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Statistical Research on Auto Insurance

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									                                     RECORDS OF MEETING

                                    OPERATIONS COMMITTEE

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


                              WEDNESDAY, OCTOBER 25, 2000


Members present -

                               Mr. Edward N. Patrick, Jr. – Chairman
                                    Safety Insurance Company

       Mr. Thomas L. Baird                           National Grange Mutual Insurance Co.
       Ms. Margaret J. Batchelder                    Holyoke Mutual Insurance Company
       Mr. James P. Coxen                            Liberty Mutual Group
       Mr. Edward F. Downey, Jr.                     Edward F. Downey Insurance Agency
       Mr. Russell E. Furlong                        Amica Mutual Insurance Company
       Mr. Michael J. Hussey                         The Hanover Insurance Company
       Ms. Tammi Johnson                             Fireman’s Fund Insurance Company
       Mr. Robert P. Littlewood                      Arbella Mutual Insurance Company
       Mr. Kenneth M. Quick                          The Premier Insurance Co of MA
       Mr. Michael J. Richards                       The Commerce Insurance Company
       Mr. Mark A. Sweeney                           Plymouth Rock Assurance Corporation


Commonwealth Automobile Reinsurers present -


       Ms. Susan Basilesco                           Director of Financial Services
       Ms. Wendy Browne                              Senior Operations Services Manager
       Ms. Vanita Chambers                           Underwriting Analyst
       Ms. Natalie Hubley                            Sr. Manager of Actuarial/Statistical Services
       Ms. Jennifer Kelley                           Senior Data Analyst
       Ms. Cheryl Kopas                              Underwriting Technical Assistant
       Ms. Lynne Rosenburg                           Operations Services Supervisor
       Ms. Tina Thibodeau                            Data Analyst
       Ms. Pamela Wallace                            Director of Data Quality Services
Records of Meeting                                   -2-                                 October 25, 2000
Operations Committee


Also present –

        Ms. Katherine W. Barry                             CGI
        Mr. Edward Colomey                                 Empire Insurance Company
        Mr. John Delano                                    Pilgrim Insurance Company
        Mr. Peter Elms                                     The Travelers Indemnity Company
        Ms. Nicole Green                                   Norfolk & Dedham Mutual Fire Ins. Co.
        Ms. Donna Jarominski                               The Commerce Insurance Company
        Ms. Abbi Laushine                                  CNA Insurance Company
        Ms. Stephanie Tuscano                              Plymouth Rock Assurance Corporation
        Ms. Elisa Vieira                                   St. Paul Insurance Company

        Operations Committee Chairman Mr. Patrick called the meeting to order at 10:00 a.m.
OP
00.01   Records of Previous Meeting

       A motion was made by Mr. Baird and seconded by Mr. Sweeney to approve the Records of
the Operations Committee meeting of May 24, 2000, as written.

OP
00.02   Informational Items

       Mr. Patrick stated that the Governing Committee has not met since the last Operations Committee
meeting.

OP
00.03   Statistical Subcommittee

         Ms. Browne reported on the Statistical Subcommittee meeting of October 11, 2000. Ms. Browne
stated that at the last meeting 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. All of the information has been published in Accounting and Statistical Notice Number
328 in order to give the industry ample time to prepare for the upcoming changes. The Subcommittee
then requested that Staff work proactively to assist companies in addressing any possible reporting
problems prior to the 2001 change.

         Ms. Browne stated that the Subcommittee was updated on the status of the June 2000 VIN data
comparison results. She indicated that the error rate for private passenger business for the industry is
currently under 1% which is extremely good. For commercial business, the reporting of passive restraint
for the industry is under 5%; however, 5 companies were notified that they could experience reporting
problems in 2001 if they do not rectify their present reporting methodologies. She also noted that the
reporting of “commercial cost new data” continues to be a problem for the industry; however, Staff did
identify a problem with one of its edits and the symbols that were being used from the Polk System.
Since the edit problem has been rectified, Staff has seen a drop in the error percentage from 9.4% in first
quarter to 4.4% in the second quarter. Due to the fact that the error percentage has dropped significantly,
Staff is still anticipating that the editing of cost new data will take effect on January 1, 2002.
Records of Meeting                                  -3-                                 October 25, 2000
Operations Committee


OP
00.03   Statistical Subcommittee (continued)

