1998.07.15 - Records of Meeting



RECORDS OF MEETING

GOVERNING COMMITTEE

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

WEDNESDAY, JULY 15, 1998 AT 10:00 A.M.

The following members were present -

Mr. Sumner D. Gilman - Chairman

Economy Insurance Agency, Inc.

Ms. Nancy Z. Bender Nancy Z. Bender Insurance Agency, Inc.

Mr. Charles I. Boynton, III Boynton Insurance Agency, Inc.

Mr. Richard W. Brewer Arbella Mutual Insurance Company

Mr. Andrew J. Carpentier CNA Insurance Company

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

Mr. Joseph J. Giblin Liberty Mutual Insurance Group

Mr. Robert W. Harvey Metropolitan P&C Insurance Company

Mr. William F. Hofmann, III Provider Insurance Group, Inc.

Mr. J. Barry May Hanover Insurance Company

Ms. Nanci S. Peters George Peters Insurance Agency

Mr. Thomas K. Randall MassWest Insurance Company

Mr. Arthur J. Remillard, Jr. The Commerce Insurance Group

Also present were -

Commonwealth Automobile Reinsurers

Mr. R. A. Iannaco President

Mr. M. J. Trovato Executive Vice President and Treasurer

Mr. D. I. Jewell Administrative Vice President and Secretary

Mr. J. J. Maher, Jr. Vice President and General Counsel

Commonwealth Automobile Reinsurers (continued)

Mr. Paul Ryan Vice President and Chief Information Officer

Mr. Frank Underhill Vice President-Auditing

Ms. Valerie Gedziun Vice President - Claims

Mr. J. D. Metcalfe Administrative Manager Mr. Paul Corsetti Director of Communications

Mr. Timothy Costain Servicing Carrier Coordinator

Ms. Wendy Browne Data Operations Manager

Ms. Susan Basilesco Financial Manager

Ms. Cheryl Standrowicz Underwriting Department

Mr. Donald Bergamasco Audit Manager

Ms. Sharon Schorge Manager of Actuarial & Statistical Services

Ms. Natalie Hubley Statistical Manager

Ms. Jennifer Vieira Statistical Department

Mr. Douglas Shetterly Actuarial Department

Mr. Jason Burns Actuarial Department

Mr. Timothy Galligan Actuarial Department

Ms. Kim Tobin Administrative Assistant

Also present were –

Mr. Joseph S. Mulkern Massachusetts Division of Insurance

Mr. Daniel Judson

Robert W. Mahoney, Esq. Hale and Dorr

Mr. Leonard Fisher Attorney

Peter T. Robertson, Esq Law Offices of Peter T. Robertson .

Mr. Frank O’Brien Alliance of American Insurers

Ms. Cleo Anderson AMICA Mutual Insurance Company

Mr. Robert Suglia

Mr. Ted Eaton Arbella Insurance Group

Mr. James Fleming Berkshire Mutual Insurance Company

Mr. Charles Branstrom CGU Insurance Companies

Ms. Annie Schuster

Mr. Michael Rowe Commonwealth Mutual Insurance Company

Ms. Susan Flaherty

Mr. Norman A. Walczak Electric Insurance Company

Mr. Quentin Miles Empire Insurance Agency

Ms. Doreen Carter Empire Insurance Company

Mr. Ed Colomey

Mr. Richard Harris

Ms. Nicki Colosi Fulling Fireman’s Fund Insurance Company

Mr. William Cahill Hanover Insurance Company

Mr. David J. Lane Hastings-Tapley Insurance Agency

Ms. Erin Schaaf Horace Mann Insurance Company

Ms. Kathy Geromini-Karpe ISI Systems

Mr. Chris Mahoney Insurance Times Mr. James Materson Liberty Mutual Insurance Company

Mr. David Richards

Mr. Frank Mancini Massachusetts Association of Insurance Agents

Mr. James J. Moran, Jr. Morrison, Mahoney & Miller

Mr. Barry Tagen Pilgrim Insurance Company

Mr. Ed Walleston

Mr. John Delano

Mr. Geoffrey Arnold Plymouth Rock Insurance Company

Mr. Bert LaChance

Mr. Steve Pace Policy Management Systems Corporation

Ms. Kathleen Devericks Premier Insurance Company Ms. Susan Scott

Michaela Hildrith Price Waterhouse Coopers

Mr. Edward Patrick Safety Insurance Company

Mr. Eoin Cannon The Standard

Governing Committee Chairman Sumner Gilman called the meeting to order at 10:00 a.m.

CAR Rule 4, E requires that no meeting of the Governing Committee should be held with less than ten days notice unless at least eight members waive the Notice requirement, further that the waiver shall be entered into the minutes of the meeting.

