CORRECTED
RECORDS OF MEETING
GOVERNING COMMITTEE
A Meeting of the Governing Committee of the Commonwealth Automobile Reinsurers was held at the offices of C.A.R. on -
WEDNESDAY JULY 20, 1994 AT 10:00 A.M.
The following Members were present -
Mr. Richard W. Brewer
Mr. Donald O. Burns
Mr. Robert C. Gowdy
Mr. Thomas K. Randall
Mr. Arthur J. Remillard, Jr.
Mr. Edwin J. Rinehimer
Mr. James M. Stone
Mr. Charles I. Boynton, III
Mr. James D. Doherty
Mr. Edward F. Downey, Jr.
Mr. Sumner D. Gilman
Mr. David J. Lane
Ms. Nanci S. Peters
There were also present -
Commonwealth Automobile Reinsurers
PresidentMr. R. M. LaFontaine
Executive Vice President & TreasurerMr. M. J. Trovato
Administrative Vice President & SecretaryMr. D. I. Jewell
Vice President and General CounselMr. J. J. Maher, Jr.
Vice President-Financial ServicesMr. J. V. Kelly
Director of CommunicationsMr. P. W. Corsetti
Administrative ManagerMr. J. D. Metcalfe
Statistical ManagerMs. Carol Bresler
Actuarial SupervisorMs. Sharon Schorge
Commonwealth Automobile Reinsurers (continued)
Actuarial DepartmentMr. Matthew Myshrall
Servicing Carrier CoordinatorMr. Timothy Costain
Rep. Producer Servicing Carrier LiaisonMs. Katherine Dillon
Adm. Ass't. to Adm. Vice PresidentMs. D. A. Walsh
Massachusetts Division of InsuranceMs. Louise McCarthy
Ms. Caroline DeStefano
Hale and DorrR. W. Mahoney, Esq.
Amica Mutual Insurance CompanyMr. Sean Harrington
Arbella Mutual Insurance CompanyMr. Ronald Cleaves
Alliance of American InsurersMr. E. J. Donahue, Jr.
Attorney at LawMr. Leonard Fisher
Automobile Insurance BureauMr. Ruy Cardoso
Mr. Michael Meyer
Berkshire Mutual Insurance CompanyMr. James Fleming
Boston Risk ManagementMr. Peter Robertson
CNA Insurance CompaniesMr. Andrew Carpentier
Commerce Insurance CompanyMr. David Cochrane
Crum & Forster CorporationMr. Edward Colomey
Economy Insurance AgencyMs. Theresa Wegiel
Electric Insurance CompanyMr. N. A. Walczak
Empire Insurance CompanyMr. Richard Harris
Mr. John Porcell
I.S.I. Systems, Inc.Ms. Mary Johansen
Ms. Susan Murphy
John Hancock Property & Casualty Ins. Co.Ms. Victoria Carter
Ms. Deb Snyder
Hanover Insurance CompanyMr. Wayne Howard
Mr. Thomas Sharpe
Liberty Mutual Insurance CompanyMr. Arthur Catapang
Mr. Pat Finckler
Mr. S. E. Leavitt
Metropolitan Property & Casualty Ins. Co.Mr. Joseph Cofield
Morrison, Mahoney & MillerJ. J. Moran, Jr., Esquire
Nationwide Mutual Insurance CompanyMr. Al Schulman
Norfolk & Dedham Mutual Fire Ins. CompanyMs. J. E. Downey
Mr. Mitchell Fox
Peoples Service Insurance CompanyMr. Warren McLean
Pilgrim Insurance CompanyMr. Andrew Demeter
Mr. Vincent Nieroda
Mr. David Sullivan
Plymouth Rock Assurance CorporationMr. Geoff Arnold
Ms. Paula Gold
Ms. Linda Saunders
Policy Management Systems CorporationMs. Patricia Duffy
Ms. Jean Walsh
Premier Insurance CompanyMs. Susan Scott
Professional Independent Insurance Agents of Mass.Mr. Frank Mancini
Royal Insurance CompanyMs. Joan Casali
Safety Insurance CompanyMr. Edward Patrick
The StandardMr. Paul Tetrault
Tillinghast CompanyMs. Kathy Barnes
Trust Insurance CompanyMr. Allen Lew
Mr. Mark Sweeney
Chairman Arthur Remillard called the meeting to order at 10:00 a.m. and introduced three new members of the Governing Committee: Mr. Charles Boynton, III of the Charles Boynton Insurance Agency; Mr. Thomas Randall of MassWest Insurance Company; and Mr. Edward F. Downey, agent for the Massachusetts Teachers Association.
