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Market Conduct ExaminationMaine Employers’ Mutual Insurance Company Examination Period I hereby certify that the attached report of examination dated February 25, 2005 of Maine Employers’ Mutual Insurance Company, Portland, Maine has been filed in the Bureau of Insurance as a public document.
TABLE OF CONTENTS PURPOSE AND SCOPE OF EXAMINATION February 25, 2005 Honorable Alessandro Iuppa Dear Sir: Pursuant to of Title 24-A M.R.S.A. § 221 and in accordance with your instructions, a targeted market conduct examination has been made of: Maine Employers’ Mutual Insurance Company hereinafter referred to as the “Company”. The examination covered underwriting files issued between March 1, 2003 and November 1, 2004 that contained schedule debit ratings. PURPOSE AND SCOPE OF EXAMINATION The purpose of this targeted examination was to determine if the Company participates in a systematic practice of applying schedule debits without maintaining sufficient documentation to support the schedule debits. Specifically, as noted in the Decision and Order of Support Solutions, Inc. v. MEMIC No. 04-104 dated September 2, 2004; the Company conceded that the narrative portion of the schedule rating worksheet was not completed. This examination was conducted to arrive at a conclusion as to whether or not the Company’s documentation, or lack thereof, was systematic relative to applying schedule rating debits. Ancillary to the review was the examiner’s task of determining if the documented evidence supporting the schedule debit rating appeared logical for the risk underwritten. The Company was established through legislative action as an assessable mutual by the State of Maine on November 13, 1992 and commenced business effective January 1, 1993. The Company was established to replace the State of Maine Workers' Compensation Residual Market Pool and to add stability to the Maine worker’s compensation insurance market. The Company writes workers' compensation insurance and employers’ liability insurance incidental to and written in connection with workers' compensation coverage exclusively for employers in the state of Maine. In 1996, the Company established a wholly owned, non-insurance subsidiary, MEMIC Services, Inc. This subsidiary sells loss control services to the Company and to other unrelated companies. In 1998, the Company was given authority by the Bureau to apply for licensure in Massachusetts to write coverage for Maine employers with risks in Massachusetts. On August 12, 1999, the Company became licensed in Massachusetts. In 1999, the Company obtained approval from the New Hampshire Insurance Department to form a New Hampshire domestic subsidiary, MEMIC Indemnity Company, to write workers' compensation insurance in New Hampshire. On May 1, 2000, the State of New Hampshire authorized the MEMIC Indemnity Company to write workers' compensation insurance. MEMC Indemnity is licensed to sell workers’ compensation in the states of Connecticut, Massachusetts, New Hampshire, New York, Pennsylvania and Vermont. The Company has submitted applications to transact business in Florida, Georgia, New Jersey, North Carolina, Rhode Island, South Carolina and Virginia. The Company provided all underwriting files that contained schedule rating debits for the period of March 1, 2003 through November 1, 2004. In accordance with the NAIC Market Conduct Examiners Handbook, a random sample of 50 underwriting files was selected for testing. Random sampling is a concept meaning all items in the population (before selection) have an equal chance of appearing in the sample. Examiners utilized Audit Command Language to generate the 50 random samples. As previously noted in the Purpose and Scope of Examination section, this examination is a result of the order of the Superintendent in Supports Solutions, Inc. v. MEMIC, No. 04-104. Specifically, the order states that the terms and conditions of the Rating Plan require the Company to base its application of schedule rating debits on documentation and evidence contained in the insured’s file and to include a completed schedule rating worksheet. The examiners reviewed the underwriting files for evidence of documentation, including a completed schedule rating worksheet supporting any schedule rating debit applicable to the sample underwriting file to support a reasoned application of schedule debits Test 1: Review the underwriting file to determine if documentation contained within the file appeared to support the schedule debit rating.
The one file that did not appear reasonable was a schedule rating debit applied to a bagel shop with the justification that shop employees are cutting bagels manually and has loss potential. Review of the job classification indicates that ergonomics/cuts are built into the premium rating and the Company has only $2 in losses the last three years. (See Comments and Recommendations #1) Test 2: Verify the underwriting files contain supporting documentation to include a completed schedule rating worksheet.
Of the fourteen (14) underwriting files that did not contain a completed schedule rating worksheet, seven (7) underwriting files contained incomplete schedule rating worksheets and six (6) underwriting files did not contain a schedule rating worksheet; and one file was erroneously renewed automatically. (See Comments and Recommendations #2)
Although a schedule rating debit should not have been applied in Test 1, the Company does not appear to be applying schedule debit ratings in an arbitrary or capricious manner. It should be noted that during the policy years 1999-2004, for experience-rated policies, the Company applied three dollars in schedule rating credits for every one dollar in schedule rating debits; and on a policy count basis, the Company credited more than double the number of policyholders than were debited. The Company does not consistently complete the schedule rating worksheet as required. However, it is noted that all of the Company underwriting files contained adequate documentation to support the schedule debit rating with the exception of one file as described in Test 1. The Company is scheduled to undergo a comprehensive financial examination in 2006 to include a follow-up review of schedule debit rating policies for completion of the schedule rating worksheet. STATE OF MAINE James C. Williams, CPA, CFE, being duly sworn according to law, deposes and says that in accordance with the authority vested in him by Alessandro Iuppa, Superintendent of Insurance, pursuant to the Insurance Laws of the State Of Maine, he has made a targeted market conduct examination of the condition and affairs of Maine Employers’ Mutual Insurance Company of Portland, Maine for underwriting file with schedule debit ratings for the period of March 1, 2003 through November 1, 2004 and that the foregoing report of examination subscribed to by him is true to the best of his knowledge and belief. The following examiners from the Bureau of Insurance assisted: Bradford L. Brown __________________________________ Subscribed and sworn to before me this day of , 2005
Last Updated: October 1, 2008 |
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