A motion was made by Mr. Andrew Carpentier and duly seconded by Mr. William Hofmann to waive the 10-day Notice of Meeting for the Governing Committee, as provided for in CAR Rule 4, E.

The motion passed on a unanimous vote.

Chairman Gilman announced that the Commissioner of Insurance has reappointed the following Governing Committee members to six-year terms; Mr. Richard Brewer, Arbella Mutual Insurance Company, and Ms. Nanci Peters and Mr. Sumner Gilman as agent representatives. In addition, the Commissioner of Insurance also appointed to six-year terms two new company members to the Committee; Mr. Robert Harvey, Metropolitan P&C Insurance Company and Mr. J. Barry May, Hanover Insurance Company.

98.1 MINUTES OF PREVIOUS MEETING

A motion was made by Mr. Richard Brewer and duly seconded by Mr. Charles Boynton to accept the Records of the Governing Committee meeting of April 15, 1998.

The motion passed on a unanimous vote.

5. COUNSEL’S REPORT

Mr. Joseph Maher reported that the CIGNA Group is seeking a transfer of their commercial Servicing Carrier appointment from the Insurance Company of North America to Bankers Standard Insurance Company.

Mr. Iannaco reported that Mr. Dana Jewell, Administrative Vice President, has been in contact with Bankers Standard Insurance Company to coordinate the transfer of the Servicing Carrier appointment of the CIGNA Group from the Insurance Company of North America to the Bankers Standard Insurance Company. The Bankers Standard Insurance Company has advised that it will use the employees and systems employed by the Insurance Company of North America in its capacity as a Servicing Carrier. Staff is satisfied that Bankers Standard Insurance Company meets all the requirements for appointment as a CAR Servicing Carrier and is recommending Bankers Standard Insurance Company be approved as the CIGNA Group commercial Servicing Carrier effective October 1, 1998.

A motion was made by Mr. Arthur Remillard and duly seconded by Mr. Joseph Giblin to approve the appointment of Bankers Standard Insurance Company as a CAR commercial Servicing Carrier effective October 1, 1998.

The motion passed on a unanimous vote.

Continuing, Mr. Maher reported that a status report on the strategies being used in the litigation pending between Trust Insurance Company and the Commissioner of Insurance and CAR relative to the subscription methodology governing the appointment of Exclusive Representative Producers, would be an appropriate topic for discussion in Executive Session.

Continuing, Mr. Maher reported that CAR has been approached by a Risk Retention Group seeking to have CAR issue to it a “company code number” for the purposes of certifying motor vehicle registrations. Mr. Maher noted that this matter has a potential for litigation and would be an appropriate topic for discussion in Executive Session to hear advice of counsel.

98.6 MARKET REVIEW COMMITTEE

Mr. Charles Boynton reporting on the Market Review Committee meeting of May 13, 1998 submitted the following for the Governing Committee’s consideration.

The Market Review Committee continued the appeal of the Citywide Insurance Agency relative to the insuring of taxicab business. Following lengthy and involved testimony from both parties, the Committee voted unanimously to continue the matter for 45-days and directed the parties to attempt to resolve their differences and report back to the Committee with the results of their efforts.

The Market Review Committee voted unanimously to grant postponement for a third time the appeal of the Financial Associates Insurance Agency Inc. vs. Commerce Insurance Company as a result of the withdrawal from the case of the agency’s attorney. The Market Review Committee noted that there will be no further postponements granted.

The Market Review Committee considered the appeal of the A-Affordable Insurance Agency contesting the actions of the Amica Insurance Company refusing to support an additional office location in a non-market need location. After extensive discussion relating to the concept of market need and its applicability to the establishment of additional offices by ERP’s, the Committee voted with nine in favor and seven opposed to uphold the appeal and directed Amica to support the agency’s new office in Malden. The Committee also voted to establish a Subcommittee to review the concept of market need and CAR Rules relating to it. The Committee further voted to recommend to the Governing Committee, that until the Subcommittee has completed its appointed task and made recommendations it feels are appropriate, there be a moratorium placed on ERP’s establishing additional office locations.

After some discussion, a motion was made by Mr. Thomas Randall and duly seconded by Mr. Richard Brewer to adopt the Market Review Committee’s recommendation that a moratorium be placed on ERP’s establishing additional office locations until the Subcommittee has completed its appointed task and has presented its recommendation to the Governing Committee.

The motion passed on a unanimous vote.

The Market Review Committee at its meeting of June 18, 1998 considered the Prestige Insurance Agency’s appeal of its termination as an ERP by the Commerce Insurance Company for violations of CAR Rule 13, B, 3, f, and Paragraph VII-a of the Producer Agreement, “Failure to remit payments to a Servicing Carrier on a timely bases.” The Committee, based on extenuating circumstances involving family members of the owner of the agency, granted the Prestige Insurance Agency a six-month probationary period to demonstrate proper agency accounting practices as well as its ability to comply with CAR Rules.

