Florida Automobile Joint Underwriting Association Board of Governors Hears Committee Reports, Audit Results

 

During a lengthy teleconference on April 23, 2013, the Florida Automobile Joint Underwriting Association (“FAJUA”) Board of Governors (“Board”) heard reports from its various committees, as well as a summary of recent FAJUA fraud prevention measures and audit results.

To view the meeting materials, click here.

Before the meeting began, members convened briefly for the FAJUA Annual Meeting of the Members, during which they elected future board members and approved the FAJUA 2012 Annual Report with no discussion.

Brian Fleming, who was appointed to the FAJUA by Florida Chief Financial Officer Jeff Atwater, will serve as chairman.

The Annual Report notes that the FAJUA experienced significant growth in policy count, claim activity and potential Personal Injury Protection (“PIP”) insurance fraud in 2012.  The number of policies in force increased during the last 18 months from 265 in January 2011 to 1,809 in September 2012—a jump of almost 700 percent.

Report highlights show that the FAJUA’s total exposure increased significantly, with an uptick in written premiums totaling approximately $5 million in 2012, compared with about $2.7 million in 2011—an increase of 83 percent.  The Report further notes that total incurred losses increased almost 600 percent to $6.1 million in 2012, with 50 percent of total incurred losses happening during the fourth quarter of the FAJUA’s fiscal year.  The increase in incurred losses was the main contributing factor to the net underwriting loss of approximately $5.2 million for the fiscal year ending September 30, 2012.

The Report notes that PIP fraud continues to be the reason for an abnormally high frequency of claims within the first 30 days of policy inception.  To combat such fraud, the FAJUA is implementing a special investigations unit to investigate, report and deter fraud.

FAJUA Board of Governors Meeting

The Board convened immediately after the FAJUA Annual Meeting of the Members and heard Committee Reports, approving all Committee recommendations.

FAJUA General Manager Eugenia Tyus reported the end-of-March policy count at 1,774, of which 411 are commercial.   She reminded the Board that one out of six drivers are likely to be uninsured.

Aside, this meeting was the last for Ms. Tyus, who is retiring after serving the FAJUA since January 1, 2004.  She was lauded for her years of service, her attention to detail and her ability to work well with other people.  She will be replaced temporarily by Lisa Stoutamire, who currently serves as FAJUA’s administrative coordinator, but will serve as Interim General Manager until the position is made permanent in September.

Finance/Audit Committee

After reviewing the cash flow for the period ending December 2012 and projected amounts for the period of January 2013 through March 2013, the FAJUA Finance/Audit Committee  agreed the FAJUA’s previously approved quarterly assessment of $420,709 should be adjusted up to $750,000.  The reason for the upwards adjustment – taking into account a $2.6 million cash balance – is due to some potential reporting irregularities of statistical information in recent months.  The sum includes an 11-month cash cushion to cover large unexpected fluctuations, it was explained.

It was further noted that servicing provider fees reflect the contracted fee structure.  The fee structure for the FAJUA’s current policy administrator is six percent of written premium for operating, with a minimum monthly fee of $31,500.  For the vendor that handles FAJUA claims, the structure is 14 percent of earned premiums for claim fees, with a minimum monthly fee of $20,000.

The FAJUA’s recent audit for the year ending September 20, 2012 was found to be materially correct and compliant with Florida insurance laws by the FAJUA’s actuarial firm, the Committee reported.

Highlights of the audit follow:

End-of-year FAJUA premiums earned totaled $3.8 million for 2012—up from $1.6 million in 2011. However losses and loss adjustment expenses incurred totaled $7.2 million in 2012, compared with $1.3 million in 2011, it was noted.  Net investment income totaled $44,418 in 2012—down from $54,335 in 2011.

Of note during 2012 was a deficiency of $92,000 in gross premiums receivable, compared with $78,000 in 2011.  This was blamed on the overly-slow processing of policies, which was labeled as a “significant deficiency.”

“It is a deficiency or a combination of deficiencies in internal controls that is less than an internal weakness, but enough to mark notice,” it was explained.  “It says you may have these controls in place, but there is an issue in how they are operating.”

“This is not a normal situation to be in,” a Committee member stated.

“It is creating customer issues, it is creating service issues,” said another.  “People are calling because they don’t have a policy for 30 days.”  Insurance cards are being delayed and claim payment also can be delayed, it was noted.

Board members agreed that the policy administrator needs to develop a plan and show the FAJUA what additional resources they will allocate to solve the problem.  Accurate and timely financial reports are also needed from the administrator.  Currently, there is a lag time of about three to four months, it was noted.

It was also explained that an initial report from a market conduct exam of the FAJUA conducted in late December 2012 is expected soon.

Ad Hoc Vendor Review Committee

During April 2013, Committee members reviewed separate drafts of vendor procurement material for banking services, claims and policy administration (“service provider”), and an actuary.

Changes to the drafts were mostly minor.  However, the service provider Request for Proposal (“RFP”) had more major edits, it was noted.

Revisions to the service provider RFP include adding a provision requiring a respondent to have at minimum five years experience in providing general motor vehicle insurance policy administration services or at least five years experience in adjusting Florida motor vehicle insurance claims.  A requirement asking for a $20 million surplus from any service carrier was removed.

A scoring card to evaluate RFP responses was also modified:  The category of “fraud prevention program” (40 points) was added to a scoring card that already contained the categories “experience” (80 points), “technology resources” (80 points), “project team” (80 points) and “fee proposals” (120 points).  Respondents can score a total of 400 points.

The scorecard will be used to rank vendors, with an emphasis on fraud prevention.

It was noted that the FAJUA has focused much attention on fraud prevention, with the goal of preventing future surges in claims volume.

Operating Committee

Committee members explained that during their meeting earlier in April, they had approved a revised Personal Automobile Application (“Application”), as well as minor language changes to the FAJUA Underwriting Rules and Rates Manual, and Accounting and Statistical Manual.

Primary changes to the Application include the expansion of several sections to allow for more detailed information and the addition of sections on rejection of bodily injury liability coverage and named driver exclusion.

Changes to both the manuals consisted of minor cleanup language, it was noted.

In other business, the FAJUA heard a fraud prosecution report by Assistant State Attorney Michael Lennon, who said he is handling 58 fraud cases, 12 of which have pending court dates.  Of those, one is a racketeering case comprising 15 counts of fraud and 30 witnesses, he said.

More than 30 of Mr. Lennon’s pending cases involve pre-arrest investigations.  A recent verdict in another case was “guilty as charged” of conspiracy to commit racketeering, prompted by six counts of insurance fraud and two counts of patient brokering, he added. The defendant was sentenced to 15 years in prison but fled to Cuba.

With no other business before the FAJUA, the meeting was adjourned.

 

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