Director Mark Boozell issued an amended stipulation and consent order to Prudential Insurance Company of America on November 14, 1996, giving Illinois policyholders the opportunity to share in a proposed federal class-action settlement that enhances an earlier national remediation plan.
Prudential signed a consent agreement with Illinois and various other insurance regulators in July as part of a multi-state restitution program for Prudential policyholders with sales-related complaints. The remediation program set an October 5 deadline for Prudential to mail information on filing claims to clients who purchased over 10.7 million permanent whole life policies between January 1, 1982 and December 31, 1995.
State insurance regulators extended that deadline following a September 24 announcement that the company and plaintiffs' attorneys had reached a tentative settlement in a putative class-action lawsuit pending in U.S. District Court in Newark, NJ. The delay enabled state officials to determine how policyholders could benefit from a single program incorporating the terms of the court settlement with the multi-state remediation program.
Prudential began mailing details of the amended restitution plan, instructions for filing claims, and information on the class-action suit to policyholders on November 4. The actual claims review process will begin no later than February 1, 1997.
The amended plan offers a more liberal claims review process and such restitution options as full premium refunds, continued coverage with no additional premiums due and partial premium refunds. In addition, if the federal settlement is approved, Prudential has agreed to spend a minimum $410 million to settle claims and to pay punitive damages. A hearing on the class-action settlement is scheduled for January 21, 1997.
"Throughout this entire process our chief concern has been to protect the estimated 749,000 Illinois policyholders who may have been financially harmed by Prudential's sale practices," Boozell said. "The amended agreement retains the safeguards outlined in the multi-state restitution plan, while offering enhancements included in the proposed federal class-action settlement. We believe the revised agreement offers Illinoisans the best opportunity for maximum restitution," he said.
"Policyholders who wish to be excluded from the class-action suit must notify the federal court by December 19," Boozell said. "Those consumers preserve the right to file their own lawsuits, but cannot share in the class-action settlement.
"Policyholders who wish to participate are not required to take any action at present. If the court approves the class-action settlement, they will receive a second mailing with another claim form and instructions for filing claims."
Illinois policyholders are encouraged to carefully read all information they receive. Questions are being referred to 1-800-736-8913, a toll-free number staffed by an independent entity hired by Prudential and monitored by state regulators and attorneys for the class-action plaintiffs.
Insurance Director Mark Boozell announced on November 13, 1996, that Illinois' two largest insurance groups, State Farm and Allstate, have paid their 1995 data base filing fees to the National Association of Insurance Commissioners.
"I appreciate the cooperation exhibited both by company management and the NAIC officers in coming together to resolve this issue," Boozell said. "The Illinois Department of Insurance has worked diligently with all concerned to bring about the open dialog that resulted in this satisfactory conclusion.
"The NAIC data base and attendant financial analysis tools are critical to the ability of state insurance departments to regulate effectively for insurer solvency. As such, every state in the union has a stake in the remittance of the data base fees to the NAIC. I am very pleased with the response from Illinois' domestic industry."
Illinois workers compensation insurance rates among high-risk employers will be reduced for the third consecutive year in 1997.
"Lower workers compensation insurance rates help strengthen the Illinois business climate," Governor Jim Edgar said in making the announcement. "This 10.1 percent rate decrease for 1997 and similar decreases over the past two years are lowering the cost of doing business in Illinois. That allows business owners to reinvest the savings in their companies, their work forces and our economy."
The rate reduction, requested by the National Council on Compensation Insurance (NCCI), is expected to save $15.5 million for Illinois manufactures and businesses involved in the Illinois Workers Compensation Assigned Risk Plan. NCCI administers the high-risk pool for about 300 insurance companies serving employers who are unable to buy workers compensation insurance through the voluntary insurance market. The high-risk pool insures more than 9 percent of the total Illinois workers compensation insurance market.
Workers compensation rates for high-risk employers decreased 6.8 percent in 1995 and 13.6 percent in 1996. Rates generally are based on the frequency and severity of recent claims.
Illinois Director of Insurance Mark Boozell approved NCCI's rate reduction request on November 7, 1996, assuring an overall average 10.1 percent rate decrease next year for companies in the high-risk pool. The new rates take effect January 1.