The Financial Associates Insurance Agency, Inc. appealed the termination of its ERP appointment by Commerce for; “Violations of the conditions set forth in the Servicing Carrier contract as respects the handling of payments by the insured”, “Failure to report all coverages within two working days”, “Failure to comply with reasonable procedures as supplied by the Servicing Carrier for processing claims” and “Failure to properly order endorsements”. The Committee voted to deny the appeal based on the broad scope and large number of violations documented by Commerce.

6. MARKET REVIEW COMMITTEE (Continued)

The All Risk Insurance Agency of Swansea appealed the termination of its commercial ERP appointment with Middlesex for failure to develop and maintain a minimum book of business. The Committee voted to deny the appeal based on an apparent lack of market need as evidenced by the agency’s small amount of commercial automobile business.

The Market Review Committee continued its discussion of the commission dispute between the Shuman Agency and Trust Insurance Company. Due to the inability of Shuman Agency and Trust Insurance Company to resolve the commission issues, the Committee voted to request the parties to provide supporting documentation to CAR and submit to an arbitration process to be overseen by CAR President Iannaco. Both parties indicated their agreement to submit the matter as such to arbitrary process. The Committee felt that this initiative by CAR staff was an innovative approach that would not only afford parties an opportunity to reach an amicable settlement of differences but could result in significant cost savings by reducing the need for multiple committee meetings involving a particularly complicated and contentious dispute between the parties.

The Market Review Committee heard a report on the activities of the Ad Hoc Market Review Subcommittee meetings of June 18 and July 9, 1998 relative to the Subcommittee’s examination of CAR Rules relating to ERP’s operating from multiple locations. It was agreed that Mr. Cochrane, Commerce Insurance Company, would work with CAR Staff in developing potential alternatives to current market need criteria. At its meeting of July 9, 1998, the Subcommittee discussed a series of alternatives to current market need criteria. The Subcommittee directed CAR Staff to bulletin the industry to solicit ideas and proposals on market need. (See attached.) Staff was also asked to develop data comparisons of alternative market criteria based on proposals from the industry as well as by CAR Staff for the Subcommittee’s next meeting.

Continuing Mr. Boynton reported the Market Review Committee granted one-year extensions to obtain the minimum number of vehicles to the following agencies:

➢ Sushila Lull/Commercial Union Insurance Company

➢ McNiff & Smith & Financial Services, Inc./Trust Insurance Company

➢ Hayes Insurance Agency/Trust Insurance Company

➢ Roseann Preston Insurance Agency/Trust Insurance Company

The Records of the Market Review Committee meetings of May 13 and June 18, 1998 have been distributed and are on file with CAR’s Secretary.

98.7 CLAIMS ADVISORY COMMITTEE

Ms. Kathleen Devericks reporting on the Claims Advisory Committee meeting of June 3, 1998 noted the Automobile Damage Appraiser’s Licensing Board Subcommittee incorporated some of the industry’s recommendation into their advisory rule regarding sales tax on paint and materials. The final ruling will eliminate mark up on paint and material costs. The Committee expressed concern with the Board’s reliance on the Mitchell guide as the published guide for paint and material, which is higher than other methods of pricing. The Subcommittee voted 13 in favor and 1 opposed to conduct a survey comparing the various methods and report back to the full Committee at its next meeting.

7. CLAIMS ADVISORY COMMITTEE (Continued)

Continuing, Ms. Devericks advised that in response to a question regarding the authority of the Appraiser’s Licensing Board, Mr. Maher indicated that the enabling statue for the Licensing Board is M.G.L. Chapter 26 Section 8F and that the Board has the authority to adopt rules and regulations governing licenses in the manner provided under Chapter 30A. The Board does have the authority to promulgate its own rules and regulations as to the approved auto damage report form and the manner in which it is utilized, but must do so in a manner consistent with the provisions of Chapter 30A.

Continuing, Ms. Devericks reported on the hearing that was held at the Division of Insurance regarding the proposed changes to the Performance Standards. The hearing was held at the request of the Independent Property Casualty Insurers of Massachusetts who were challenging the proposed changes to Appendex A. CAR Standards for Servicing Carriers’ Special Investigative Units. The Commissioner of Insurance has since accepted the revised stipulated language and on June 3, 1998 approved the changes to the Performance Standards.

Continuing, Ms. Devericks reported that following Governing Committee approval in February 1997, a recommendation was made to the SDIP Task Force to eliminate the requirement for reporting comprehensive claims to the Merit Rating Board. CAR President Iannaco advised the Committee that the Task Force continued to require the reporting of comprehensive claims to the Merit Rating Board as it was a requirement of the statute. He also noted that the Fraud Bureau may have relied on this information. It was agreed that the Committee should confirm with their SIU personnel the value of the information and to have Staff confer with the Fraud Bureau and report their findings at the next meeting.