         Ms. Browne reviewed the results of the 4th Quarter 1999 Private Passenger Premium and Loss
and Commercial Premium Distributional Analysis (see attached). Twelve companies were asked to
respond to issues relating to reporting of private passenger premium. Seven companies explained their
distributions as consistent with their books of business. One company addressed reporting problems, with
the majority of corrections expected with the submission of 2000 data. Four companies had not yet
responded. She noted that forty-four companies were asked to respond to various commercial premium
reporting issues. Two companies explained their distributions as consistent with their book of business.
Fourteen companies had addressed reporting problems with the majority of corrections expected with the
submission of 2000 data. Twenty-eight companies had not yet responded. Ms. Browne advised that
sixteen companies were asked to respond to private passenger loss reporting issues. Nine companies
explained distributions as consistent with their books of business or claim reserving practices. Three
companies had addressed reporting problems with the majority of corrections expected with the
submission of 2000 data. Four companies had not yet responded.

         Ms. Browne stated that the Subcommittee reviewed the most recent Private Passenger and
Commercial Rate Edit results (see attached). She stated that for Private Passenger policy effective year
2000, two companies were over tolerance and the industry error rate is 0.17%. For policy effective year
1999, one company is over tolerance due to reporting problems relating to their SDIP data. She noted that
until corrected, this company will continue to be penalized. The industry error rate is 0.24%. Ms.
Browne stated that for Commercial policy effective year 2000, through six months, the industry data error
rate is 4.9% with four companies being over tolerance. For 1999, the industry error rate is 4.05%, with
ten companies over tolerance. She also indicated that recent results show improvement since the
inception of the commercial rate edit, as shown by the decreasing number of companies over tolerance
and current error percentages.

         Ms. Browne reported that the Automobile Insurers Bureau (AIB) had requested that CAR
consider changes to the statistical reporting requirements to ensure that companies with a group affiliation
report which also report a separate Annual Statement, use a separate company number for statistical
reporting. The AIB indicated that this data is relevant and necessary for it’s under 1% filing. At the May
10, 2000 Statistical Subcommittee meeting, Staff presented an analysis relative to the companies
impacted by this proposed change. The Statistical Subcommittee supported the concept, but requested
that Staff contact those companies reporting combined statistical data to identify the financial and system
impacts of the proposed changes to reporting requirements. Ms. Browne reported that 16 companies were
surveyed and 12 responded (see attached). She indicated that six of the companies stated that using a
separate company number for reporting of statistical data would have no impact. Four of the companies
had a mixed response. These four companies seemed to express concerns over increased costs that may
be incurred as a result of this change. Some companies also questioned whether present tape formatting
requirements would be modified to be more flexible under an individual company reporting scenario.
Two companies were opposed to this change.

        Ms. Browne stated that at the Subcommittee meeting, Ms. Baker from the AIB, emphasized that
several of the companies writing greater than 1% of the market share do not have company codes, and
some company groups do not code the statistical data to the company in which the premium is booked.
Ms. Baker had stated that both of these situations make it difficult to compile the statistical data into
“under and over 1% companies”. Data from the under 1% companies is used at the AIB in the
Commercial Ratemaking process. Ms. Baker also pointed out to the Subcommittee that all new
companies are issued unique company code numbers. Ms. Browne confirmed this and noted that
Records of Meeting                                  -4-                                 October 25, 2000
Operations Committee


OP
00.03   Statistical Subcommittee (continued)

companies, prior to a certain date, were “grandfathered in” and were not differentiated by an individual
company number if the company chose to report data on a combined basis. Ms. Browne stated that some
members of the Statistical Subcommittee felt that there should be one set of rules that apply to all
companies. The Subcommittee then requested that Staff research how the tape formatting requirements
could be modified to be more flexible, so that separate reporting company numbers could be required at
some future date. Ms. Browne stated that the results of Staff’s findings will be presented at the next
Statistical Subcommittee meeting.

