STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
AIU INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, BIRMINGHAM FIRE INSURANCE COMPANY OF PENNSYLVANIA, COMMERCE AND INDUSTRY INSURANCE COMPANY, GRANITE STATE INSURANCE COMPANY, ET AL., | ) ) ) ) ) ) ) ) | |
Petitioners, vs. | ) ) ) Case | Nos. 04-0155 |
DEPARTMENT OF FINANCIAL | ) ) | 04-0163 |
SERVICES, OFFICE OF INSURANCE REGULATION, | ) ) ) | |
Respondent. | ) |
)
RECOMMENDED ORDER
A formal hearing was conducted in this case on April 18-22, 2005, in Tallahassee, Florida, before Suzanne F. Hood, Administrative Law Judge with the Division of Administrative Hearings.
APPEARANCES
For Petitioners: Daniel C. Brown, Esquire
Kelly A. Cruz-Brown, Esquire Robert W. Pass, Esquire Carlton Fields, P.A.
Post Office Box 190
Tallahassee, Florida 32302-0190
For Respondent: S. Marc Herskovitz, Esquire
Elenita Gomez, Esquire Department of Financial Services Division of Legal Services
612 Larson Building
200 East Gaines Street Tallahassee, Florida 32399-4206
STATEMENT OF THE ISSUES
The issues are as follows: (a) whether Respondent's disapproval of Petitioners' terrorism rates for workers' compensation insurance (workers' comp) under the Terrorism Risk Insurance Act of 2002, Public Law 101-297, 116 U.S.C. Section 2322 (TRIA) is based on an invalid agency statement of general applicability, which has not been adopted as a rule pursuant to Section 120.54, Florida Statutes (2003); (b) whether Petitioners, as members or subscribers of the National Council on Compensation Insurance (NCCI) were required to comply with Section 627.211, Florida Statutes (2003), and Florida Administrative Code Rule 69O-189.004; and (c) whether Petitioners' terrorism rate filing for the workers' comp line of business results in rates that are excessive or unfairly
discriminatory.
PRELIMINARY STATEMENT
Petitioners AIU Insurance Company, American Home Assurance Company, American International South Insurance Company, Audubon Insurance Company, Birmingham Fire Insurance Company of Pennsylvania, Commerce and Industry Insurance Company, Granite
State Insurance Company, Illinois National Insurance Company, the Insurance Company of the State of Pennsylvania, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, and New Hampshire Insurance Company (Petitioners) are member companies of American International Group, Inc. (AIG).
Hereinafter, Petitioners shall be referred to collectively as
AIG.
On January 21, 2003, AIG filed its initial workers' comp
rate filing for terrorism coverage pursuant to TRIA. On April 10, 2003, Respondent Department of Financial Services, Office of Insurance Regulation (OIR) disapproved the filing.
AIG filed a timely request for a formal hearing. However, pursuant to the agreement of the parties, OIR did not forward the case to the Division of Administrative Hearings (DOAH) until January 14, 2004. DOAH subsequently assigned the case DOAH Case No. 04-0163. A Notice of Hearing dated February 5, 2004, scheduled the hearing in DOAH Case No. 04-0163 for May 25-28, 2004.
On May 21, 2003, AIG filed a second workers' comp rate filing for terrorism coverage pursuant to TRIA. OIR disapproved that filing on November 4, 2003. On November 24, 2003, AIG filed a Consolidated Petition for Formal Administrative Hearing with OIR. On January 14, 2004, OIR referred the petition to
DOAH, which assigned the case DOAH Case No. 04-0155. A Notice of Hearing scheduled the matter for hearing on May 25-28, 2004.
On March 30, 2004, AIG filed a Motion to Amend Consolidated Petition in DOAH Case Nos. 04-0155 and 04-0163. The undersigned granted the motions on April 8, 2004. On April 9, 2004, AIG filed First Amended Consolidated Petitions for Formal Administrative Hearing in both cases.
On April 23, 2004, the parties filed a Joint Motion to Stay. On April 26, 2004, the undersigned issued an Order Granting Continuance and Placing Case in Abeyance in both cases. Subsequently, the undersigned issued orders staying the proceedings on June 24, 2004, August 26, 2004, October 4, 2004,
October 11, 2004, and October 25, 2004.
On November 16, 2004, AIG filed an Amended Status Report and Motion for Omnibus Case Management Conference. The undersigned denied the motion and consolidated DOAH Case Nos. 04-0155 and 04-0163 on December 1, 2004.
A Notice of Hearings dated December 21, 2004, scheduled the hearing for the consolidated cases on April 18-22, 2005.