Continuing, Ms. Devericks reported that 561 industry claims personnel attended this year’s Cost Containment Seminars.

In conclusion, Ms. Devericks reported that the Records of the Claims Advisory Meeting of June 3, 1998 have been distributed and are on file with CAR’s Secretary.

98.8 OPERATIONS COMMITTEE

Ms. Wendy Browne reporting on the Operations Committee meeting of May 20, 1998 indicated that the Committee, based on the fact that member companies should be accountable for the data they report, regardless of timeframes, denied Middlesex Insurance Company’s appeal of a $300 statistical plan penalty.

Continuing, Ms. Browne reported that the Operations Committee at its meeting of March 18, 1998, directed CAR Staff to perform an historical analysis of cession backdate appeals presented to the Committee in order to determine the significance of current backdate procedures. Based on their discussion, the Committee believes that the current procedures are appropriate and made no recommendations for change. However, since previous history is an important factor, a summary exhibit of prior cession backdate appeals will be provided to the committee with every appeal.

Continuing, Ms. Browne reported that the Committee was updated regarding discussion of the N.A.I.C. and ISO and other industry representatives concerning the modified definition of allocated vs. unallocated loss adjustment expenses. Based on their discussion, CAR will maintain the existing ALAE and ULAE definitions as outlined in the Statistical Plans.

8. OPERATIONS COMMITTEE (Continued)

Continuing, Ms. Browne reported that in reviewing loss reporting, specifically as it relates to claim ID, the Statistical Subcommittee agreed consistent claimant identification across the liability and PIP sublines is required to satisfy all statistical and rate making functions. However, consistency within the Physical Damage subline is not required. The rewritten statistical plans will clarify this reporting requirement.

In conclusion, Ms. Browne reported that the Records of the Operations Committee meetings of March 18 and May 20, 1998 have been distributed and are on file with CAR’s Secretary.

11. ACTUARIAL COMMITTEE

Mr. Arthur Remillard reporting on the Actuarial Committee meeting of June 4, 1998 stated that both USAA and Middlesex having been previously granted relief from their ERP oversubscription, were now at the 110% subscription level.

Continuing, Mr. Remillard reported that CNA submitted a letter concerning the Code 3 weighting factor indicating its support to eliminate the weighting factor. Attorney Ovrut, representing Norfolk & Dedham, also agreed with CNA’s recommendation to eliminate the weighting factor. After some discussion, the Committee unanimously voted to recommend to the Governing Committee to eliminate the 1.2 weighting factor effective August 1, 1998.

A motion was made by Mr. Arthur Remillard and duly seconded by Mr. Joseph Giblin to eliminate the 1.2 weighting factor effective August 1, 1998.

The motion passed on a unanimous vote.

Continuing, Mr. Remillard reported that the Committee agreed not to change the 1999 K-factor value from the 1998 K-factor value of 4.0 unless a proposal and recommendation is presented to the Committee. The data analyzing private passenger excluded classes and miscellaneous private passenger classifications are expected to be available at the next meeting. The Committee agreed to wait until the data becomes available before making any decisions on these two issues.

Continuing, Mr. Remillard reported that indications for the private passenger 1999 Rule 12 credit offer would be available by the end of June. Mr. Remillard noted a Subcommittee was established to review the 1999 credit indications. In addition, Plymouth Rock was asked to present information on SDIP credits to the Subcommittee at the next meeting to assist in its investigation whether credits should be offered for SDIP Steps.

Concluding, Mr. Remillard reported that the Records of the Actuarial Committee meetings of March 17 and June 4, 1998 have been distributed and are on file with CAR’s Secretary.

18. GOVERNING COMMITTEE REVIEW PANEL

Ms. Nanci Peters reporting on the Governing Committee Review Panel meeting June 17, 1998 stated that Amica Mutual Insurance Company appealed the May 13, 1998 Market Review Committee decision upholding the A-Affordable Insurance Agency’s request to require Amica to support its new office location in Malden. The Market Review Committee also voted to establish a Subcommittee to

18. GOVERNING COMMITTEE REVIEW PANEL (Continued)

review the concept of market need and CAR Rules relating to it, and to recommend to the Governing Committee that until the Subcommittee has completed its appointed task and made recommendations it feels are appropriate, there be a moratorium on ERP’s establishing additional office locations.