94.37ELECTION OF VICE CHAIRMAN
Pursuant to the provision of Rule 4.C of the C.A.R. Rules of Operation, the Governing Committee elected a new Vice Chairman to fill the unexpired term of Arthur Remillard insofar as Mr. Remillard has assumed the Chairmanship of the Governing Committee as a consequence of the expiration of Mr. Louis Xifaras' appointment as a member of the C.A.R. Governing Committee.
A motion was made by Mr. James Doherty and duly seconded by Mr. Charles Boynton to nominate Mr. Sumner Gilman for the position of Vice Chairman of the Governing Committee of Commonwealth Automobile Reinsurers.
Mr. James Doherty moved that the nominations be closed. The motion was duly seconded by Mr. Robert Gowdy and passed on a unanimous vote.
The motion to elect Mr. Sumner D. Gilman to the position of Vice Chairman of the Governing Committee of Commonwealth Automobile Reinsurers passed on a unanimous vote.
94.1MINUTES OF PREVIOUS MEETING
A motion was made by Mr. James Doherty and duly seconded by Ms. Nanci Peters to accept the Records of the Governing Committee Meeting of June 24, 1994.
Chairman Remillard recognized Mr. Leonard Fisher who wished to comment on the Governing Committee Records of June 24, 1994. Mr. Fisher stated that the denial of Coverall Insurance Agency's change in Servicing Carrier by both the Market Review Committee and the Governing Committee Review Panel was not reflected in the minutes of June 24, 1994. Mr. Joseph Maher advised that since the Governing Committee accepted the report of the Governing Committee Review Panel and took no action on its own motion, no correction to the Governing Committee Records of June 24, 1994 was required. However, Mr. Maher suggested that the Governing Committee, in its discretion, could amend the minutes of June 24, 1994 to indicate that the Governing Committee took no action on the matter of the Coverall Insurance Agency; or, alternatively, a letter could be addressed to Mr. Fisher on behalf of the Governing Committee to that effect. Mr. Fisher agreed that a letter from Counsel would be acceptable.
The motion passed on a unanimous vote.
94.1MINUTES OF PREVIOUS MEETING (continued)
The Records of the Governing Committe meeting of June 24, 1994 have been revised to reflect that Ms. Virginia Neill represented the Professional Independent Insurance Agents of Massachusetts at that meeting.
94.5COUNSEL REPORT
Mr. Joseph Maher, Vice President and General Counsel, advised that conversations continue with Peerless Insurance Company regarding the decision issued from the Superior Court, but since this discussion might impact potential litigations if negotiations fail, it would be appropriately conducted in Executive Session.
Mr. Maher reported that C.A.R. had been in negotiation with the State Rating Bureau concerning the 1995 Commercial Rate Filing, and had attended a meeting at the Division of Insurance regarding a number of ancillary issues related to the Filing, including the Experience Rating Plan, the Taxi Program and the Class Plan. Mr. Maher suggested that these would be appropriate issues for discussion in Executive Session as they have the potential for litigation.
Continuing his report, Mr. Maher advised that discussions continued with Great American Insurance Company and Northwestern Insurance Company regarding their wish to withdraw from the private passenger market and commercial market, respectively. Mr. Maher informed the Governing Committee that there is a topic related to Northwestern that would be appropriate for discussion in Executive Session.
Mr. Maher next reported that at its most recent meeting the Market Review Committee addressed a matter that had been referred by the Governing Committee concerning the requirements of installment payment plans offered by Servicing Carriers. The Market Review Committee recommended that the Governing Committee approve the concept of an amendment to Rule 13 to provide for Servicing Carriers to make available installment payment plans with no more than a 30% first or deposit payment and no less than seven equal monthly payments to commence no earlier than 30 days after the deposit premium. Mr. Maher stated that if the Governing Committee voted to accept this concept, appropriate language would be presented at the September meeting of the Governing Committee, or if they so desired, draft language could be reviewed at today's meeting.
A motion was made by Mr. Sumner Gilman and duly seconded by Mr. David Lane to adopt the concept recommended by the Market Review Committee for an amendment to Rule 13 concerning installment payment plans offered by Servicing Carriers.
Discussion ensued wherein it was suggested that this matter be resolved by the Division of Insurance, rather than a revision to existing rules.
94.5COUNSEL REPORT (continued)
After considerable discussion, a substitute motion was made by Mr. David Lane and duly seconded by Mr. Sumner Gilman to refer the matter of installment payment plans offered by Servicing Carriers to the Division of Insurance, and if the Governing Committee were not satisfied with the Commissioner's resolution, the matter could be addressed at a subsequent meeting of the Governing Committee.
The motion passed with Mr. Burns recused.
