FPCA: FAJUA Board of Governors Meeting Report–September 16

On Tuesday, September 16, 2008, the Florida Automobile Joint Underwriting Association (“FAJUA”) held a Board of Governors (“Board”) meeting. Agenda items included:

• General Counsel’s Report and Legislative Update
• General Manager’s Report
• Budget Committee Report
• Financial/Audit Update
• 2008 Open Claim Update
• 2008 FAJUA Rate Filing Approvals
• Private Passenger Non-Fleet Rate Proposal
• Commercial Automobile Experience Proposal
• FAJUA Underwriting Manual Rule 22 Proposal
• Florida Department of Highway Safety and Motor Vehicles Safety Campaign
• FAJUA Accounting & Statistical Manual Proposed Amendments

The meeting was called to order by Chairman Michael Puchades with a quorum of Board members in attendance. Also in attendance were FAJUA staff members and General Counsel.

General Counsel’s Report, Legislative Update and Open Claim Update

FAJUA General Counsel gave an update on current litigation in which the FAJUA is a defendant. As of September 16, there were 53 open claims and no legislative issues to report.

General Manager’s Report

FAJUA General Manager Eugena Tyus gave the General Manager’s Report. At the end of August, the FAJUA had a total of 284 policies–274 commercial and 10 private passenger. Since the FAJUA’s rates are significantly higher than those in the voluntary market, this number is not expected to grow. Although the FAJUA’s book of business is shrinking, it is anticipated that an assessment will not be levied this year.

Board members inquired about the estimated number of uninsured drivers in Florida, as well as what portion of the private passenger policies are for motorcycles. Ms. Tyus stated that she would have those statistics available at the next Board meeting.

Budget Committee Report

Ms. Tyus gave the Budget Committee Report, in which the total salary, health plan, travel expense, legal fees and PIP fraud program amounts were adjusted. The proposed adjusted 2008-2009 budget, which was approved by the Board, totals $1,231,335.

Financial/Audit Update

Since the last Board meeting, it has been determined that there is no need to levy assessments in 2009, inasmuch as the FAJUA cash balance (as of August 31, 2008) is $10.6 million.

Board members expressed deep concern about FAJUA investments in light of the current financial crises, specifically those held by Wachovia Bank. To view the Financial/Audit Update, click here.

2008 FAJUA Rate Filing Approvals

Private Passenger Non-Fleet Rate Proposal

As of June 2008, the FAJUA had 11 private passenger vehicle policies in force. Due to a continued decrease in policy volume and the statutory requirement that FAJUA rates be based on driver experience, a blended rate methodology was adopted during the September 2007 Board meeting.

This blended rate methodology combines experience-based rate indications with market comparisons. If the FAJUA policy volume continues to shrink, this methodology will require heavier reliance on market comparisons which are made with Florida’s five leading non-standard policy companies. FAJUA rates are typically set 20 percent higher than the average rate level of those companies to ensure that the FAJUA remains the insurer of last resort.

The Board approved an overall rate decrease for non-fleet private passenger vehicle policies of 9.4 percent for 2009. To view the Private Passenger Non-Fleet Rate Proposal, click here.

Commercial Automobile Experience Proposal

The fee structure for administrative and claims expense fees paid to the service provider on commercial automobile policies greatly impacts FAJUA’s financial and statistical indications. Due to a continued decrease in premium volume, the minimum dollar amounts for commercial automobile policy fees take effect.

These minimums result in significantly higher fees as a percent of the premium (35 percent administrative fee, 45 percent claims fee with an additional 20 percent in contractual fees). The new FAJUA membership fee structure of $2,500 per company versus $25 per company acts to offset these fee increases, resulting in an overall rate decrease of 3.2 percent (which the Board approved). To view the Commercial Automobile Experience Proposal, click here.

FAJUA Underwriting Manual Rule 22 Amendment Proposal

The FAJUA insures non-public school buses owned by individuals and small companies. These buses are used to transport students (predominately in Miami-Dade County) who are ineligible for regular bus service to public schools. Transportation costs are paid by the parents.

The current rate calculation formula has resulted in high liability and premium cost amounts. Detailed research has found that the language in the Florida Statues governing this requirement is now obsolete.

The proposed amendment to Rule 22 requires a minimum combined single limit of $5,000 multiplied by the rated seating capacity of the vehicle, or $100,000, whichever is greater.

Changes to Rule 58 were proposed as well, inasmuch as this Rule provides the factors for increased liability limits. Proposed changes to Rule 58 would provide increased limits factors in $10,000 increments from $100,000 to $350,000 for all public and non-public school vehicles transporting students.

Neither change would result in an FAJUA base rate reduction; however, premiums will decrease due to the reduced coverage requirements.

The Board approved the proposed Rule changes. To view a copy of the changes, click here.

Florida Department of Highway Safety and Motor Vehicles (“DHSMV”) Safety Campaign

The DHSMV is implementing a safety campaign among Hispanics/Latinos in Broward and Hillsborough counties aimed at reducing the incidence of aggressive driving in these two urban areas. Aggressive driving is responsible for two-thirds of all auto fatalities in the United States (27,000 deaths). As part of the safety campaign, the FAJUA will publish safety information in its newsletter. To view a copy of the safety information, click here.

Proposed Amendments to the FAJUA Accounting and Statistical Manual (“Manual”)

Proposed Manual changes are designed to document two existing procedures that are allowed by the FAJUA Plan but not properly disclosed in the Manual.

One proposed change is to properly document an FAJUA service provider requirement that a detailed check register or listing of checks issued be provided on a daily basis. Notification of issued checks is required by the FAJUA for effective cash management and investment decisions.

The other proposed change concerns payment of allocated loss adjustment expenses. The proposed change would document an approved optional procedure allowing the service provider to issue directly-reimbursable expenses from the FAJUA provider’s disbursement bank account.

Service providers currently comply with a notification requirement and are expected to be unaffected by the proposed change. Service providers wishing to elect the new optional reimbursement procedure would be required to contact the Central Processor and the FAJUA to obtain the required authorization.

The Board approved adoption of the amendments, which will be filed with the Florida Office of Insurance Regulation. To view the proposed amendments, click here.

The meeting was then adjourned.

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

To unsubscribe from this newsletter, please send an e-mail to ccochran@cftlaw.com