Continuing, Ms. Peters reported that in consideration of the fact that A-Affordable had previously agreed that it would not expand without both parties mutually agreeing to such action and that the agency had not yet incurred any start up expenses in establishing a Malden office, the Panel voted to direct that Amica continue to support existing A-Affordable offices, but that the A-Affordable Malden office be included in the moratorium on ERP’s establishing additional office locations until such time as the Ad Hoc Market Review Subcommittee has an opportunity to make recommendations regarding issues of market need.

Concluding, Ms. Peters reported that the Records of the Governing Committee Review Panel of June 17, 1998 have been distributed and are on file with CAR’s Secretary.

98.21 LOSS RESERVING COMMITTEE

Ms. Sharon Schorge reporting on the Loss Reserving Committee meeting of June 9, 1998 stated that the Loss Reserving Committee set loss and loss adjustment expense reserves for ceded business using data through March 31, 1998, as follows:

|Private Passenger |

|Policy Year |Ultimate Loss Ratio |Current Deficit |Prior Deficit |

| | |($million) |($million) |

|1997 |137.0% |$284.0 |$281.6 |

|1996 |121.2% |$240.3 |$245.8 |

|1995 |108.4% |$217.2 |$217.7 |

|Commercial |

|Policy Year |Ultimate Loss Ratio |Current Deficit |Prior Deficit |

| | |($million) |($million) |

|1997 |70.4% |$2.3 |$1.9 |

|1996 |71.2% |$8.2 |$10.3 |

|1995 |65.3% |($4.2) |($2.6) |

Ms. Schorge reported that the Records of the Loss Reserving Committee meetings of March 10, April 13 and June 9, 1998 have been distributed and are on file with CAR’s Secretary.

25. TAXI/LIMOUSINE RFP SELECTION COMMITTEE

Mr. Charles Boynton reporting on the Taxi/Limousine RFP Selection Committee meeting of May 26, 1998 reported that the Selection Committee agreed upon the parameters suggested by CAR Staff for the selection process and that these suggestions were the results of consultations with Mr. Iannaco and a working group from CAR Staff including Mr. Michael J. Trovato, Mr. Joseph Maher, Ms. Pamela Wallace and Ms. Sharon Schorge. Mr. Iannaco had formed the group to review past practices and to establish guidelines designed to be both efficient and responsive to issues raised by the Governing Committee when it last considered the appointment of Taxi/Limousine Servicing Carriers. The Committee agreed that there would be a random drawing of company names to establish the order in which the companies would be interviewed. The meetings, including all interviews, would be held in open session.

Continuing Mr. Boynton reported that the Committee would begin their discussion on the individual company proposals using the Evaluation Factors worksheet. The worksheets would be the basis upon which the Committee makes its ultimate determination and would become part of the exhibits attached to the Records of the meetings. Once all members have completed their worksheets, the Committee would then announce the final scores. After a discussion based on the selection of one Servicing Carrier versus two, the Committee noted its preference for the competitive and comparison aspects of two and felt it was too soon to go to one carrier. Therefore, the two companies with the highest

scores would be recommended for Governing Committee consideration to act as Servicing Carriers for business written in conjunction with the Taxi/Limousine Program effective January 1, 1999.

Continuing, Mr. Boynton reported that Committee members were advised that they would also make a recommendation to the Governing Committee for the final expense allowance for utilization. Committee members questioned the concept of two carriers with two different bids and how that would be handled. Chairman Boynton stated that one expense allowance would be recommended for the two carriers. If either carrier was not willing to do the job for the amount decided upon by the Governing Committee, the Governing Committee would then decide whether to select the next highest scoring carrier or to use only one carrier.

Continuing. Mr. Boynton reported that the Committee then reviewed in general the Evaluation Factors worksheet and discussed the criteria listed on the worksheet and offered their personal viewpoints on rating this information. Chairman Boynton noted that the criteria and the weightings assigned to the criteria were established by the JACLC and subsequently approved by the Governing Committee. No other factors or weightings would apply. Each of the Committee members would make their own decisions on how much weight they want to give for each category for each company. The weights listed on the worksheet are the maximum that a company may receive. The minimum is zero. The members were asked to use whole numbers and no negative numbers. The Committee was advised however, that the final average score for each company would more than likely result in fractional numbers.

Continuing, Mr. Boynton reported that while discussing the Evaluation Factors worksheet, the Committee clarified that cost, which is a significant part of the proposal that allows a maximum of thirty-three points, should be based on whether quality corresponds with price. Committee members should consider the detailed explanations of the services provided to determine whether quality corresponds with price. It does not necessarily mean that the lowest bidder would receive thirty-three points.

