Operations Committee September 25, 1996
RECORDS OF MEETING
OPERATIONS COMMITTEE
The Commonwealth Automobile Reinsurers held a meeting of the Operations Committee at the offices of CAR on -
WEDNESDAY, SEPTEMBER 25, 1996 AT 10:00 A.M.
The following members attended:
Carrier/Agency / RepresentativeAmica Mutual Insurance Company / Mr. Bruce Thomas
Arbella Mutual Insurance Company / Mr. Dennis Morris
Berkshire Mutual Insurance Company / Mr. James Fleming
Commerce Insurance Company / Mr. Michael Richards
Commercial Union Insurance Company / Ms. Sherry DeBeradinis
Educators Service Corporation / Mr. Theodore Downey
Hanover Insurance Company / Mr. Lee Nathan*
Holyoke Mutual Insurance Company / Ms. Margaret Batchelder
John Hancock Insurance Company / Ms. Tammi Johnson*
Liberty Mutual Insurance Company / Mr. Michael Kazmierczak*
Plymouth Rock Assurance Company / Mr. Geoffrey Arnold*
Safety Insurance Company / Mr. Edward Patrick
Trust Insurance Company / Ms. Judy Callahan*
* Mr. Lee Nathan substituted for Mr. Wayne Howard.
* Ms. Tammi Johnson substituted for Mr. Warren Boise.
* Mr. Michael Kazmierczak substituted for Mr. Joseph Giblin.
* Mr. Geoffrey Arnold substituted for Mr. Keith Rodney.
* Ms. Judy Callahan substituted for Mr. Mark Sweeney.
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Operations Committee September 25, 1996
Also attending were:
Commonwealth Automobile ReinsurersFinancial Manager / Ms. Susan Basilesco
Data Operations Manager / Ms. Wendy Browne
Statistical Analyst / Ms. Kristie Burns
Production Systems Manager / Mr. Jack Haran
Statistical Manager / Ms. Natalie Hubley
Staff Analyst / Ms. Cindy Kottas
Data Operations Supervisor / Ms. Lynne Rosenburg
Statistical Analyst / Mr. Randy Scott
Sr. Statistical Analyst / Mr. Neal Sonnenberg
Underwriting Manager / Ms. Pamela Wallace
Carrier/Agency
Commercial Union / Mr. Bill Earl
Mr. Art Kinsman
Mr. Roger Singer
CNA / Ms. Dianna Dawson
Hanover Insurance Company / Mr. Mark Carpentier
ISI / Ms. Deb Sparrow
Lumber Mutual Insurance / Ms. Coleen Capprini
Pilgrim Insurance Company / Ms. Carol Willis
Plymouth Rock Assurance / Ms. Stephanie Tuscano
PMSC / Mr. Vino Valle
Safety Insurance Company / Ms. Ruth Lyman
The Travelers/Aetna / Mr. David Santapaola
Mr. Ed Patrick substituted for Mr. Wayne Howard as chairman for the meeting.
O.C.
96.1 RECORDS OF MEETING
On a motion made by Mr. Fleming and seconded by Mr. Downey, the minutes of the July 24, 1996 meeting were accepted unanimously.
O.C.
96.2 APPEALS
The committee heard two appeals at the meeting.
Commercial Union Insurance Company
Ms. DeBeradinis recused herself.
Ms. Hubley gave a little background on Commercial Union’s appeal, stating that in 1990, CAR began basing some portions of the private passenger ceding expense reimbursements on a company’s claim frequency relative to the industry’s. CAR uses the claim count derived by the Automobile Insurance Bureau in its calculations. In October of 1992, CAR received notification from CU that they were
O.C.
96.2 APPEALS (cont’d)
Commercial Union Insurance Company (cont’d)
concerned about their low claim frequency. It was eventually determined to be a subrogation reporting problem, and in January of 1996, CU said the problem had been corrected for years 1993 and subsequent. However, it was too late to correct 1990 through 1992, as final trueing-up for those years had already been performed. Accordingly, CU was requesting reimbursement from CAR for approximately $490,000.
Ms. Hubley continued, saying CU had three categories of reporting problems contributing to this issue:
1) Rounding issues - for example, CU was reporting loss of $66.50 to CAR as $66 but the recovery as $67, so that the total loss amount of -$1 had -1 claim count (rather than netting to 0).
2) ALAE transaction included in recovery loss transaction (when it was correctly included as a separate transaction in the original loss records reported) - the AIB does not include loss adjustment expenses in their derivation process, so the total loss amount was negative.