NCCI recommended a corresponding 10.1 percent rate decrease for employers in the voluntary market. "Insurance companies must file their voluntary rates with the Department of Insurance on an individual basis," Boozell said. "Although voluntary rates can fluctuate above or below the recommended decrease, the level of competition in the market will ultimately determine how much companies charge."
Rates in the voluntary workers compensation insurance market are roughly 20 percent lower than rates in the high-risk pool, Boozell said.
by Robert Heisler
The Illinois Department of Insurance has been made aware that some insurance companies may be setting "caps or limits" on paint and/or materials when estimating vehicle repairs. While the insurance industry continues to explore cost containment measures in an effort to control or limit escalating automobile repair costs, the arbitrary establishment of "caps or limits" is a violation of both the insuring agreement and Departmental regulations.
The "Physical Damage" section of the automobile policy agrees to restore the vehicle to its pre-loss condition and pay only the amount necessary to repair with like kind and quality. Departmental Rule 919 (Improper Claims Practices) further requires estimates prepared by or on behalf of the company to be reasonable and of an amount which will allow the vehicle to be repaired in a workmanlike manner.
In those instances where estimates are prepared by or on behalf of the company, there is a regulatory obligation to advise the insured of a body shop that will repair the vehicle to its pre- loss condition with parts and materials of like kind and quality in a workmanlike manner. Anything less than this is a violation of the insuring agreement and Departmental regulation.
Both our Market Conduct and our Consumer Services Section will closely monitor such activities and take appropriate action as deemed necessary.
by Tom Farrell
On New Year's Day 2000, while most of the planet celebrates the advent of the next century, others may be nervously pulling out their hair and digging their fingernails into computer keyboards. These individuals will most likely be the application programmers who did not properly amend the content of their computer programs to meet the requirements of the new date structure for the year 2000.
Referred to by many professionals as the "Millennium Bug," the year 2000 date could create havoc in those information systems which have not been amended to accept and perform with new dates. The problem stems from the fact that in order to save space, many programs had coded date-year information with only the last two characters of the four digit year: for example, 1996. Theoretically, at the stroke of midnight, those computer systems which have not been converted to "recognize" the new millennium will react as though they had been pushed back in time to the year 1900. One can only imagine the chaos in data reporting systems if date information becomes "inverted." A person born in 1942 would thus be assigned a current age of -42 rather than age 58.
As a practical matter, the resultant millennium chaos should be held to a manageable minimum. Most data processing professionals have begun preparation for amending all affected programs recognizing that to be the only prudent course of action against the possible collapse of their information system capabilities. Several major software manufacturers have produced program sets that will not only identify the programs which are vulnerable to the Millennium Bug, but will automatically generate specific replacement code to "fix" the faulty program. In addition, the Information Systems Audit and Control Association (ISACA), the premier international organization of EDP auditors, is nearing completion of a comprehensive survey to determine where the industry stands in correcting the problem and which programming tools offer the best solution choices.
Cautiously speaking, the insurance industry, although probably more vulnerable than most to a sudden change in the date structure, will be least affected by the Millennium Bug due to the nature of the business itself. Financial systems such as investments, actuarial computations and premium calculations track far ahead of the current year in order to generate information of a prospective nature. Typically, insurance industry programming long ago recognized and dealt with the difficulties of the millennium conversion. That is not to say industry computers are error free, but only that it is probable most remaining trouble spots will be amended before 2000.
This is not necessarily true in other industries. We are rapidly approaching a critical "window" in time where the correction process must begin and proceed uninterrupted along a specific timeline in order for system conversion to be completed by 2000. In other words, the Millennium Bug is not so much a problem of finding a solution as it is finding a time frame and allocating resources towards an already known solution.
But the question remains: who is responsible for the successful conversion? The burden of accountability for millennium conversion must necessarily fall on upper management who must make the conversion process a clear priority and allocate the resources necessary to make it happen.
Department of Insurance examiners routinely inquire as to the status of the Year 2000 problem during periodic on-site financial examinations of insurance companies. Individual companies offer a variety of responses ranging from: "need a complete upgrade of the current enterprise system" to "conversion and testing have already and successfully taken place." In the next three years, our staff plans to intensify inquiries in this area in order to anticipate any acute problems with meeting the millennium date.