During the hearing, AIG presented the live testimony of the following: (a) Oliver Revell, expert on the subject of terrorist organization and terrorism threat assessment; (b) Richard Thomas, AIG's corporate representative; (c) Michael Toothman, expert in actuarial science; (c) Shirley Kerns, OIR's
former Chief in the Bureau of Property and Casualty Rates and Forms; (d) Steve Roddenberry, OIR's former Deputy Insurance Director; (e) Theresa Eaton, OIR's workers' comp administrator;
James Watford, OIR's workers' comp actuary; and (g) Jack Swisher, OIR's property and casualty actuary. AIG presented the testimony of the following persons by deposition in lieu of live testimony: (a) Sri Ramanujam, OIR's property and casualty actuary; and (b) Dennis Mealy, NCCI's chief actuary.
OIR presented the live testimony of the following: (a) James Watford, OIR's workers' comp actuary; and (b) Jeff Eddigner, NCCI's actuary. OIR presented the testimony of Carl Chamberlain, AIG's employee, by deposition in lieu of live testimony.
The parties offered five joint exhibits (JE1-JE5) that were admitted into evidence. AIG offered thirty exhibits (P1-P30) that were admitted into evidence. OIR offered twenty exhibits (R1-R4, R6-R13, and R15-R22) that were admitted into evidence.
OIR offered but withdrew two exhibits (R5 and R14).
The Transcript was filed on May 6, 2005. The parties filed their Proposed Recommended Orders on June 6, 2005.
FINDINGS OF FACT
AIG's member companies are property and casualty insurance companies that are licensed to write workers' comp in the State of Florida.
OIR is the agency that is responsible for regulating the business of insurance in the State of Florida.
Following the terrorist events of September 11, 2001, reinsurance capacity in the United States contracted severely and other market disruptions occurred. In response to these events, Congress enacted TRIA, which became effective on November 26, 2002.
The purpose of TRIA is to establish a temporary federal program that provides for a system of shared public and private compensation for insured losses resulting from acts of terrorism, in order to accomplish the following: (a) to protect consumers by addressing market disruptions and ensure the continued widespread availability and affordability of property and casualty insurance for terrorism risk; and (b) to allow for a transitional period for the private markets to stabilize, resume pricing of such insurance, and build capacity to absorb any future losses, while preserving state insurance regulation and consumer protections.
TRIA provides a federal reinsurance backstop for three years (2003, 2004, and 2005) and gives the federal government authority to recoup federal payments made through policyholder surcharges up to a maximum annual limit in the event of a "certified loss." The premium charged for insured losses covered by TRIA and the federal share of compensation for
insured losses under TRIA must be readily identifiable. The government reinsurance is provided at no cost to the insurer and replaces reinsurance that was no longer available after September 11, 2001.
TRIA required insurers to immediately notify all commercial insurance policyholders that pre-existing terrorism risk exclusions were void. Pursuant to TRIA, insurers must price terrorism coverage separately from non-terrorism coverage.
For most commercial policies, separate pricing gives the customer an opportunity to accept or decline the terrorism coverage. However, workers' comp insurers are not allowed to write exclusions for terrorism coverage.
TRIA requires each insurer participant or retention group (insurers who are part of the same insurer group) to pay, without federal reimbursement, losses from terrorism events up to an attachment point or retention level/deductible. That retention is computed based upon the entire direct earned premiums of the insurer group in all commercial lines of insurance covered by TRIA, including workers' comp.
TRIA does not affect any state's jurisdiction or regulatory authority over the business of insurance except as specifically provided therein. As to terrorism rate filings made in 2003, TRIA suspended state laws requiring prior approval of insurance rates for the risk of terrorism. TRIA does not
affect the ability of a state to invalidate a rate filing that is determined to be excessive, inadequate, or unfairly discriminatory.
There is no limit on workers' comp losses that an insurer must pay except for the schedule of benefits adopted into law in each state. The amount of workers' comp loss arising from a terrorist event is affected in large part by the schedule of benefits and the distribution of the various types of injuries that workers may sustain from a terrorist event.
AIG had to make terrorism rate filings for all lines of insurance covered by TRIA in 50 states and the District of Columbia. Instead of focusing on each state's schedule of benefits, AIG made its initial rate filings in a fairly uniform manner, allegedly to accommodate TRIA's mandate for immediate implementation.
NCCI is a workers' comp rating organization that gathers data from its members or subscribers, compiles the data, and makes rate filings on behalf of its members or subscribers. NCCI makes such filings in 36 states, including Florida. Every insurer writing workers' comp in Florida, including AIG, is either a member or subscriber to NCCI.
In Florida, Section 627.211, Florida Statutes (2003), requires NCCI's members or subscribers to adhere to NCCI's
rates, unless the insurer makes a deviation filing, seeking a uniform percentage decrease from or increase to NCCI's approved rates.
On December 19, 2002, NCCI submitted its Item B 1383 terrorism rate filing for workers' comp coverage. The rate filing included rate provisions for both terrorism and non- terrorism coverage. James Watford, OIR's workers' comp actuary, reviewed NCCI's filing.