The Governing Committee directed Counsel to draft language for an amendment to Rule 13 for presentation at the September meeting of the Governing Committee in the event the solution offered by the Division of Insurance requires further discussion.
Finally, Mr. Maher suggested that discussion of the following topics be held in Executive Session:
1.A complaint filed by Trust Insurance Company in Superior Court relative to the disbursement of withdrawn companies settlement proceeds.
2.The draft definition of Market Need Criteria which was referred to the Division of Insurance to ascertain its reaction to such a policy. The Division responded that it saw no basis for objection to the policy with the caveat that it be prospective in application. Mr. Maher indicated that Counsel wanted to discuss with the Governing Committee certain procedural issues regarding the criteria that could impact pending litigation.
94.6MARKET REVIEW COMMITTEE
Mr. James Doherty, reporting on the Market Review Committee Meeting of July 13, 1994, advised that the Market Review Committee heard an appeal by The Lowell Group Insurance Agency concerning the termination of its Exclusive Representative Producer's (ERP) appointment by Norfolk & Dedham for "failure to develop and maintain a minimum book of business." Due to extenuating circumstances, the Market Review Committee voted to grant the agency a one year extension to obtain the required 250 vehicles.
Continuing his report, Mr. Doherty advised that the Market Review Committee considered an appeal by the Citadel Insurance Agency, Inc. (which was continued from the June 8, 1994 meeting of the Market Review Committee), relative to Commerce Insurance Company's withholding of agency commissions. After careful review of appropriate contractual documents relating to the appeal, and based on advice of Counsel that C.A.R. is not the appropriate forum for resolution of the issues presented, the Market Review Committee vote to deny the appeal.
94.6MARKET REVIEW COMMITTEE (continued)
Next, Mr. Doherty stated that at the request of the Governing Committee the Market Review Committee began drafting language to set minimum standards for direct bill payment plans for all Servicing Carriers. The Market Review Committee voted to recommend to the Governing Committee the concept of amending Rule 13, A, 2, a, 4, to require a Servicing Carrier to offer a payment plan
which consists of at least, a down payment followed by seven monthly installments. The Market Review Committee directed Counsel to draft appropriate language to be presented for review at the next meeting of the Market Review Committee.
Relative to the issue of premium payments, Mr. Doherty reported that in light of several recent default reimbursement requests wherein finance company premium payments had been accepted by producers and not forwarded to the respective Servicing Carriers, the Market Review Committee considered the possibility of requiring that financed premium payments be made directly to a Servicing Carrier. The Market Review Committee then recommended that within that context, Counsel draft language for the purpose of bulletining all Servicing Carriers relative to their responsibility to mitigate potential defaults as respects their prospects for reimbursement of defaulted premium, for review at the next meeting of the Market Review Committee.
Continuing, Mr. Doherty reported that the Market Review Committee heard an appeal by the ABC Insurance Agency concerning the termination of its ERP's appointment by Arbella Mutual Insurance Company for failure to "remit payments on a timely basis in accordance with provisions set forth in the contract between the Servicing Carrier and the Exclusive Representative Producer." The Market Review Committe voted to continue this matter for 90 days with the appointment standing, after which Arbella will report on the agency's compliance with C.A.R. Rules.
Mr. Doherty advised that the Market Review Committee considered an appeal by Frank A. Greco regarding the termination of his agency's ERP's appointment by Arbella Mutual Insurance Company for "failure to develop and maintain a minimum book of business." At the request of Arbella, the Market Review Committee voted to stay the termination for 90 days to allow both parties time to reconcile the number of in-force vehicles written by the agency.
Finally, Mr. Doherty advised that the Governing Committee had referred to the Market Review Committee the issue of Dual Status Producer's retention of renewal capability for three years by an ERP upon voluntarily contracting with a different Servicing Carrier. To this end, the Market Review Committee directed Staff to compile information concerning the number of producers having dual status and the date parameters defining their dual status.
94.8OPERATIONS COMMITTEE
Mr. Wayne Howard reported that the Records of the Operations Committee Meeting of May 25, 1994 have been distributed and are on file with C.A.R.'s Secretary.
94.11ACTUARIAL COMMITTEE
Mr. James Stone, reporting on the Actuarial Committee Meeting of July 19, 1994, advised that the Actuarial Committee reviewed the proposal submitted by Amica Mutual Insurance Company and Metropolitan Property and Casualty Insurance Company pertaining to ERP tolerance levels and oversubscription of ERPs. The Actuarial Committee discussed the proposal in great detail and voted to continue the discussion to their next meeting.
