May 9, 2012

ISO – NJAIRE Central ProcessorMike McAuley

NJAIRE DATA REPORTING REQUIREMENTS

Current Reporting Requirements• Call for Statistics Form #4 – Accident

Year 2003 – Present

Use and Financial Impact of Data

Detecting Errors

OVERVIEW

Form #4 – Due DatesTo ISO (other than CAIP) or AIPSO (CAIP

only)

ACCOUNT QUARTER DUE DATE

FIRST QUARTER MAY 15

SECOND QUARTER AUGUST 15

THIRD QUARTER NOVEMBER 15

FOURTH QUARTER FEBRUARY 15

Form #4 – Territory Reporting Options

Accident Year 2008 & subsequent

Procedure Manual Exhibit 11a

1. Statewide totals only2. Standard ISO Territory Definitions (Exhibit 11)3. Company Defined Territories

Accident Year 2007 & prior

Standard ISO Territory Definitions

Form #4 – Required Data

Earned Exposures, in car years, by insured threshold

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2006 2007 2008 2009 2010 2011

Zero

Verbal

Form #4 – Required Data

Paid Bodily Injury claimants against private passenger type autos subject to the No-Fault law

Accident Year 2008 & subsequent – by insured threshold and accident year

Accident Year 2007 & prior – by insured threshold, territory and accident year

Form #4 – Required Data

Reportable Claimant Information

Reportable Claimant Loss Amounts Number of Reportable Claimants Loss Adjustment Expenses for

Reportable Claimants (separately as Allocated and Unallocated or Combined)

Accident Year 2008 & subsequent – by accident year

Accident Year 2007 & prior – by territory and accident year

A Reportable Claimant is...

One that could not be made had the claimant selected the Verbal Threshold, AND

One where the claimant selected or defaulted to the Zero Dollar Threshold AND the insured selected the Verbal Threshold

...the basis for establishing NJAIRE

How are Reportable Claimants identified?

Reportable Claimant Determination Form

Effective January 1, 2012 ALL member companies are required to utilize and maintain a copy of the form for ALL paid BI claimants, in paper or electronic form

Reportable Claimants to Verbal BI Accident Year 2006 (Individual insurers may vary)

10%

90%

Verbal/Reportable

Verbal

Loss Severities by Year (Individual insurers may vary)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2006 2007 2008 2009 2010

AVG NJAIRE Reportable Claim Loss Amt (By Accident Year)

AVG NJ BI Claim Loss Amt (By Calendar Year)

Use and Financial Impact of Data

Provisional Financial Transactions Quarterly assessment (monthly payments) Quarterly reimbursement, plus share of

investment income

Annual Cash Settlement (ACS)

Magnitude of Financial Transactions

Cost of Late and Erroneous Data

Quarterly Assessment

Multiply number of Zero Dollar Exposures

reported, from two quarters prior, by the

Assessment per Exposure

Example – 3rd Quarter 2011 Assessment:Assessment per Exposure = $90Zero Dollar Exposures 1st Quarter 2011 = 100Quarterly Assessment = (100 * 90) = $9,000Monthly Payments = 1/3 of Quarterly

Assessment

Quarterly Reimbursement

Multiply company’s share of industry Verbal Exposures,

from two quarters prior, by total amount collected via

monthly payments and investment income earned

Example – 3rd Quarter 2011 Reimbursement:Verbal Exposures 1st Quarter 2011 = 500Industry Verbal 1st Quarter = 1,000,0003rd Quarter 2011 Monthly Payments Collected =

$9,000,000Investment Income Earned 3rd Quarter = $100,000Quarterly Reimbursement = (500/1,000,000) * $9,000,000

= $4,500Share of Investment Income = (500/1,000,000) * $100,000

= $50TOTAL Quarterly Reimbursement = $4,550

Annual Cash Settlement (ACS)

Purpose Using latest accident year data:

• True-up provisional financial transactions from previous calendar year

• For all accident years:Re-evaluate assessmentsRe-evaluate reimbursementsAccount for previous financial actionRe-distribute investment income

• Share of administrative expenses• All calculations account for time value of money

Magnitude of Financial Transactions

Approximately $6 million every quarter via provisional financial transactions

Approximately $400 million every year via the Annual Cash Settlement True-Up

Cost of Late and Erroneous Data

Late Data - $50 per working day

Resubmissions - $250 per account quarter

Undetected Data Errors – can be over $1,000,000!

How can it be that much???

Ultimate ACS formula assesses and reimburses based on BI Claimants: by Threshold, Territory & Accident Year

BI Claimants reported incorrectly can have a significant financial impact

EXHIBIT A

Scenario 1 – Three BI claimants reported under wrong Threshold can cost up to $409,000

Scenario 2 – Three BI claimants vs. Zero Dollar insured’s reported under wrong Territory can cost up to $382,000

Detecting Errors at the Call Form Level

What is done today?

ISO - High level data checks

Quarterly Submissions Financial Transactions, including ACS

Company contact regarding questionable data AIPSO –

Completeness/detailed checks on claim samples during compliance audit process

Common Errors

Exposures: Car months, Written, Cumulative, Threshold

BI Claimants: Threshold, Territory

Reportable Claimants: ALL BI paid claimants included

LAE: Reported separately and combined

General Expectations for Review Purposes

Exposures by Threshold - Volume: +/- 5% Zero Dollar Exposures as % of total: +/- 2%

BI Paid Claimants by Insured Threshold – Similar volume per accident year, allow for

development Claim frequencies per threshold similar: 0.5 – 1.5 per

100 car years exposure Reportable Claimants & Losses –

Percentage of Verbal BI: 4 – 28%, average 12% Reportable Loss Severity: $3,000 - $15,000, average

$7,700 Loss Adjustment Expenses –

5 – 35% of Reportable Losses (may lag) Company Methodology: Formula?

More difficult errors to detect: Territory errors Completeness

Additional checks that could help: Territory errors – Visual checks Additional visual checks

Zero Dollar Exposures > Verbal Exposures?? BI claimants vs. Zero Dollar > BI claimants vs.

Verbal?? Reportable Claimants > BI claimants vs. Verbal?? Reportable Losses w/o Reportable Claimants, and vice

versa Completeness – Other existing internal

data/special reports

Poor data quality can have a large, hidden impact on your company’s bottom line

With a reasonable effort you can help ensure that your company is properly assessed and reimbursed

SUMMARY

ISO is here to help make your reporting of NJAIRE data as easy and accurate as possible

Any questions? Email njairecentralprocessor@iso.com or you can contact me directly: Mike McAuley, mmcauley@iso.com (201) 469-2323

NJAIRE website, www.njaire.org – FAQ’s, copies of all reporting forms, webinar information including .PPT presentations, Procedure Manual, Plan of Operation, etc.

REMEMBER,