25. TAXI/LIMOUSINE RFP SELECTION COMMITTEE (Continued)

Continuing, Mr. Boynton reported that the Selection Committee interviewed Pilgrim Insurance Company, Liberty Mutual Insurance Companies, Hartford Insurance Company and Empire Insurance Company. Committee members discussed the criteria in detail offering their viewpoints on each company while entering scores on their worksheets. Once all members completed their worksheets, CAR Staff input each member’s scores individually into a spreadsheet that summarized the scores and calculated the final average score for each company. Based on the Summary of Evaluation Factors, comments made regarding the relative strengths and weaknesses of the companies are as follows:

In the Claims section, Empire scored the highest followed by Liberty, Pilgrim and then Hartford. Empire and Pilgrim’s relative strengths were demonstrated performance with MA taxi, limousine and car service business; administrative and account management leadership; and dedicated staff. Pilgrim was also relatively strong in the integration of claims operation with loss control and location of staff categories. Pilgrim’s relative weaknesses were a lack of demonstrated performance with similar programs; general experience of proposer; and capability and experience of staff assigned, all of which were Liberty’s relative strengths along with integration of claims operation with loss control and location of staff. Empire’s relative weaknesses included capability and experience of staff assigned and a lack of integration of claims operation with loss control. Liberty’s relative weaknesses were a lack of demonstrated performance with MA taxi, limousine and car service business; administrative and account management leadership; and dedicated staff.

In the Underwriting section, Empire scored the highest followed by Pilgrim, Liberty and then Hartford. Empire’s relative strengths were demonstrated performance with MA taxi, limousine and car service business and demonstrated performance with similar programs. Pilgrim was relatively strong in demonstrated performance with MA taxi, limousine and car service business but was relatively weak in the demonstrated performance with similar programs category as well as the general experience of proposer category when compared to Empire and Liberty.

In the Loss Control section, Empire scored the highest followed by Pilgrim, Liberty and then Hartford. Pilgrim and Empire’s relative strengths were demonstrated performance with MA taxi, limousine and car service business. Pilgrim’s relative weaknesses were a lack of demonstrated performance with similar programs when compared to Empire and Liberty.

In the Other section, Pilgrim scored the highest followed by Empire, Liberty and then Hartford. Both Pilgrim and Empire consistently scored higher than Liberty in all of the categories included in this section. In the Cost section, Pilgrim scored the highest followed by Liberty, Empire and then Hartford.

Mr. Boynton reported that Empire and Pilgrim received the highest final average scores with Liberty Mutual a close third. The Committee recommended that Empire and Pilgrim Insurance Companies be considered as the Servicing Carriers for business written in conjunction with the Taxi/Limousine Program effective January 1, 1999. The Committee further recommended $1,118 as the expense allowance for taxis and $616 as the expense allowance for limousines/car service, for a combined expense allowance of $911 per exposure for policy year 1999. These numbers were determined using Pilgrim’s bid, the lowest of all the bids received.

A motion was made by Mr. Charles Boynton and duly seconded by Mr. Andrew Carpentier to appoint Empire Insurance Company and Pilgrim Insurance Company as Servicing Carriers for the Taxi/Limousine CAR Service Program effective January 1, 1999 at an expense allowance of $1,118 per taxi exposure and $616 per limousine exposure.

25. TAXI/LIMOUSINE RFP SELECTION COMMITTEE (Continued)

Mr. Richard Harris, Vice President, Residual Markets, Empire Insurance Group, noted that Empire objected to the manner in which the expense fees were determined after the selection process and indicated that Empire is unable to provide the level of service they set forth in their bid of $1,585 for taxis at an expense allowance of $1,118.

Counsel reported the RFP itself indicated the ultimate expense reimbursement would be determined by the Governing Committee. If either of the companies selected were unwilling to assume the assignment on the basis of the recommended reimbursement, then the Governing Committee could choose to offer it to one of the other applicants or to determine if one company might serve the entire taxi program.

Mr. David Richards, Manager of Market Operations at Liberty Mutual, advised the Governing Committee that Liberty Mutual Insurance Company, as the third place bidder, would be willing to act as a Taxi/Limousine Servicing Carrier at the expense level being recommended by the Taxi/Limousine RFP Selection Committee.

After considerable discussion, a substitute motion was made by Mr. William Hofmann and duly seconded by Mr. Joseph Giblin to refer the matter back to the Taxi/Limousine RFP Selection Committee for further review.

The motion passed 12 – 1 with Mr. Charles Boynton opposed.

98.28 JOINT ACTUARIAL AND COMMERCIAL LINES COMMITTEE

Mr. David Lane reporting on the Joint Actuarial and Commercial Lines Committee meetings of May 12, and June 16, 1998 stated that the JACLC unanimously voted to recommend that the Governing Committee consider the draft 1999 rate filing and strategies discussed in the JACLC’s Executive Session.

