1998.01.21 - Records of Meeting - commauto.com.doc

RECORDS OF MEETING8JANUARY 21, 1998OPERATIONS COMMITTEERECORDS OF MEETINGOPERATIONS COMMITTEEThe Commonwealth Automobile Reinsurers held a meeting of the Operations Committee at the offices of CAR on - WEDNESDAY, JANUARY 21, 1998 AT 10:00 AMThe following members attended -Carrier/AgencyRepresentativeAmica Mutual Insurance CompanyMr. Bruce ThomasArbella Mutual Insurance CompanyMr. Robert LittlewoodBerkshire Mutual Insurance CompanyMr. James FlemingCNA Insurance CompanyMs. Dianna McDevitt*Commerce Insurance CompanyMr. Michael RichardsCommercial Union Insurance CompanyMs. Sherry DeBeradinisHanover Insurance CompanyMr. Wayne HowardHolyoke Mutual Insurance CompanyMs. Margaret BatchelderJohn Hancock Insurance CompanyMs. Tammi JohnsonLiberty Mutual Insurance CompanyMr. Jay Phillips National Grange Insurance CompanyMr. Thomas BairdPlymouth Rock Assurance CompanyMr. Geoffrey Arnold*Safety Insurance CompanyMr. Edward PatrickPremier Insurance CompanyMs. Virginia DaleyTrust Insurance CompanyMr. Mark Sweeney*Ms. McDevitt substituted for Mr. Curt Hamilton*Mr. Arnold substituted for Mr. Keith RodneyThe following representatives also attended -Commonwealth Automobile ReinsurersOperations Services ManagerMs. Wendy BrowneSr. Statistical AnalystMs. Kristie BurnsStatistical AnalystMs. Pamela GillCommonwealth Automobile Reinsurers (Contd)Statistical ManagerMs. Natalie HubleySr. Data AnalystMs. Jennifer PikarskyData Operations SupervisorMs. Lynne RosenburgManager of Actuarial & Statistical ServicesMs. Sharon SchorgeStatistical AnalystMr. Randall ScottData AnalystMs. Tina ThibodeauCarrier/Agency RepresentativeAmica Mutual Insurance CompanyMr. Russell FurlongBerkshire Mutual Insurance CompanyMs. Angela MetivierISI Systems, Inc. Mr. Jay DavisLumber Mutual Insurance CompaniesMr. Abe DormaneyPilgrim Insurance CompanyMs. Rachel ScanlonPlymouth Rock Assurance CompanyMs. Stephanie TuscanoO.C.98.1RECORDS OF MEETINGMr. Patrick made a motion to approve the records of the October 22, 1997 Operations Committee meeting. Mr. Baird seconded the motion and it passed unanimously.O.C.98.2APPEALSThe Committee heard three appeals at the meeting.Hartford Insurance Company Ms. Browne outlined the appeal stating Hartford is appealing for cession backdates on 6 policies based upon its intent-to-cede those policies. She stated that Hartford did not meet all five criteria outlined in the Manual of Administrative Procedures for an intent-to-cede backdate appeal. Ms. Browne informed the committee that in 4 of the 6 policies, the decision to cede was made after the 23 day window. However, for those policies, Hartford was requesting a backdate to the decision date rather than the effective date. Furthermore, Hartfords appeal for only 1 of the 6 policies was made within the 45 day window of the appropriate CA2400-Critical Accounting Listings. Mr. Davis of ISI represented Hartford in its appeal. He agreed with Ms. Brownes synopsis of Hartfords appeal that Hartford did not meet the five criteria outlined in the Manual of Administrative Procedures for intent-to-cede backdates. Mr. Davis noted that on May 22, when ISI implemented their O.C.98.2APPEALS (Contd)processing services for Hartford, the necessary programming changes were inadvertently overlooked, in that ISIs system did not produce the actual cession notices to CAR. He stated that ISI did make the program changes necessary to cede Hartfords policies once the mistake was discovered. Furthermore, new procedures have been implemented to improve the review of the daily cession reports and the monthly critical accounting error listings. Accordingly, Mr. Davis stated that ISI is basing this appeal upon the unusual circumstances relating to the implementation of a new company.Ms. DeBeradinis asked if Hartford was only ceding these 6 policies. Mr. Davis responded that at the time of this problem, Hartford had just become a Servicing Carrier and these were the only policies that should have been ceded, and represented the entire book of business.Ms. DeBeradinis moved to approve this appeal. Mr. Thomas seconded the motion and it passed unanimously.Berkshire Mutual Insurance CompanyMr. Flemming recused himself from the appeal discussion. Ms. Rosenburg explained that Berkshire is appealing two separate situations. Appeal #1Ms. Rosenburg outlined the first appeal stating that Berkshire is appealing a $25,001 loss write-off penalty assessed on 12/21/96. The policy contained no active cession record. This policy has an effective date of 6/18/93. In early January 1994, Berkshire submitted a cession correction against the original cession record. The cession correction deactivated the original cession (as it is supposed to) and created a second cession record. However, from what appears to be a system problem at CAR, both cessions appeared on the 1/7/94 CAR157 cession error listing as a duplicate error. Ms. Rosenburg explained that this should not have occurred since the original cession became inactive with the cession correction. Berkshire then deleted the cession correction record using the CAR157 error list leaving no action cession on the policy as of 1/30/94. CAR should not have processed the delete since the cessions werent truly in duplicate error. With no active cession on the policy, critical error code 1 resulted against the premium and loss records. Ms. Rosenburg explained that this policy first appeared on the CA2400 Critical Accounting Listing on 2/18/94 and appeared on seven subsequent CA2400 error listings through 6/21/96. She stated that CAR wrote-off the loss records on 12/21/96 after the policy