Continuing, Mr. Stone advised that the Actuarial Committee discussed Private Passenger Rules 11 and 12 for 1995 and voted unanimously to retain a K Factor of 4.0 for policy year 1995. Mr. Stone noted that the use of this K Factor had played a significant role in the reduction of the private passenger cession rate. Concerning Excluded Classes, Mr. Stone noted that about half of excluded business is voluntarily retained, and the Actuarial Committee voted to recommend that the same excluded classes be used in policy year 1995 that were used in policy year 1994. Mr. Stone stated that the Actuarial Committee voted unanimously to recommend that for 1995 the miscellaneous private passenger classes (except for class 0495), continue to have a .33 adjustment applied and have physical damage exposures be included without adjustment. He suggested that these three decisions would presumably be contained in the Actuarial Committee's final recommendation, absent any contrary opinion or presentation from an affected party. The Actuarial Committee then discussed the 1995 private passenger Rule 12 credit offer. After reviewing information provided by Staff, the Actuarial Committee voted to continue discussion of this topic to their next meeting.
In response to a question concerning what percentage of the market represented excluded classes, Mr. Stone replied that approximately 7.5% of the market represented excluded classes, but since half of it is retained voluntarily, only approximately 3.5% of that was ceded.
Finally, Mr. Stone reported that the Records of the Actuarial Committee Meeting of May 9, 1994 have been distributed and are on file with C.A.R.'s Secretary.
94.14AUDIT COMMITTEE
Mr. Michael Trovato, reporting on the Audit Committee Meeting of July 11, 1994, advised that the Audit Committee reviewed the Industry Audit Report of Rule 12 Class Credits for 1991 and 1992. Mr. Trovato referred the Governing Committee to an exhibit reflecting proposed revisions to participation adjustments for policy year 1991. Mr. Trovato stated that although the 1991 policy year credit audit had been completed, it was expanded to include two additional companies, and now includes all companies with 1% or greater market share. The proposed revisions reduce the original approved participation adjustment at $1,400,000 by approximately $300,000. Mr. Trovato indicated that only $28,000 is attributed to the expanded audit; the remaining portion is a result of the use of a later deficit figure.
94.14AUDIT COMMITTEE (continued)
A motion was made by Mr. David Lane and duly seconded by Mr. James Doherty to approve the recommendation of the Audit Committee concerning the revised participation adjustment for Policy Year 1991.
The motion passed on a unanimous vote.
Continuing, Mr. Trovato reported that the Audit Committee was advised by Staff that one-third of 1992 audits are completed, and there has been no significant departure from the error rate of approximately 5-6% from the 1991 audit. Finally, Mr. Trovato reported that with system development work near completion, an automated process will be implemented for class credits for future audits beginning with policy year 1993.
94.16COMMERCIAL LINES COMMITTEE
Mr. Ronald Cleaves, reporting on the Commercial Lines Committee Meeting of July 12, 1994, advised that in an effort to encourage companies to offer voluntary contracts to profitable ERPs, the Commercial Lines Committee voted to recommend to the Governing Committee the creation and public distribution of an annual list, beginning April 1, 1995, to display the profitability of commercial auto ERPs based on the criteria listed in their proposal (see attached). The proposal states that existing Servicing Carriers have the exclusive right for 90 days to offer each of the ERPs a voluntary contract; after 90 days the ERP is available for solicitation by any other Servicing Carrier. Mr. Cleaves noted that it was the recommendation of the Commercial Lines Committee to delete the volume requirement of $100,000 from the proposal.
A motion was made by Mr. David Lane and duly seconded by Mr. Sumner Gilman to approve the recommendation of the Commercial Lines Committee concerning the offering of voluntary contracts to commercial ERPs, with the deletion of the reference to a $100,000 volume requirement.
Mr. Leonard Fisher addressed the Governing Committee regarding a prior hearing at the Division of Insurance on a proposal for mandatory ceding of commercial business from ERPs. Mr. Fisher stated that Arbella Mutual Insurance Company testified at that time that they were open for solicitation and it was suggested that C.A.R. publish a list of other companies open to solicitation for a voluntary appointment. Mr. Fisher expressed the belief that the publication of a list of profitable ERPs would be a violation of their right to privacy. He also indicated that in the event a present servicing carrier does not offer the ERP a voluntary contract, and the ERP does not accept the new carrier, it will be penalized under Rule 14 with a 10% reduction in commission, which Mr. Fisher feels is discriminatory. In conclusion, Mr. Fisher asked that a public hearing be conducted at the Division of Insurance if the motion to publish a list of profitable ERPs passes.
After further discussion the motion passed on a unanimous vote.
94.16COMMERCIAL LINES COMMITTEE (continued)