3) PIP handling fee and/or ULAE included in recovery transaction - again, more was included in the recovery record than in the original loss record reported, resulting in a negative total loss amount.
Ms. Hubley noted that the third type of problem means that CU would need to report more data for CAR to perform further analysis before an exact reimbursement amount could be determined.
Mr. Kinsman then presented CU’s side of the appeal. He distributed an outline of the chronology of events (included in the attachments), noting that it took several years to become aware of the severity of the problem and then to fix it, both on an ongoing basis and retrospectively as far as possible. However, corrections to accident year 1990 - 1992 would not impact Commercial Union’s expense allowance, since these years are trued-up for the last time after 27 months of reporting.
Mr. Singer, General Counsel for CU, added that although the accounting true-up window period has now passed, the company clearly experienced the losses during that period. He said that CU had a higher frequency of losses than they reported for the reasons Ms. Hubley already outlined. He said he saw no legal reason not to reimburse CU, and he would argue that for policy reasons CU should be reimbursed: the expenses were real, and he thought that any company would (and should) be entitled to reimbursement of expenses they could truly verify.
The committee members had a few questions. Ms. Callahan asked if other companies had similar problems. Ms. Hubley stated that she had heard of one other. Mr. Patrick asked if the reimbursement to CU, if the appeal were approved, would come out of the pool. Ms. Hubley responded that each Servicing Carrier’s ceding expense allowance would be affected negatively according to the impact to their claim frequency relativity.
Mr. Arnold stated that he was sympathetic to CU’s case, because the expense allowance is meant to be based on claims activity, and measurement of that is difficult. He said that the company had made a reporting error and had corrected their error as far as possible, and he felt that now the committee should, by granting the appeal, correct the other side of the equation and adjust the ceding expense allowance correspondingly. He noted, however, that he felt the larger issue of determining claim count should be revisited - perhaps claim count should be determined gross of subrogation recoveries. Accordingly, he suggested that the issue be referred to the Actuarial Committee (which originally developed the ceding expense formula).
O.C.
96.2 APPEALS (cont’d)
Commercial Union Insurance Company (cont’d)
Mr. Fleming asked what would happen if the appeal were approved: would CU need to report more data? Ms. Hubley responded affirmatively, that after CU reported more statistics, CAR could perform the necessary analysis to calculate corrections to the ceding expenses for CU and the industry.
Mr. Fleming then moved to approve the appeal (based on reasoning already expressed that adjusting the ceding expenses was the final piece in correcting the entire situation), and Mr. Arnold seconded.
Further discussion ensued on several issues, including whether the appeal should be approved for the industry as a whole, and whether the adjustments should be made accordingly. Several members of the committee opined that publishing the appeal results in the minutes would be sufficient to serve as notice to the industry that if the case fits for them as well, then an appeal would be considered. A vote was then called, and all members voted in favor of approving the appeal (with 1 recusal).
Mr. Arnold then moved to request that the Actuarial Committee consider whether the derived claim count used in the expense allowance calculation should be gross of subrogation transactions. Mr. Morris seconded. There was some discussion by the committee, during which it was noted that a revision of methodology might not only prevent the problem from occurring in the future, but also more accurately reflect expenses incurred by the company servicing ceded risks. The committee voted unanimously in favor.
Summary documentation is attached.
Hanover Insurance Company
Mr. Nathan recused himself from the appeal.
Ms. Browne outlined the circumstances surrounding the appeal. She stated that Hanover was appealing a loss write-off and associated penalties on a policy that had been short-cancelled for non-payment. She noted that Hanover did have some coverage and premium: however, the loss date was after the midterm cancellation. Because of late notification by the insured and because of litigation proceedings relative to the claim, Hanover became aware they had to pay the claim only after the reporting for that effective year had been discontinued. Thus, the company could not reinstate the policy, pay the extra premium, and get the loss covered accordingly.
Mr. Carpenter from Hanover added that 4 years after the policy was canceled, Hanover was issued a summons from the insured, notifying the company of breach of contract and asking for the loss to be covered. It was contended that the cancellation was improper. As the judgment was against Hanover, Mr. Carpenter said that the amount being asked from CAR is for both the loss and the legal expenses, totaling about $7500 (minus the premium necessary to reinstate the policy).
Ms. Johnson made a motion to approve the appeal, and Mr. Thomas seconded. All members voted in favor.
Please see attached.
O.C.