Continuing, Mr. Lane reported that the JACLC discussed the SDIP verification section of the TLMP. Mr. Lane noted that an exhibit was developed based upon data received from Pilgrim and Empire showing the average SDIP Step separately for Taxis and Limousine/Car Service drivers. The average Taxi driver SDIP step is 14.7, and the average Limousine/Car Service step is 12.5.

Continuing, Mr. Lane reported that the JACLC unanimously voted to recommend to the Governing Committee that the SDIP Verification section of the TLMP be amended to state that for Taxis, a discount be given to SDIP steps 9-13, with steps 11, 12, and 13 receiving one-half of the discount offered to steps 9 and 10.

A motion was made by Mr. William Hofmann and duly seconded by Mr. Charles Boynton that the SDIP Verification section of the TLMP be amended to state that for Taxis, a discount be given to SDIP steps 9-13, with steps 11, 12, and 13 receiving one-half of the discount offered to steps 9 and 10.

The motion passed on a unanimous vote.

98.28 JOINT ACTUARIAL AND COMMERCIAL LINES COMMITTEE (Continued)

Continuing, Mr. Lane reported that the JACLC unanimously voted to recommend to the Governing Committee that the TLMP for Limousine/Car Service be amended to state that a discount be given to SDIP steps 9, 10, and 11, with steps 10 and 11 receiving one-half of the discount offered to step 9.

A motion was made by Mr. William Hofmann and duly seconded by Mr. Thomas Randall that the TLMP for Limousine/Car Service be amended to state that a discount be given to SDIP steps 9, 10, and 11, with steps 10 and 11 receiving one-half of the discount offered to step 9.

The motion passed on a unanimous vote.

Continuing, Mr. Lane reported that the JACLC reviewed Rule 17, updated to reflect previously approved changes made to Chapter VIII of the Manual of Administrative Procedures regarding the Taxi/Limousine/Car Service Program expense allowance and voted unanimously to recommend to the Governing Committee that Rule 17 be updated to reflect the necessary changes.

Based on the fact that there is no approved expense allowance for member companies acting as Taxi/Limousine Servicing Carriers, Counsel advised that it would be appropriate to consider the recommendation to update Rule 17 at the next Governing Committee meeting.

Continuing, Mr. Lane reported that the Commercial Utilization Subcommittee has been discussing three items: excluded classes, a K-factor based commercial utilization formula, and commercial cession limitation. At the May 12, 1998 JACLC meeting, Mr. Miller of Commercial Union Insurance Company, voiced his concern that a reduction to the cost of ceding a risk and/or the elimination of the cession limitation penalty program may work against depopulation. Mr. Miller suggested re-thinking the process for determining excluded classes by first mapping out goals that would allow exclusions to stimulate a healthy voluntary market. In response to Mr. Miller’s comments, the Subcommittee expressed interest in 1.) analyzing whether ERP premium should continue to be excluded, and 2.) reviewing the limits available for commercial risks ceded to CAR. The JACLC agreed that given the time limitations, the Subcommittee should continue its current approach, and also agreed that the Commercial Utilization Subcommittee review the above mentioned issues in the future.

Continuing, Mr. Lane stated that Mr. Morris reported on the Commercial Utilization Subcommittee meeting of June 10, 1998, at which time the Subcommittee continued discussion on changes to excluded classes to be effective January 1, 1999. The Subcommittee reviewed an exhibit that displayed several options to consider for removing classifications from and adding classifications to the excluded class list. The Subcommittee agreed to remove classes currently excluded based on a total market cession rate of less than 50% for policy years 1996 and 1997. The Subcommittee also agreed that at this time, no new classifications be added to the excluded class list and unanimously voted to recommend to the JACLC that effective January 1, 1999, classifications 23, 29, 7808, and 7812 be removed from the list of excluded classes.

Continuing, Mr. Lane reported that CNA has expressed its support for the removal of classifications 23, 29, 7808, and 7812 from the excluded class list. Mr. Morris informed the JACLC of the unanimous recommendation by the Subcommittee that excluded classes be examined on a yearly basis using the following criteria effective January 1, 2000:

98.28 JOINT ACTUARIAL AND COMMERCIAL LINES COMMITTEE (Continued)

➢ Total market cession rate less than benchmark of 50%.

➢ Three consecutive years below benchmark.

➢ Each class to be removed will be examined in detail before making a final decision, to minimize market disruption.

Continuing, Mr. Lane reported that the JACLC was reminded of the unanimous recommendation by the Subcommittee to adopt a commercial utilization K-factor formula, with a K-factor of 9.0, effective January 1, 1999. The Subcommittee also recommended that the K-factor be reviewed annually. The JACLC agreed that as the overall industry cession rate continues to decrease, the current formula produces an implied K-factor that continues to increase. The adoption of a K-factor based formula is viewed as a means to control this pattern. It was again noted that there would be little disruption to the industry in adopting a K-factor formula with a K-factor of 9.0, given the low deficit in recent years. CNA declared that it is against the adoption of a K-factor formula with a K-factor equal to 9.0 at this time. Commercial Union, Safety, and Pilgrim also voiced opposition to the adoption of commercial utilization K-factor formulas.