Mr. Watford has spent the last 19 years reviewing workers' comp rate filings. He is the only who reviews workers' comp rate filings for OIR. Mr. Watford holds the designations of Associate in the Casualty Actuarial Society (ACAS) and Member of the American Academy of Actuaries (MAAA). Mr. Watford's review of NCCI's rate filing was unaided by any other actuary or actuarial analyst.
Mr. Watford's office is a part of OIR's Bureau of Property and Casualty Rates and Forms. That bureau is organized to function according to type of insurance business, including but not limited to personal lines, automobile, marine, commercial (property and casualty), medical malpractice, business interruption, and workers' comp.
Although workers' comp is a type of commercial insurance sold to employers, Mr. Watford has not participated in meetings involving terrorism rates for other types of commercial
insurance. Additionally, Mr. Watford has not been involved in setting any policy for OIR.
NCCI's December 19, 2002, terrorism filing applied only to insurance coverage known in the industry as "guaranteed cost plans." It did not apply to "retrospective rating plans," "large risk plans," or "large deductible plans" (referred to collectively as loss sensitive plans). Insurers are free to make their own arrangements with their insureds with respect to loss sensitive plans, provided those arrangements comport with the insurer's previous filings.
A "guaranteed cost" workers' comp plan is a policy with a known rate at the inception of the policy period. At the end of the policy period, the insurer audits the employer's actual payroll during the policy period and determines the final premium. The cost is guaranteed because an employer knows its ultimate workers' comp responsibility throughout the policy period.
A "retrospective rating plan" is a policy based on actual losses that the employer incurs during a policy period. Typically, the insurer issues the policy with parameters, explaining how the insurer will rate the policy. The ultimate price for a "retrospective rating plan," with preset minimum and maximum amounts, will depend on actual losses.
A "large risk plan" and a "large deductible plan" are policies that require the employer to reimburse the carrier for a substantial part of each loss. These plans must comply with an administrative rule that provides for a minimum standard premium and a minimum deductible. The rationale for minimums in these types of policies is that they provide flexibility for very large employers, with unique risks, who assume a substantial portion of the losses.
NCCI's terrorism rate filing sought to charge Florida insureds three cents ($.03) per $100 of payroll. The percentage impact of TRIA's terrorism provisions in Florida was eight- tenths of one percent (0.8%) of total premium. The rate filing relied in substantial part on catastrophe modeling conducted by EQECAT. The EQECAT modeling is based on simulated terrorism events in modeled states, including Florida.
NCCI's December 19, 2002, terrorism filing states as follows in part:
BACKGROUND
The treatment of catastrophes in workers compensation ratemaking has changed over the years. Prior to the 1970s, NCCI included a 1-cent catastrophe provision in every rate, which amounted to about a 1% provision.
This provision was eventually removed from ratemaking. Since that time, several catastrophes affecting workers compensation have occurred. Generally, the impacts of those events have been excluded from
ratemaking with no explicit method being employed to build them back in over time.
The September 11 attack was the largest workers compensation catastrophe in history. The estimated workers compensation losses are between $1 billion and $3 billion, with a large majority of cost coming from claims filed in a state with relatively modest death benefits. Prior to September 11, terrorism had not been considered a likely workers compensation catastrophe. The few terrorist events that did occur had a minimal impact on workers compensation. As a result, terrorism exposure has not been contemplated in current workers compensation ratemaking techniques. While workers compensation primary insurers have been dealing that this new exposure that by statute cannot be excluded from primary insurance coverage, many reinsurers are electing not to provide terrorism coverage, resulting in availability issues. This leaves many primary insurers facing the terrorism exposure with no current provision for funding it within NCCI's filed loss costs or rates.
* * *
Terrorism Modeling
Since there is a lack of historical data to support terrorism loss estimates, the traditional methods for evaluating and estimating risk are not suitable to assess possible terrorism exposures, predict losses and identify adequate rates. Estimating future losses from terrorist attacks requires a new blend of science and engineering capabilities. Potential threats must be identified; then, using advanced statistical catastrophe modeling techniques, the risk can be assessed and ultimately quantified for use in determining reasonable loss costs estimates.
. . . [E]arly this year, NCCI contracted with a leading natural catastrophe modeling firm--EQECAT--to adapt existing modeling techniques to assess the impact of terrorism threats to workers compensation insurance.
Compared to modeling for natural disasters, terrorism modeling is in its infancy. Many of the techniques and data analyses used for modeling of natural disasters can be transferred to terrorism modeling. However, the frequency of terrorism events does not have the same detailed history as is available for natural disasters. Moreover, with terrorism, we are dealing with intentional loss instead of the non- intentional nature of natural disaster.