Although the consensus is that the problem affects mainly the older information systems, all platforms from super computers, through midrange systems, down to personal computers may well be vulnerable. Cost estimates to alleviate the Millennium Bug worldwide range upwards to a trillion dollars.
For once, it seems, history is on our side. If Dionysius Exinguus, who is credited with the construction of the modern Christian calendar, had not miscalculated the birth of Christ by four years, we would have only one more month to amend the systems.
However comprehensive and well intended the effort to confront the Millennium Bug, it is inevitable that while most of us are enjoying the Year 2000 Bowl games and recovering from the previous night's celebration, someone will be digging their fingers into the keyboard and hoping they can compress a year's worth of preparation into a single New Year's Day. Let us hope that insurance companies are not among them!
by Robert Heisler
The National Council on Compensation Insurance (NCCI) is a licensed rating organization for workers compensation in Illinois. On behalf of its member insurance companies and subscribers, the NCCI files loss cost factors and advisory rates, referred to as "manual rates." Insurers may adopt the loss cost factors and file their own expense factors, adopt the advisory rates, file a deviation to the advisory rates or make an independent rate filing. Insurers may then modify these rates for risk characteristics that may not be reflected in the insured's experience. This modification is in the form of a debit or credit and is commonly referred to as a "schedule rating" plan.
The Illinois workers compensation insurance market has been extremely competitive for the past twelve years, primarily because the state's open competition rating atmosphere allows the insurance industry the latitude to be more responsive to economic conditions. For example, when the market is "soft," insureds enjoy substantially reduced premiums; when the market is "hard," such reductions are curtailed. The extreme swings in premiums are accomplished through schedule rating.
In very competitive markets, like the current one in Illinois, schedule rating programs become likely targets for abuse. As such, the Illinois Department of Insurance has identified a specific market conduct situation that may be a precursor to a problem in the workers compensation arena.
Recent filings of several workers compensation insurers, along with anecdotal evidence, support this observation. The Department has noted that many insurers are filing what sometimes appear to be excessive schedule credits. About three of every four Illinois workers compensation insurers use the schedule rating program. Of the 271 insurers using this option, 20 percent have filed plans with credits of 60 percent or greater, and one insurer has filed a plan with a 90 percent credit.
According to one insurer, "Workers compensation is getting really competitive in Illinois. We must offer a 45 percent schedule credit just to get inside the door to talk to our insureds about renewing their policies with our company!" Although the Department is pleased that Illinois has a very competitive market, we cannot lose sight of the fact that the market can suddenly turn. The financial results may be good now, but insurers must look ahead to tomorrow.
We encourage all insurers to continue to follow responsible underwriting principles to ensure that they are prepared for future market conditions. All insurers must ask themselves whether 60 percent schedule rating credits are conducive to maintaining a market presence in this line five or ten years from now, and whether they can make a profit at this level if the market suddenly turns. Insurers must analyze their own market statistics to determine the position they need to take. Those that continue to exercise sound underwriting judgment will be successful regardless of the economic environment.
A major responsibility of the Illinois Department of Insurance is to monitor the marketplace to ensure that the environment is conducive to the welfare of both the consumer and the insurer. We will be closely reviewing fluctuations in market share along with the market conduct examination documentation contained in the underwriting files. Our expectation is that all insurers will take appropriate action to ensure their long-term participation in the workers compensation marketplace.
Although market conditions generally dictate the use and amount of schedule rating, we cannot and will not tolerate premium increase shock to policyholders based strictly on changing economic market conditions. Nor will we condone massive non-renewals or cancellations due to a market downturn. Each insurer must be proactive. The best advise the Department can offer is, know your market and price it accordingly!
First Oak Brook Corporation Syndicate (Oak Brook, IL) was placed in liquidation by the Cook County Circuit Court on November 12, 1996, based on a Department of Insurance finding that the company's policyholders surplus was impaired in excess of $1 million. Policyholders will be notified that all policies will be cancelled as of 12:01 a.m. December 13, 1996, unless they expire or are terminated at an earlier date.
First Oak Brook is a member of the Illinois Insurance Exchange Guaranty Fund which may provide up to an aggregate $15 million of coverage, not to exceed $300,000 per claimant, to assist the liquidator in meeting obligations of policyholders. However, due to the number and complexity of claims against First Oak Brook, it is not known when or to what degree those funds will be available.