         Ms. Browne noted that minor clarifications have been made to the Statistical Plans (see attached).
She reviewed the two modifications to the Private Passenger Statistical Plan (see attached). The first
modification is to the record layout modification key for Model Year Century Code and the adding of a
new footnote to the Record Layouts. The second modification is to the records layout modification key
for the expansion of Property Damage Limit Code and the adding of a new footnote to the liability
premium Record Layout. Ms. Browne presented three changes that will be made to the Commercial
Statistical Plan (see attached). The first change is to update the Fleet and Non-Fleet Public Transportation
Classification Code Charts to specify type of risk 7 information. The second change is an update to the
Garages Classification Code Chart to identify coverage changes that occurred with the implementation of
the simplified Garage Policy. The third change is a correction to the Coverage Code Decision Table. The
coverage Decision Table currently lists coverages 106-169. These Coverage Codes should be correctly
listed as 106-109. These modifications will be effective January 1, 2001.

       A motion was made by Mr. Sweeney, and seconded by Mr. Baird to adopt the proposed
changes to the Statistical Plans, effective January 1, 2001. The motion passed on a unanimous vote.

        Ms. Browne stated that the Subcommittee was provided with a status report on claim count. She
informed the Committee that the Actuarial and Claims Departments are still using the reported claim
count and that she would need to confer with these departments about the claim count issue and would
have more information for the Subcommittee at a future meeting.

OP
00.04   Reinsurance Operations Subcommittee

         The Reinsurance Operations Subcommittee had not met since the last Operations Committee
meeting. However, Ms. Browne stated that CAR would like to recommend to the Operations Committee
that a final close-out of policy effective years for 1988 and 1989 for financial purposes occur as of 3 rd
Quarter 2000, and for data reporting purposes as of the January 2001 submission. She also stated that
this recommendation is based upon a review of the outstanding losses reported in the June 2000
shipments which demonstrate that the volume of open data for these years is small enough to warrant
final close-out (see attached exhibit).

        Mr. Sweeney made a motion to approve the recommendation of a final close-out of policy
effective years 1988 and 1989 for financial purposes as of 3rd Quarter 2000 and for data reporting
purposes as of the January 2001 submission. Mr. Baird seconded this motion and it passed
unanimously.
Records of Meeting                                 -5-                                October 25, 2000
Operations Committee


OP
00.05   Operational Reports

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

OP
00.06   Rule 12 Error Tolerance for 2001

      Ms. Browne stated that the Committee should discuss and propose a Rule 12 error tolerance
recommendation for 2001. Mr. Richards stated that the Rule 12 is not a penalty program and
recommended further reducing the tolerance level for the upcoming year.

       Mr. Richards made a motion to set the Rule 12 Error Tolerance at 0.25% for policy year
2001. Ms. Batchelder seconded the motion and it passed unanimously.

OP
00.08   Rule 12 Update

         Ms. Browne stated that at the May 24, 2000 meeting, the Operations Committee directed CAR to
provide companies with a list of policies that contain discrepancies between the MA-Years-Driving-
Experience and the Insurer-Years-Driving-Experience, and request that the companies research these
discrepancies and provide an explanation (see attached). Twenty-nine companies were provided with
sample listings, to which 15 responded. Thirty-three percent of the discrepancies can be attributed to the
company having knowledge of prior out-of-state driving experience. These differences are valid.
Twenty-one percent of the discrepancies can be attributed to data entry errors. Twenty-six percent of the
discrepancies can be attributed to either a company’s system having an incorrect calculation routine or a
lack of a systematic process to perform the calculation. Three companies (all with 100% of their errors in
this category) indicated that they have plans to correct this situation. One other company will be
contacted because they believe their calculation is correct, when it is not correct. Three percent of the
discrepancies appear to be based on inconsistent data at the Merit Rating Board. The Merit Rating Board
has been contacted and asked to review the specific policies. Three percent of the discrepancies involve
licenses that have been suspended/revoked. Fourteen percent of the discrepancies involve policies where
the effective date is on the Date-1st-Licensed anniversary date. The Merit Rating Board has been
contacted and asked to provide the proper procedure for these policies.

          Ms. Browne stated that, based on the results, Staff does not recommend using the new “Insurer
Driving Experience” field in the Rule 12 editing process. Staff recommended leaving the Rule 12 system
as it is. Mr. Richards asked if CAR will continue to use the Massachusetts Date-1st-Licensed in the edit.
Ms. Browne stated that this was correct. The request of the Committee was for CAR not to use the
“Insurer Driving Experience” field to impute the class code.