These factors make the estimation of frequency much more problematic for terrorism. The EQECAT terrorism model concentrates on severity, with frequency being normalized to one terrorism event per year.
* * * Modeled and Non-Modeled States
Analyses are performed state by state and have been completed for 13 states and Washington D.C., covering all high-risk areas, large population states, and about 75% of nationwide employment. Since all states were not modeled, some of the modeled states were used as proxies for the non- modeled states based on relative frequency of terrorist attacks from EQECAT and benefit and wage differences.
* * *
NCCI Average Costs by Casualty Category
NCCI provided EQECAT with average pure loss costs per case by state for each of the four injury groups: Fatal, Permanent Total/Major
Permanent Partial, Minor Permanent Partial/Temporary Total, and Medical Only.
* * * Frequency Assumption
The indicated loss costs per employee for modeled states are based on the modeling approach described above assuming a frequency of one terrorist event per year as the default. The results are scalable, based on a different frequency assumption.
A range of one to five terrorism events per year countrywide was used based on input from EQECAT.
Indicated Loss Costs by State
The modeling exercise produces a range of loss costs per employee for the modeled states . . . The loss costs exclude loss adjustment expense. Two adjustments are necessary to convert this information to a lost cost per $100 of payroll. First, an adjustment is made to recognize the impact of [TRIA]. This adjustment recognizes that individual company exposure is limited and that the Act addresses foreign terrorism only. Depending on the state, NCCI's analysis has led to an indicated adjustment factor of .50 to .85 for this component.
The analysis is based on the provisions of the Act that allow for a recovery of 90% of the insurer's losses above an individual company retention, limited by an annual cap on terrorism losses for all covered lines of insurance of $100 billion. For modeled states, NCCI looked at individual state expected loss distributions for terrorism and assessed the impact of the Act on a variety of attachment point and aggregate combinations. States whose aggregate losses are higher will expect a larger reduction in gross loss due to the Act. Additionally, if a state has a domestic workers compensation carrier with an extremely large market
share, it may receive extra benefit from the Act, since the average retention is lower than it would be for another state.
The second adjustment uses the state average weekly wage to adjust the loss costs from a per-employee basis to a per-$100 of payroll basis.
Appendix A
Description of EQECAT Terrorism Model Introduction
The EQECAT model developed for NCCI provides an estimate of the risk to workers compensation insurers due to potential terrorist events. The types of terrorist events selected were those that could cause large numbers of injuries and casualties, and therefore catastrophic loss to insurers.
EQECAT assembled data on the insurers' exposure and subjected that exposure to a large number of simulated terrorist events.
. . .
* * *
Model Description
The model has four primary elements: workers compensation exposure; weapon types and their effects modeling; the selection of targets; the relative frequencies assigned to the weapon footprints at each target. A brief description of each element follows.
Exposure
The location, number and types of employees are needed to characterize the exposure to terrorist events. Business information databases were used to obtain the addresses of businesses and the estimated number of employees assigned to each location. With more than 100 million workers nationwide at
over 10 million businesses, it was necessary to aggregate the exposure. For this model the exposure was aggregated to the census block level (typically a city block.) This aggregation level was suitable for terrorist events that span hundreds of meters.
The workers in each census block were grouped into five NCCI industry groupings: Goods & Services, Office & Clerical, Manufacturing, Construction, and All Others. Certain government classifications not covered by workers compensation were excluded.
Weapons Selection
Specific weapons were selected from the range of known or hypothesized terrorist weapons. . . .
Blast/Explosion
Chemical
* * *
* * *
Biological
Radiological
* * *
* * *
* * *
Other
NCCI's December 2002 terrorism rate filing calculated the charge for terrorism coverage state-by-state, taking into account different levels of exposure. For example, the NCCI
terrorism charge was as high as seven cents ($.07) per $100 of payroll for the District of Columbia and as low as one cent ($.01) per $100 of payroll for Indiana.
By letter dated February 7, 2003, OIR determined that NCCI's December 2002 rate filing resulted in a terrorism rate in Florida that was excessive. In disapproving the rate, OIR's February 7, 2003, letter identified numerous deficiencies in NCCI's terrorism rate filing, most of which involved NCCI's failure to provide essential information regarding the use of the EQECAT terrorism model.
Mr. Watford drafted the February 7, 2003, letter. He did not draft or send "form letters" disapproving terrorism rate filings to workers' comp carriers. The only evidence that
Mr. Watford was even aware of decisions being made by other commercial lines actuaries, was a February 7, 2003, e-mail, sent by Jack Swisher, one of OIR's property and casualty actuaries, to three people: Shirley Kerns as Bureau Chief; Richard Koon as the person who supervised forms analysts; and Mr. Watford. The February 7, 2003, e-mail states as follows:
From the rates and coverage in effect prior to 9/11/2001, an insurer may exclude non- certified terrorism losses. We expect a reduction in rates for this exclusion. We would anticipate reduction on the order of 1% or less.