First Oak Brook had been in conservation since September 20. The liquidation proceedings are being handled by the Department's Office of the Special Deputy Receiver; (312) 836-9500.
The full text of Department rules is printed in the Illinois Register published weekly by the Illinois Secretary of State's Index Department, 111 E. Monroe St., Springfield, IL 62756. Subscriptions are available from that source for an annual fee of $290. Issue numbers and a Department contact person are listed below after each rule summary.
Copies of rules are also available upon written request to the Department of Insurance at a $1 per page charge. Adopted rules are codified in Title 50 of the Illinois Administrative Code.
Rule 1409 (Valuation of Life Insurance Policies including the Use of Select Mortality Factors), "Triple X," was adopted to allow insurance companies to hold lower reserves for their life insurance policies, through the use of lower mortality assumptions. It also requires insurers to hold higher reserves for specific types of term policies. The rule does not apply to group life insurance certificates unless the certificates provide for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of one year.
The "applicability date" of this rule is January 1 of the calendar year immediately following the adoption of substantially similar requirements by states with an aggregate population of at least 51% of the total U.S. population, according to the most recent General Federal Census. (Vol. 20, #37; Bruce Sartain or Larry Gorski)
Rule 5100 (Small Employer Carrier Actuarial Certification and Documentation Requirements) was adopted effective September 9, 1996, to set standards for the filing and contents of a small employer carrier actuarial certification. (Vol. 20, #38; Gerald Lucht or Lynn Shanklin)
Rule 5501 (Internal Security Standard and Fidelity Bonds) was repealed September 16, 1996, because the statute that it implements, the Non-Profit Hospital Service Corporation Act, was repealed by Public Act 86-600 on September 1, 1996. (Vol. 20, #39; Mary Meyer)
Rule 5502 (Hospital Contracts and Benefit Payments) was repealed on September 9, 1996, because the statute that it implements, the Non-Profit Hospital Service Corporation Act, was repealed by PA 86-600 on September 1, 1996. (Vol. 20, #39; Mary Meyer)
Rule 5601 (Internal Security Standard and Fidelity Bonds) was repealed on September 16, 1996, because the statute that it implements, the Medical Service Plan Act, was repealed by PA 86-600 on September 1, 1996. (Vol. 20, #39; Mary Meyer)
Director Mark Boozell has filed a lawsuit in Chicago federal court to resolve questions concerning alleged "superpriority" claims of the federal government in the estate of Reserve Insurance Company.
Until recently, Boozell and other state insurance commissioners believed these issues were resolved by the U.S. Supreme Court in the 1993 Fabe decision which held that federal claims against a failed insurer may be subordinated, under state law, to claims of consumers and other policyholders. However, in Reserve and other receiverships, the federal government has argued that, Fabe notwithstanding, its claims deserve first priority and are not subject to the filing deadlines and procedural requirements that apply to all other claims. The federal government's position, and its assertion that state receivers are personally liable should federal claims go unpaid, make it impossible for Boozell and other state insurance commissioners to pay consumers on their claims and close receiverships like Reserve.
Boozell has asked the federal court for a declaratory judgment that federal claims do not have "superpriority" status, that certain federal claims are barred from participating in the Reserve asset distribution, and that federal claims with respect to insurance policies be pursued in the state liquidation court.
In Reserve, company records indicated the existence of potential federal claims by the U.S. Environmental Protection Agency, the U.S. Postal Service and the Departments of the Navy, Air Force, Agriculture and Army. Each federal agency received notice of the claim filing deadline and other applicable claim procedures, as did other creditors of the estate. The EPA has not responded to the liquidator's requests for claim information, but still contends that its potential claims are valid and entitled to "superpriority" treatment.
Reserve went into receivership in 1979. To date, the liquidator has distributed approximately $40 million to guaranty funds and other creditors. Boozell is prepared to make a final distribution and close the Reserve estate, pending only the resolution of the federal government's contentions.