Continuing, Mr. Lane reported that the JACLC was advised that the Subcommittee had determined that with only two companies being assessed cession limitation penalties for policy year 1997 and the competitive commercial market, the Cession Limitation Penalty Program has served its purpose. In addition, the costs for administration of the program should be considered in light of the penalties assessed. The Subcommittee unanimously recommended the elimination of the Cession Limitation Penalty Program for Policy Year 1999. CNA announced that it is against the elimination of the Cession Limitation Penalty Program at this time, but would be open to consider a lower threshold. Commercial Union likewise noted that it is against the elimination of the Cession Limitation Penalty Program.

Continuing, Mr. Lane reported that the JACLC voted to recommend to the Governing Committee the following three items effective January 1, 1999: the removal of classifications 23, 29, 7808, and 7812 from the list of excluded classes, the adoption of a commercial utilization K-factor formula with a K-factor of 9.0, and the elimination of the Cession Limitation Penalty Program. Commercial Union wanted to be recorded as not in favor of the recommendation. (See attached.)

After considerable discussion, the Governing Committee was of a consensus that all three issues are interrelated and should be considered as one action item. In response to a question, Mr. Lane noted that the matter has previously been before the Commercial Lines Committee and Actuarial Committee in addition to the JACLC. After additional discussion and comments from the audience, the Governing Committee reached a consensus that no changes to the existing Rule were warranted.

A motion was made by Mr. Joseph Giblin and duly seconded by Mr. Arthur Remillard to take no action on the JACLC recommendations regarding the following three items effective January 1, 1999: the removal of classifications 23, 29, 7808, and 7812 from the list of excluded classes, the adoption of a commercial utilization K-factor formula with a K-factor of 9.0, and the elimination of the Cession Limitation Penalty Program. The Governing Committee then remanded these issues to the JACLC for further consideration with respect to recommendations on the commercial cession limitation and excluded classes for policy year 1999.

The motion passed on a unanimous vote.

98.28 JOINT ACTUARIAL AND COMMERCIAL LINES COMMITTEE (Continued)

Continuing, Mr. Lane reported the JACLC agreed that CAR Staff would further analyze the changes made to Section 3 Rule 54 of the Massachusetts Commercial Automobile Insurance Manual regarding the addition of part 3 Lessor/Lessee – Hold Harmless Agreements. Staff will report back to the Committee at the next meeting.

Concluding, Mr. Lane reported that the Records of the Joint Actuarial and Commercial Lines Committee meetings of April 14, May 12 and June 16, 1998 have been distributed and are on file with CAR’s Secretary.

OTHER BUSINESS

There being no other business, Chairman Gilman announced he would accept a motion to convene into Executive Session.

A motion was made by Mr. Andrew Carpentier and duly seconded by Mr. William Hofmann to convene into Executive Session to consider matters previously outlined by Counsel.

1. Strategy relating to ongoing litigation involving Trust Insurance Company and CAR’s Subscription Methodology for ERP’s

2. Strategy relating to the Risk Retention Group and

3. 1999 CAR Commercial Rate Filing

On a roll call vote, the following members unanimously voted to convene into Executive Session.

Mr. Sumner D. Gilman - Chairman Ms. Nancy Z. Bender

Mr. Charles I. Boynton, III Mr. Richard W. Brewer

Mr. Andrew J. Carpentier Mr. Edward F. Downey, Jr.

Mr. Joseph J. Giblin Mr. Robert W. Harvey

Mr. William F. Hofmann, III Mr. J. Barry May

Ms. Nanci S. Peters Mr. Thomas K. Randall

Mr. Arthur J. Remillard, Jr.

EXECUTIVE SESSION

Immediately following the Executive Session, the Open Session of the Governing Committee reconvened.

A motion was made by Mr. J. Barry May and duly seconded by Mr. Richard Brewer to place on the Governing Committee Agenda the recommendation of the Joint Actuarial Commercial Lines Committee relating to the 1999 Rate Filing.

The motion passed on a unanimous vote.

A motion was made by Mr. J. Barry May and duly seconded by Mr. Richard Brewer to accept the recommendation of the Joint Actuarial Commercial Lines Committee relating to the 1999 Commercial Rate Filing.

The motion passed on a unanimous vote.

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

The motion passed on a unanimous vote.

The meeting adjourned at 11:55 a.m.

DANA I. JEWELL

Administrative Vice President

and Secretary

Attachments

Boston, August 31, 1998

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

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