From the rates and coverage in effect prior to 9/11/2001, an insurer may continue to provide coverage for non-certified terrorism losses. We anticipate that insurers may seek a rate increase to continue to provide this coverage. We would anticipate rate requests on the order of 1% or less.
For losses due to certified acts of terrorism, which are retained by the insurer, we would anticipate rate requests on the order of 1% or less.
Considering the record as a whole, including the February 7, 2003, e-mail, there is no persuasive evidence that OIR's and Mr. Watford's decision regarding terrorism rates for workers' comp was influenced, at any time, by OIR's decisions relative to other commercial lines of business. The greater weight of the evidence indicates that OIR treats workers' comp rate filings differently than rate filings in other lines of insurance.
On February 10, 2003, OIR issued an Order neither approving nor disapproving the portion of NCCI's rate filing that related to non-terrorism risks. Instead the Order required NCCI to file an amendment to its initial filing no later than February 14, 2003.
On February 13, 2003, NCCI filed an amendment for both the terrorism and non-terrorism portions of its December 19, 2002, rate filing. The amended filing supplemented the initial filing, answered a number of OIR's questions and concerns, and provided Florida-specific data and analysis. Mr. Watford
reviewed the amended filing without assistance from another actuary or actuarial analyst.
NCCI's Florida specific information included, but was not limited to the following: (a) a listing of experts that NCCI consulted; (b) an explanation regarding the validation of the EQECAT model; (c) a discussion of the level of independent expert review; (d) an explanation of NCCI's evaluation of the EQECAT model for reasonableness; and (e) a comparison of model results with actual historical observations.
The portion of NCCI's amended filing that relates to terrorism did not reflect a change in the charge for the terrorism coverage in the amount of $.03 per $100 payroll or the percentage impact of TRIA's terrorism provisions in the amount of 0.8% of total premium. However, NCCI made adjustments to other portions of the filing in order to implement the terrorism coverage on a revenue neutral basis. On February 14, 2003, OIR issued a Final Order on Rate Filing approving NCCI's rate filing in its entirety.
In the meantime, AIG submitted a workers' comp terrorism rate filing to OIR. OIR received AIG's filing on January 23, 2003.
AIG's January 2003 terrorism rate filing did not request a deviation from NCCI's rates pursuant to Section 627.211, Florida Statutes (2003), or follow the format of a
deviation filing set forth in Florida Administrative Code Rule 69O-189.004. AIG certainly understood the requirements of the statute because it made such filings for non-terrorism coverage in 1999 and 2003.
AIG's January 2003 filing consisted of a two-page letter and OIR's one-page rates and forms filing transmittal. The letter states as follows in relevant part:
The captioned companies submit this notice, on a use and file basis, of the method they will use to determine premiums for terrorism risk covered under workers' compensation and employer's liability insurance policies pursuant to [TRIA]. This submission replaces the pricing mechanism contained in Item B-1383 . . . filed on our behalf by [NCCI].
The model presented in the NCCI filing differentiates the pricing for terrorism risk based primarily on geographic location. We disagree with that philosophy and feel that an event is equally likely to occur in any location. The only difference is the expected cost of the event in any particular location. Therefore, we have chosen to price for terrorism risk based on relative benefit levels by state and on individual risk characteristics.
We will therefore apply a charge of 1% to 4% of Total Manual Premium (except as noted below), which is our best surrogate for benefit level. Using a percentage of Total Manual Premium as a measure of benefit level, coupled with individual risk characteristics, is the most equitable way of spreading the exposure to our policyholders' surplus and of funding for potential losses with our deductible under TRIA. Please note that the premiums generated by our approach are well within
the range of premiums contemplated by the NCCI filing.
TRIA PREMIUM DETERMINATION
Policies Subject to Fixed Rate Plans (a.k.a. "Guaranteed Cost" Plans)
As noted above, we will apply a charge of 1% to 4% of Total Manual Premium to provide coverage under TRIA. The underwriter may select an appropriate percentage after analyzing factors including, but not limited to, concentrations of employees by location; security protocol; procedures & safeguards; safety & evacuation procedures; and physical protection of workplace facilities.
For risks with more than 500 employees in a single location with 10 stories or more, the TRIA premium will be determined by agreement between the carrier and the insured. . . .
Policies subject to Retrospective Rating Plans, Large Risk Rating Plans, and Large Deductible Plans
For risks subject to retrospective rating plans, large risk rating plans, or large deductible plans, the TRIA premium will be determined by agreement between the carrier and the insured.
OIR determined that the rate in AIG's January 2003 terrorism rate filing was excessive. By letter dated April 10, 2003, OIR disapproved AIG's initial terrorism charge.