Scheduled Hearings:
Rosemarie Sells and Roland Lopez State Farm Mutual Automobile Insurance Company Cancellation 11/20/96 Hearing No. 3483 FHP of Illinois Insurance by Pacific Care Health System, Inc. Form A 11/27/96 Hearing No. 3484 Marice Swopes State Farm General Insurance Company Nonrenewal 12/3/96 Hearing No. 3486 Roy and Anita Simmons State Farm Fire & Casualty Company Nonrenewal 12/17/96 Hearing No. 3485 Matters Settled without Hearing: Michael R. Cole Voluntary revocation of license 11/13/96 Hearing No. 3469 Roman Lopez and Gracie Perez German Mutual Fire Insurance Company of North Chicago Dismissed 10/8/96 Hearing No. 3477 Life and Health Guaranty Association Claim of Wilson Sporting Goods Dismissed 11/1/96 Hearing No. 3330 Completed Hearings: William Emil Schenk, Jr. c/o Bill Schenk Insurance Agency, Inc. Cease and Desist Order made permanent 11/13/96 Hearing No. 3414 William Emil Schenk and Bill Schenk Insurance Agency, Inc. Cease and Desist Order made permanent 11/13/1996 Hearing No. 3413 Dick and Libbie Brandt State Farm General Insurance Company Cancellation effective 10/30/96 Hearing No. 3476 Cynthia L. Cummins Producer license revoked 10/30/96 Hearing No. 3458 Sawing & Shearing Services, Inc. National Council of Compensation Insurance Findings of Illinois Appeal Board classifying company in classification Code 8106 be upheld 10/28/96 Hearing No. 3428 Jerry L. Knotts State Farm Fire & Casualty Company Policy ordered to be reinstated 10/23/96 Hearing No. 3468 Kenneth Puckett Request for producer license denied 10/23/96 Hearing No. 3455 Victor J. Lewis State Farm Mutual Automobile Insurance Company Nonrenewal effective 10/11/96 Hearing No. 3471 Audree Friedman State Farm Fire & Casualty Company Cancellation effective 10/11/96 Hearing No. 3434R Robert J. Skertich Application for license denied 9/20/96 Hearing No. 3415 Peter Samuel Herman Producer license suspended for 90 days 9/20/96 Hearing No. 3406 Leonard and Bobbie Richard State Farm General Insurance Company Nonrenewal effective 9/23/96 Hearing No. 3461 Robert L. Henry State Farm Mutual Automobile Insurance Company Cancellation effective 9/23/96 Hearing No. 3453 Dennis and Bera Sue Ford State Farm Fire & Casualty Company Cancellation effective 9/23/96 Hearing No. 3454 Betty R. Bussell State Farm Fire & Casualty Company Nonrenewal effective 9/17/96 Hearing No. 3467
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Company regulatory action
New Admissions Certificates of authority have been issued to the following insurance companies: Le Mars Mutual Insurance Company of Iowa, IA, 10/10/96 Premier Medical Insurance Group, Inc., WI, 10/30/96 Sierra Health and Life Insurance Company, Inc., CA, 10/31/96 Atlantic States Insurance Company, PA, 11/20/96 Courtesy Insurance Company, FL, 11/20/96 Society Insurance, A Mutual Company, WI, 11/20/96 Underwriters Insurance Company, NE, 11/20/96 Funeral Directors Life Insurance Company, TX, 11/21/96 New South Insurance Company, NC, 11/21/96 Residential Guaranty Company, AZ, 11/21/96 Surety Bonding Company of America, SD, 11/21/96 Victoria Select Insurance Company, OH, 11/21/96 Zale Life Insurance Company, AZ, 11/21/96 Donegal Mutual Insurance Company, PA, 11/25/96 Terminations Certificates of authority have been revoked for the following insurance companies: Capital Assurance Company, Inc., FL, voluntary cancellation 10/23/96 Regulatory Orders Insurance Company of Great Britain, Ltd., Cease and Desist Order for unauthorized insurance activities in the State of Illinois, 10/3/96 Coronet Insurance Company, Crown Casualty Company, and National Assurance Indemnity Company, all domiciled in IL, Cease and Desist Order prohibiting them from writing any new or renewal business effective 12/3/96. The order does not relieve the companies of any obligation, duty or performance incurred in the course of transacting the business of insurance.