96.3 REINSURANCE OPERATIONS SUBCOMMITTEE
Ms. Rosenburg gave the report of the Reinsurance Operations Subcommittee meeting of September 10, 1996. She said the CAR is currently user testing the accounting system telecommunications system and
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96.3 REINSURANCE OPERATIONS SUBCOMMITTEE (cont’d)
hopes to have browse access available for the industry in November. Correction access is anticipated to be available in the spring.
Ms. Rosenburg noted that, on the issue of deviated premium, the industry seems to be reporting fairly accurately: any invalid amounts are very small.
Ms. Rosenburg then stated that the subcommittee recommended the statistical close-out of effective years 1984 and 1985 for reporting year 1997, since the number of claims outstanding is below the tolerance recommended for close-out. She stated that even though the dollar tolerance is slightly above the recommended level, Staff feels that closing out the years will not present a problem in handling bulk adjustment loss reimbursements that may be requested on those years. Mr. Arnold moved to approve the close-out of the two years, and Mr. Nathan seconded. The committee unanimously approved the motion.
Ms. Rosenburg said that the subcommittee approved several Profile changes, 3 of them specific changes to be implemented with the 6/96 Profiles. First, CAR Staff will take into account the 25-policy tolerance used in the CAR215 monitoring process, so that companies with less than 25 policies backdated will get a score of 10 in that category, no matter what the percentage. Second, CAR Staff will calculate the Grand Total Percentage based on each section’s percentage, rather than each section’s total points. This will effectively weigh the accounting section less strongly because of the number of categories in that section. Third, CAR Staff will change the rounding so that percentages that round to 0% (rather than 0.00%) will be scored as a 10. Ms. Callahan moved to approve the changes, and Mr. Downey seconded. The motion passed unanimously. Ms. Rosenburg informed the committee that a fourth change was approved in concept by the subcommittee: the addition of Rule 12 scoring to the Profiles, perhaps in a fourth Profile section. Further detail will be worked out by CAR Staff for this to be added for the 12/96 Profiles.
Ms. Rosenburg then reported that the subcommittee approved a change to the CA5010 Flat Cancellation Documentation program schedule, and she handed out the proposed Manual of Administrative Procedures page change relative to that (included in the attachments). Mr. Kazmierczak moved to accept the page change, and Mr. Fleming seconded. The committee voted with all in favor.
Ms. Rosenburg stated that the subcommittee discussed the usefulness of the CAR215 Automatic Backdate monitoring program. While the members felt uncomfortable discontinuing the program altogether, they felt some changes would be warranted. CAR Staff will present some options at the next subcommittee meeting.
Ms. Rosenburg noted that the subcommittee then approved giving CAR Staff more authority to approve two types of appeals: Intent-To-Cede appeals, and Loss-After-Premium-Discontinued appeals. Mr. Thomas moved to approve that change, and Mr. Morris seconded it. Ms. Browne added that the Manual of Administrative Procedures would need pages changed, and those pages would come back to the committee at the next meeting if the motion passed. Mr. Arnold asked, in order to clarify the issue, if approving the motion meant that CAR Staff would be allowed to decide more of the straightforward appeals without the appeals having to come by the Operations Committee each time. Ms. Browne confirmed that was right. Mr. Kazmierczak asked, referring to the Reinsurance Operations Subcommittee Executive Summary, why the vote was not unanimous. Ms. Browne responded that some members felt that the intent-to-cede appeals, in particular, were really not that straightforward, even when the 5 criteria for approval were clearly met. However, she noted that Staff would continue to refer those appeals that Staff feels are ambiguous to the committee. The Operations Committee then unanimously passed the motion.
Ms. Rosenburg stated that the subcommittee then discussed, under Other Business, an issue brought forward by CNA . However, since this issue is a separate Operations Committee agenda item, Ms. Rosenburg deferred discussion on this item until later in the meeting.
O.C.
96.4 STATISTICAL SUBCOMMITTEE
The records of the Reinsurance Operations Subcommittee meeting are attached.
Ms. Hubley passed out the results of the Operations Committee mail vote on proposed Statistical Plan changes (see attached). The mail vote was conducted in order to ensure timely notification to the industry, and the results were approved by the Governing Committee at their meeting of September 18, 1996. There were three changes that were approved unanimously. One, a change in pollution liability broadened coverage codes was approved to distinguish between hazardous and extra hazardous pollution coverages. Two, a few changes to wording were approved relative to Annual Statement penalties and deadlines. And last, it was approved that Age Code 0 be added to the Commercial Statistical Plan to identify vehicles with model year 1980 and prior, so that these records can be excluded from VIN editing.