AIG never implemented its January 2003 terrorism rate filing, which is the subject of DOAH Case No. 04-0163. Instead, AIG waited until early 2003 to implement a terrorism charge. At that time, AIG's computer system was able to accommodate AIG's
ultimate uniform charge for terrorism coverage for all of AIG's "guaranteed cost" workers' comp policies nationwide. AIG negotiated with large employers to achieve a similar uniform terrorism charge for its loss sensitive policies.
On May 22, 2003, AIG submitted a second terrorism rate filing. AIG intended for the second filing to replace the one it filed in January 2003. AIG's second filing did not specifically request permission to deviate from NCCI's rate as required by Section 627.211, Florida Statutes (2003). The filing did not follow the format for a deviation filing set forth in Florida Administrative Code Rule 69O-189.004. However, the substance of the filing leaves no doubt that AIG was seeking approval of a deviation from NCCI's rate.
AIG's May 2003 filing reflected a charge of three percent of underlying manual premium for "guaranteed cost" workers' comp policies. Once again, AIG made identical, or nearly identical workers' comp terrorism rate filings in all 50 states and the District of Columbia. AIG made these filings based on a business decision to fund as much of its TRIA deductible as possible.
According to the May 2003 filing, all of AIG's risks that were eligible for its "loss reimbursement plan" or NCCI's "retrospective rating plan" would be charged in accordance with such plans. In Florida, NCCI has never filed a "loss
reimbursement plan" for terrorism. Additionally, NCCI has no "retrospective rating plan" in place for terrorism in Florida.
AIG's May 2003 filing takes the position that it is impossible to determine the amount of terrorism losses due to the uncertainty as to the form and location of a future attack. According to the filing, it is also impossible to determine losses associated with terrorism because "the primary determinants of loss - frequency and severity, cannot be predicted for TRIA." The filing clearly states that AIG's objective is to fund a reasonable portion of its TRIA deductible.
AIG's May 2003 filing projects its TRIA deductible for all its member companies, all TRIA lines of business, in all states as follows: (a) $1.2 billion in TRIA year one, 2003; (b) approximately $2.1 billion in TRIA year two, 2004; and (c) approximately $4 billion in TRIA year three, 2005.
AIG's May 2003 filing refers to the Casualty Actuarial Society's "Statement of Principles Regarding Property and Casualty Insurance Ratemaking (Statement of Principles)" dated May 1988, which states as follows in relevant part:
Definitions
Ratemaking is the process of establishing rates used in insurance or other risk transfer mechanisms. This process involves a number of considerations including marketing goals, competition and
legal restrictions to the extent they affect the estimation of future costs associated with the transfer of risk. This Statement is limited to principles applicable to the estimation of these costs. Such costs include claims, claim settlement expenses, operational and administrative expenses, and the cost of capital. Summary descriptions of these costs are as follows:
Incurred losses are the cost of claims insured.
* * *
Principle 1: A rate is an estimate of the expected value of future costs.
Ratemaking should provide for all costs so that the insurance system is financially sound.
Principle 2: A rate provides for all costs associated with the transfer of risk;
Ratemaking should provide for the costs of an individual risk transfer so that equity among insureds is maintained. When the experience of an individual risk does not provide a credible basis for estimating these costs, it is appropriate to consider the aggregate experience of similar risks.
A rate established for such experience is an estimate of the costs of the risk transfer to each individual in the class.
Principle 3: A rate provides for the costs associated with an individual risk transfer.
Ratemaking produces cost estimates that are actuarially sound if the estimation is based on Principles 1, 2 and 3. Such rates comply with four criteria commonly used by actuaries: reasonable, not excessive, not inadequate and not unfairly discriminatory.
Principle 4: A rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer.
AIG's May 2003 filing quotes a March 4, 2003, report published by the American Academy of Actuaries. The "Report to NAIC Terrorism Insurance Implementation Working Group on Ratemaking Issues Related to the Terrorism Risk Insurance Act" (NAIC report) contains several paragraphs regarding the importance of judgment in making terrorism rates due to the lack of historical data relating to terrorist events.
One section of the NAIC report that AIG quoted states as follows: "Each insurer's unique circumstances and market position may affect its terrorism exposure and pricing." The NAIC report contrasts the terrorism exposure of a workers' comp insurer with major concentrations of employees at single locations with a commercial lines insurer underwriting small-to- medium-sized businesses with minimal concentration of employees, concluding that the federally-mandated TRIA coverage may greatly increase the exposure for the workers' comp insurer.
AIG's May 2003 filing also states as follows in relevant part:
NCCI'S RATING STRUCTURE IS INAPPROPRIATE FOR AIG
We have performed a thorough analysis of the rating models and methodologies used by NCCI and other workers' compensation and non-workers' compensation rating bureaus.