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Producers Regulatory Actions
Revocation of Licensing Authority Colnon Insurance Agency Box 339 Main Street Ridgeway, IL Effective 10/23/96 Rhoda G. Cox Box 545 Ridgeway, IL Effective 10/23/96 Cynthia L. Cummins RR 1, Box 336 Rt. 48 Decatur, IL Effective 10/30/96 Thomas L. Karacson 104 W. 66th Street, #1 Westmont, IL Effective 9/3/96 Mark S. Majewski 8103 Uxbridge Drive Orland Park, IL Effective 10/15/96 Dina Romero 1098 W. 5th Street Belvidere, IL Effective 9/30/96 Douglas A. Schueler 1308 E. 13th Street Sterling, IL Effective 10/21/96 Town & Country Insurance Services, Ltd. 310 S. Hale Street Wheaton, IL Effective 10/30/96 Robert C. Wells 625 S. 14th Street Mattoon, IL Effective 10/21/96 Voluntary Revocation of Producer License David F. Hayes 19 W. Windsor Ct. Aurora, IL Effective 10/30/96 Adrienne D. Leonard 8134 S. Laflin Chicago, IL Effective 9/19/96 Samuel L. Swanson 541 Susan Drive Belleville, IL Effective 9/27/96 Wilbert W. Wetzler 327 N. 4th Street Belleville, IL Effective 10/9/96 Janet Ann Wilkins RR 1, Box 24 Geneva, NE Effective 9/19/96 Denial of Request for License Joseph P. Kornacker 7500 N. Osceola Avenue Chicago, IL Effective 9/3/96 Joseph P. McGivney 15000 S. Cicero Avenue Oak Forest, IL Effective 9/3/96 Kenneth Puckett 1337 Michele Drive Palatine, IL Effective 10/23/96 Robert J. Skertich 2078 Hallmark Court Wheaton, IL Effective 9/20/96 Stipulation and Consent Order - Civil Forfeiture Paid Donald L. Bycroft 3031 Parkside Drive Peru, IL Effective 7/29/96 Ambrose Cameron, III DBA Cameron Insurance Agency 308 Greenwood Glenwood, IL Effective 10/7/96 Central Insurance and Bonding Agency, Inc. 2420 E. Calumet St., PO Box 1777 Centralia, IL Effective 8/19/96 Perry Gantman 5550 West Touhy, Suite 400 Skokie, IL Effective 10/1/96 Lawrence R. Graf, Jr. 87 Hilltop Lake in the Hills, IL Effective 9/19/96 International Advisory Services, Inc. 1450 E. American Lane, 20th Fl Schaumburg, IL Effective 9/19/96 Debra E. Johnson PO Box 343 Old Horseshoe Lake Road Olive Branch, IL Effective 10/1/96 Terrence L. Kisiel 1918 Deerpass, PO Box 567 Marengo, IL Effective 8/19/96 Thomas J. Nesbitt 1041 W. Ogden Avenue, Unit 223 Naperville, IL Effective 7/29/96 Shawn Rafiei 890 S. Benton Palatine, IL Effective 8/12/96 Lawrence Michael Scannell 2737 Union Street Blue Island, IL Effective 10/9/96 Linda Y. Wilburn 1417 Park Lane Ford Heights, IL Effective 8/27/96 Yale Insurance Agency,Inc. 5520 N. Lincoln Avenue Chicago, IL Effective 10/1/96 Jerome L. Gray #7 Lakewood Drive Centralia, IL Effective 8/19/96 Herbert Roosevelt Harvey 814 E. 84th Street Chicago, IL Effective 9/30/96 Peter Samuel Herman 1595 Little John Court Highland Park, IL Effective 9/20/96 James Michael Riccolo 9 Navaho, PO Box 56 Dwight, IL Effective 9/30/96
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Examination Reports Filed
Financial Modern Woodmen of America 9/26/96 Associated Beer Distributors of Illinois 10/03/96 Consolidated Construction Safety Fund Illinois 10/03/96 Illinois Aggregate Producers' Risk Management Association 10/03/96 Mid-West Truckers Risk Management Association 10/03/96 BCI HMO, Inc. 10/23/96 Carthage Mutual Insurance Company 10/23/96 Independent Mutual Fire Insurance Company 10/23/96 Olney Township Mutual Fire Insurance Company 10/23/96 Market Conduct Safeco Insurance Company of Illinois 10/09/96 Centennial Insurance Company 10/03/96 Gerber Life Insurance Company 9/26/96 TIC Insurance Group 10/18/96 United Teacher Associates 10/11/96