processed through the “times listed” cycle. Ms. Rosenburg acknowledged that CAR contributed to the original problem, but stated that the appeal was denied because Berkshire had sufficient opportunity, from 2/18/94 to 2/7/96, to contact CAR staff and request a cession backdate which would have cleared the critical error and provided full loss O.C.98.2APPEALS (Contd)coverage. She stated that CAR distributes error reports which should be reviewed by companies to identify problems. Accordingly, Ms. Rosenburg stated that CAR believes it did not significantly contribute to the problem. Ms. Metivier represented Berkshire in its appeal. She stated that CAR did significantly contribute to the problem. She stated that she used the Manual of Administrative Procedures when the cession for this policy appeared on the CAR157 cession error listing as a duplicate error. She deleted the cession with the late receipt date off of the listing as the Manual states. Ms. Metivier stated that CAR did contribute to the problem by listing the cession in duplicate error and then allowing the delete to be processed. Ms. Daley asked when CAR Staff realized there was a problem with the cession for this policy. Ms. Rosenburg responded that the problem was discovered once Berkshire requested the appeal. Mr. Richards asked how many times this policy appeared on the CA2400. Ms. Rosenburg responded that the policy appeared on the error listing 8 times. Ms. Metivier stated that she did not understand the correction process, in that she thought the policy was going to eventually come off of the error listing. Mr. Richards stated that he felt that Berkshire had adequate time to get this policy fixed. Mr. Thomas moved to deny Berkshires appeal. Mr. Richards seconded the motion and it passed unanimously with 1 recusal. Appeal #2Ms. Rosenburg stated that Berkshire is also appealing the $60 cession/no premium penalties assessed against five 1995 effective date policies in December 1996. She outlined the appeal stating that Berkshire submitted the original transaction 2 cessions under company code #198 and submitted the premium under company code #963. Because no premium appeared under company code #198, all five cessions appeared on the 1/19/96 CA2500-Warning List with an asterisk (*) indicating the first time appearing on the CA2500. Ms. Rosenburg stated that the cessions then appeared on nine subsequent Warning/Penalty lists prior to the $60 penalty assessment. Also, because the premium was reported under company #963, the policies appeared on three CA2400-Critical Accounting Error Lists (12/20/95, 4/20/96, and 8/18/96). Ms. Rosenburg stated that CAR denied this appeal based upon the fact that it did not contribute to the problem and because Berkshire had sufficient opportunity to fix the problem prior to the $60 penalty assessment. Ms. Metivier represented Berkshire in its appeal. She stated that Berkshire (#198) rolled their entire commercial book of business over to a new company, Worcester Insurance Company (#963), in October 1995. She stated that the five policies that Berkshire is appealing are the only policies that were not successfully rolled over to Worcester Insurance Company. Ms. Metivier stated that Berkshires office had the CA2500 error listing and Worcesters office had the CA2400 error listing O.C.98.2APPEALS (Contd)which is the reason the problem did not get resolved. She noted that both the premium and the cessions for these policies were at CAR in a timely manner. Mr. Sweeney moved to deny this appeal based upon the fact that this policy appeared on Berkshires listing 9 times prior to being penalized. Mr. Patrick seconded the motion and it passed with 12 in favor and one recused. Mr. Howard informed Ms. Metivier that she could further appeal to the Governing Committee. O.C.98.3REINSURANCE OPERATIONS SUBCOMMITTEEThe Reinsurance Operations Subcommittee has not met since the last Operations Committee meeting.O.C.98.4STATISTICAL SUBCOMMITTEE Ms. Hubley stated that CAR Staff presented information to the Statistical Subcommittee regarding the quality and utilization of VIN data. Specifically, they were informed of a new process for 1998 by which companies can input state-assigned, gray market, and exotic VINs into CARs system. She stated that in 1998, the statistical edits will pass reported VINs through both Polk and the new Non-Polk VIN File. She stated that CAR Staff also presented the subcommittee with the results of a Quarterly VIN Discrepancy Listing which compares encoded data in the VIN to the statistically reported data elements, including Passive Restraint Code, High-Theft Code, Model Year, Age, and Symbol. Furthermore, Ms. Hubley stated that CAR intends to convert the VIN Verification Edit (V53), which primarily edits commercial data, to a full Statistical Edit in 1999.Ms. Hubley stated that the Subcommittee unanimously approved the 1998 Statistical Plan updates effective January 1, 1998. The changes to the statistical plan include changes to the reporting requirements and coding sections for VIN to allow for five to seventeen position VINs in light of the planned implementation of the Non-Polk VIN file. Mr. Baird moved to accept the 1998 Statistical Plan updates. Mr. Patrick seconded the motion and it passed unanimously.Ms. Hubley next stated that a CAR Task Force is responsible for rewriting the Private Passenger and Commercial Statistical Plans with the intention of making them more accurate, complete and readable. She indicated that only editorial changes will be made by this task force. Ms. Hubley noted that CAR Staff presented a summary of the reporting