OP
00.09   Vanliner Appeal

        Ms. Rosenburg outlined Vanliner Insurance Company’s request to rescind the statistical penalties
assessed for the May, June, and July 1999 monthly accounting shipments which total $24,000. Ms.
Rosenburg stated that Vanliner felt the fines were caused by a change in CAR’s edits, and that the penalty
was punitive based on the amount of direct premium they have written.
Records of Meeting                                 -6-                                October 25, 2000
Operations Committee


OP
00.09   Vanliner Appeal (continued)

         Ms. Rosenburg stated that CAR felt the penalty is justified due to the advance notification CAR
gave to the industry regarding the change in the editing of commercial VIN data. She stated that CAR
notified the industry of this change well in advance of it becoming effective. Accounting and Statistical
Notice 277, dated October 22, 1997, first notified the industry of the change in VIN editing. Subsequent
Accounting and Statistical Notices 284 and 306 contained this information as well as the Operations
Committee records of January 21, 1998.

       Mr. Sweeney made a motion to deny Vanliner’s appeal based on the advance notification
CAR provided to the Industry outlining the changes in the editing of commercial VIN data. Mr.
Baird seconded the motion and it passed unanimously.

OP
00.10   Commercial Rate Filing

        On June 28, 2000, CAR filed with the Division of Insurance a commercial rate request for ceded
policies effective October 1, 2000 and subsequent. Ms. Wallace stated that CAR will release the new
rates once the stipulation is approved by the Hearing Officer. Mr. Delano of Pilgrim Insurance asked
when CAR expects to release the new rates. Ms. Wallace responded that CAR anticipates that this will
occur in mid-December. CAR will then update the Rate Edit System and edit the records by April 2001.
Ms. Wallace stated that CAR is concerned about data that companies may not have reported, and will
contact companies to get the accrual information for this missing data. After further discussion, the
consensus of the Committee was to not make any changes to the procedures for cession and statistical
reporting in regard to the Commercial Rate Filing.


Other Business

        Mr. Sweeney made a motion to discuss the meeting schedule for 2001. Mr. Baird seconded
the motion and it passed unanimously. Ms. Browne highlighted the proposed schedule of meeting
dates for the Reinsurance Operations Subcommittee, the Statistical Subcommittee, and the Operations
Committee for 2001 which are outlined below. Committee members were requested to contact Staff with
any conflicts.

        Reinsurance Operations Subcommittee/Statistical Subcommittee:

        Wednesday, January 10, 2001
        Wednesday, March 14, 2001
        Wednesday, May 9, 2001
        Wednesday, October 10, 2001

        Operations Committee:

        Wednesday, January 17, 2001
        Wednesday, March 21, 2001
        Wednesday, May 16, 2001
        Wednesday, October 17, 2001
Records of Meeting                                  -7-                                October 25, 2000
Operations Committee


Other Business (continued)

         Ms. Johnson made a motion to discuss reporting issues related to Trust claims. Mr.
Littlewood seconded the motion and it passed unanimously. Ms. Browne informed the Committee
that the Guaranty Fund had distributed letters to Trust claimants notifying them that they were required to
exhaust all other insurance coverages before the Guaranty Fund would reimburse any claim.
Accordingly, companies would be expected to cover these claims under their Uninsured Motorist or
Property Damage Coverages or through PIP subrogation. Ms. Browne stated that in an effort to assist the
industry in assessing the impact of this transfer, CAR could collect this information on behalf of the
industry. The Committee briefly discussed the benefits, drawbacks, and possible methodologies
regarding the collection of this data. The Committee requested that Staff more completely identify the
issues with this proposed collection process so that it could then decide how to proceed.

        Mr. Baird made a motion to add under Other Business the discussion of the OEM Crash
Parts endorsement. Mr. Sweeney seconded the motion and it passed unanimously. Ms. Wallace
advised the Committee that the Division of Insurance approved the OEM endorsement and that rates were
expected to be determined in conjunction with the 2001 rate decision. Ms. Wallace stated that CAR filed
a request with the Division of Insurance to change the effective date for the statistical reporting of this
endorsement. If approved, beginning January 1, 2001, it will be mandatory for companies to report the
OEM endorsement coverage code if they choose to offer the endorsement.


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

        The motion passed on a unanimous vote.

        The meeting adjourned at 10:56 a.m.

                                                 JENNIFER KELLEY
                                                 Senior Data Analyst

Attachments

Boston, Massachusetts
December 4, 2000

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

								
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