Our analysis revealed (i) that deductible assumptions in these models are not appropriate to AIG, (ii) that we disagreed with the use of payroll as a basis for the
TRIA charge, and (iii) that we disagreed with certain assumptions as to future terrorist attacks.
AIG's May 2003 filing stated that TRIA deductible assumptions in EQECAT were inappropriate because EQECAT assumed a deductible of $300 million, far less than AIG's deductible of approximately $1.2 billion for the first year of TRIA.
AIG's filing determined that a terrorism event is as likely to occur in one jurisdiction as in another, with the cost varying depending on the benefit levels in each state. AIG decided to account for the differing state benefit levels by basing its terrorism charge on premium, a similar platform to the one used by the federal government to calculate the AIG's TRIA deductible.
AIG's filing states that a TRIA charge based on premium is directly proportional to state benefit levels and that a TRIA charge based on payroll does not account for differences in state benefit levels. However, the most persuasive evidence indicates that both the payroll method and the premium method of calculating terrorism charges take state benefit levels into account.
In fact, AIG's filing asserts that "neither method proves better than the other--they just yield different results." AIG's filing states as follows:
. . . For instance, for classes that have rates less than $1.00, the NCCI average TRIA charge of $0.03/$100 of payroll is higher than our proposed TRIA charge of 3% of premium. For classes that have rates higher than $1.00, the NCCI average TRIA charge of
$0.03/$100 of payroll is lower than the proposed AIG charge of 3% of premium.
Neither method is better than the other-- each yields different results.
Given (i) our need to fund a national deductible and the corresponding need to account for differing benefit levels, (ii) that our deductible amount will be based upon a percentage of our direct earned premium and (iii) that our premium-based method yields a TRIA charge that is sometimes higher, sometimes lower and at all times neither better nor worse than NCCI's payroll-based method, we have determined that a premium based TRIA charge is appropriate for our organization.
Regarding EQECAT's assumptions about future terrorist attacks, AIG's filing states as follows in relevant part:
Several firms, including EQECAT, have developed models that make predictions about future terrorist attacks. While we do not fault those who have prepared these models, given that our industry faced a need to produce rates without data, we cannot assign any weight to models which attempt to set probability of loss by location.
Accordingly, we have not used any part of any model, including the EQECAT model, which seeks to predict the likelihood of a terrorist event occurring in a particular place.
Inexplicably, AIG's filing then asserts as follows: Much can be learned from the EQECAT study,
which presents eight loss scenarios. Each
scenario may be considered against AIG's market share, and then considered against
our proposed 3% premium-based TRIA charge and our TRIA Year 1 deductible. Scenario 1 is an anthrax event in Los Angeles; Scenario
2 is a cyanide event in Washington, D.C.; Scenario 3 is a truck bomb in Miami; Scenario 4 is an aircraft event is [sic] Chicago; Scenario 5 is a bomb in Indianapolis; Scenario 6 is a chlorine event in Des Moines; Scenario 7 is a truck bomb in Detroit; and Scenario 8 is a suitcase bomb in New York City. For each scenario, we have provided data for one event per year, 1/2 event per year and 1/4 event per year. The 3% we receive from our Florida workers' compensation insureds is intended to fund approximately $5.6 million, or .5% of our TRIA Year 1 deductible. The 3% we receive from our workers' compensation insureds nationwide, including Florida, is intended to fund approximately $77,000,000, or 6% of our TRIA Year 1 deductible. This amount is reasonable when viewed by itself, or in relation to our deductible.
AIG's filing did not explain why it selected eight scenarios out of the hundreds of thousands included in the EQECAT study.
AIG's filing concludes as follows: "Simply put, we have chosen to apply a single rate nationwide to help us fund our Federally-imposed, all companies, all-states, all-TRIA lines Year 1 deductible of approximately $1.2 billion."
Insurers traditionally consider the frequency of losses and severity of losses when making insurance rates. Neither of AIG's terrorism filings specified that AIG anticipated one terrorism loss within an eight-year period ending in 2009 (frequency) or that AIG made its frequency determination based in part on the opinions of experts in
terrorism organizations and activities. The filings did not provide any information regarding the amount of AIG's anticipated loss (severity) in the amount of $3 billion for all commercial lines nationwide within that period of time.
It is obvious that as of May 2003, AIG's main focus was not to base its terrorism charge on expected losses. Instead, AIG based its terrorism charge on the amount of its anticipated TRIA deductible.
According to undocumented testimony during the hearing, AIG's terrorism charge will generate approximately
$1.165 billion in revenue by the end of 2005 when TRIA expires, and approximately $2.3 billion in revenue by the end of 2009.
If the expected terrorist event occurs at the end of 2009, AIG anticipates that it will generate $2.3 billion (taking into consideration investment income, expenses, and assuming consistent tax assumptions) to fund a loss as big as $3.5 billion, even though AIG only expects a $3 billion loss.