problems indicated in the Final 1996 Distributional Analysis to the subcommittee. O.C.98.4STATISTICAL SUBCOMMITTEE (Contd)Ms. Hubley gave a status report of the claim count derivation project. She stated that the AIB is in the process of developing their Massachusetts automobile system , but that they were behind schedule and could not provide a completion date at this time. Upon completion of the design, CAR will determine the feasibility of incorporating AIB derived claim count into CARs systems.Finally, Ms. Hubley stated that CAR Staff presented the subcommittee with information relative to a change in the definitions of ALAE and ULAE which will be implemented by the N.A.I.C. effective January 1998. The ALAE definition has been changed to include all expenses incurred in defense of a claim. Likewise, the ULAE definition has been changed to include all expenses incurred in the adjustment of a claim. Ms. Hubley noted that CAR Staff is currently working with the Division in anticipation of this change being implemented in Massachusetts.Mr. Richards asked if CAR Staff has been in contact with ISO about what they are doing regarding this change. Ms. Hubley responded that CAR has only been in contact with the N.A.I.C. and the Division of Insurance.O.C.98.5OPERATIONAL REPORTSThe Committee had no questions or comments relative to the CAR Operational Reports.O.C.98.6RULE 12Mr. Howard stated that the Governing Committee passed a motion to bring the Rule 12 Error Tolerance Level back to the Operations Committee for further discussion. Ms. Hubley stated that the Governing Committee felt that the Operations Committee should consider lowering the current 2% tolerance level given the value of a credit and in light of the decreasing industry error percentage. Ms. Hubley distributed an exhibit of Rule 12 Credit Edit Results which also showed each companys market share. In response to a question from Mr. Arnold, Ms. Hubley explained that the error rate is reflective of the companys credits in error (exposures in error times their applicable credit value) divided by the companys total reported class credits. In response to another question, Ms. Hubley noted that a negative percentage will occur when the credit value of the assigned class is greater than the credit value of the reported class. She informed the committee that if the companies with negative error rates are removed from the industry calculation, the industry percentage changes from 2.33% to 2.40%. O.C.98.6RULE 12 (Contd)Mr. Baird then asked what made up the current 2% error tolerance. Ms. Browne responded that, historically, 1% accounts for errors originating from the lack of MRB inquiries required during the final 120 days of a policy effective period, as well as new errors arising in the fourth quarter. These issues have been considered to be outside the control of the company. The remaining 1% provides a margin of error. Some members observed that the current error tolerance allows for 2% of reported class credits to be in error, and shouldnt we be encouraging a higher standard. Accordingly, Mr. Arnold made a motion to approve a tolerance of 1.75% for 1998. The motion was not seconded, therefore it did not carry.Mr. Richards then stated that the error tolerance for Rule 12 has been at 2% for almost 3 years and recommended decreasing the percent even more so that companies improve their performance. It was noted that, in effect, CAR is adjusting for companies incorrectly reported data. Mr. Patrick added that if the error tolerance was cut in half, companies would all be affected equally. Mr. Baird noted that companies with a large market share and an error percent not much greater than 2% must not be financially impacted enough to make this a priority; and thus, decreasing the tolerance would encourage them to improve their results.Mr. Littlewood stated that the committee should keep in mind that some companies may not be fixing their errors quickly due to limited resources related to year 2000 changes and consequently, we should not make any drastic changes. After some discussion, Mr. Richards made a motion to approve a 1% error tolerance for policy effective year 1998 and Mr. Patrick seconded it. The committee voted with 12 in favor and 2 opposed. OTHER BUSINESS1. Ms. Browne stated that CAR may need to reschedule the Operations Committee meeting of May 20, 1998 in the event that the Governing Committee needs to meet on that Wednesday. 2. Ms. Browne next advised the committee that there are two company correction issues which will have substantial dollar impacts and lengthy timeframes. The first involves a company that recorded expenses on their internal files as unallocated expenses, instead of reporting them to CAR as allocated expenses. Ms. Browne stated that the company indicated that the missing data spanned accident years 1984-1995 and totaled approximately $1.3 million. Ms. Browne noted that the Audit Department would be reviewing the claims files to ensure that the correction/ reimbursement effort was proper and accurate. The second issue involves a company that is going to re-report loss records for loss dollars that were previously written off. Ms. Browne stated that these losses date from approximately 1974-1992 and will likely involve $1 million dollars or more. OTHER BUSINESS (Contd)The committee was very concerned about the second companys attempt to obtain reimbursement on older years for which both statistical reporting and financial sharing had long been closed out. It was noted that while reimbursement for policy effective years that are no longer reportable was allowed, the reimburse