with an extension and accepted supplemental 12/99 submissions containing policy year 1999 Rule 12 corrections until April 28, 2000. Ms. Hubley stated that Staff has determined that it is not feasible for CAR to accept corrections in the following accounting year. Accordingly, CAR will continue to use reporting extensions in future years to allow companies to correct Rule 12 errors.

Ms. Browne stated that CAR has continued working with the Merit Rating Board and the industry to resolve issues related to certain inquiries. Ms. Browne noted that the Merit Rating Board has added a field containing insurer driving experience in the data they transfer to CAR. Ms. Browne stated that after reviewing a small sample of data, she is concerned about the credibility of this data and the potential negative impact to the editing process. Ms. Browne stated that CAR can continue to collect this driving experience data from the Merit Rating Board, but not use it to impute the class code.

Mr. Baird asked how the Merit Rating Board is getting this information. Ms. Browne stated that the Merit Rating Board indicated that companies provide this data, but it appears that there is variability in how that data is obtained by companies. For example, one company indicated that in certain circumstances the agent could input that data.

Mr. Baird asked if CAR can provide companies a list of policies that appear to contain discrepancies. Ms. Browne responded that CAR can provide this information to companies. Ms. Browne noted that CAR will not update the Rule 12 System at this time. The Committee supported this.

00.05Rule 12 Update (continued)

Mr. Baird asked when the Committee will decide the Rule 12 Error Tolerance for the upcoming year. Ms. Browne responded that this will be discussed at the Operations Committee Meeting on October 25, 2000.

There being no further business, a motion was made by Mr. Baird and duly seconded by Ms. DeBeradinis to adjourn the meeting.

The motion passed on a unanimous vote.

The meeting adjourned at 11:40 a.m.

JENNIFER PIKARSKY

Senior Data Analyst

Attachments

Boston, Massachusetts

August 9, 2000

Note:These Records have not been approved. They will be considered for approval at the next Operations Committee meeting.