On July 23, 2003, representatives from AIG met with OIR's staff to discuss AIG's May 2003 filing. During that meeting, AIG provided OIR with verbal information but no documentation regarding its frequency and severity assumptions and its use of terrorism experts. AIG reiterated that NCCI's terrorism rate was not appropriate for AIG. During the meeting, OIR did not inform AIG that it was required to make a deviation
filing pursuant to Section 627.211, Florida Statutes (2003), if it did not intend to adopt NCCI's terrorism rate. OIR did not complain that AIG had not made its filing using the deviation format prescribed in Florida Administrative Code Rule 69O- 189.004.
By letter dated July 25, 2003, Mr. Watford requested additional information from AIG. Mr. Watford wanted to know the following: (a) taking into account experience ratings and premium discounts, the overall estimated average premium impact of the proposed terrorism related to AIG's total workers' comp premium; (b) a summary of AIG's justification for selecting a 3% charge applied to manual premium; (c) the reason AIG believes it needs four times as much for terrorism as NCCI; (d) how AIG determined that NCCI assumed a deductible of $300 million in its rating methodology; (e) any additional justification with respect to the use of a premium charge as opposed to a payroll charge; and (f) the names of the individual companies for which the filing applied.
Mr. Watford's July 25, 2003, letter did not inquire why AIG had not complied with Section 627.211, Florida Statutes (2003), by making a deviation filing. The letter requested a response from AIG within 21 days.
By letter dated August 25, 2003, AIG responded to
Mr. Watford's letter. The letter identified AIG's participating
member companies by name. It also answered Mr. Watford's questions in part with the pertinent point being that AIG selected its terrorism charge to finance its level of exposure under TRIA.
By letter dated November 4, 2003, Mr. Watford disapproved AIG's May 2003 filing on the following grounds: (a) AIG failed to comply with Section 627.211, Florida Statutes (2003), because it did not request a deviation from NCCI's terrorism rates; (b) AIG's rates were excessive; and (c) AIG's rates were unfairly discriminatory.
During the hearing, AIG presented the testimony of Richard Thomas, AIG's Chief Underwriting Officer. Mr. Thomas was responsible for determining AIG's terrorism rates for workers' compensation. Mr. Thomas is not an actuary, but there is no requirement that one must be an actuary to develop an insurance rate.
At some point in time, Mr. Thomas made a severity estimate of $3.0 billion of insured terrorism loss for AIG across all commercial lines. The projected loss allegedly includes "loss adjustment expenses" and is based on 2002/2003 dollars, unadjusted to account for inflation in insured loss over an eight-year time period.
According to Mr. Thomas, AIG developed its terrorism charge by considering the severity but not the frequency estimates produced by the EQECAT model. Mr. Thomas's testimony in this regard is confusing in light of AIG's prior representation that it had not relied on models such as EQECAT, which attempt to set probability of loss by location.
Mr. Thomas allegedly verified EQECAT's severity estimates in two ways. First, he testified that he compared EQECAT's estimates to the model outputs of Risk Management System (RMS), another modeler of terrorism losses. Second, he testified that he conferred with experts on terrorist organizations. During the hearing, Mr. Thomas presented no documentation regarding his comparison of the models or his consultations with terrorism experts.
The EQECAT's model showed a range of loss for workers' comp, industry-wide, from $178 million to $46 billion, depending upon the type of weapon, type of target, and the conditions prevailing at the time of the simulated attacks. EQECAT's modeling showed that it is possible for the insurance industry to sustain losses from a future terrorist attack similar in the magnitude of the insured losses experienced on September 11, 2001, on the order of $22 billion to $30 billion, unadjusted for inflation. Mr. Thomas focused his analysis on this possibility without regard for EQECAT's consideration of terrorist attacks
of varying severity on a state-by-state basis under hundreds of thousands of scenarios
Next, Mr. Thomas decided that it was likely that AIG would participate in losses from a terrorist event in proportion to AIG's market share in TRIA-covered commercial lines of insurance. Mr. Thomas estimated that AIG's market share of the loss would be 10% of $30 billion, or $3.0 billion. Mr. Thomas provided no documentation to support the amount of AIG's market share.
EQECAT initially believed that the workers' comp portion of a terrorism loss would be 10% of the total loss. After EQECAT completed its modeling for other lines of business, it came to the determination that 25% of a terrorism loss could be attributed to workers' comp. In making this determination, EQECAT lowered its estimate of the amount of the total loss.
Mr. Thomas estimated that workers' comp constitutes 25% of AIG's portfolio. He also assumed that 25% of any terrorism loss suffered by AIG would be attributable to workers' comp. Consequently, if AIG's estimated total loss, based on an alleged 10% market share, was $3.0 billion, then AIG's total workers' comp loss would be approximately $750 million. During the hearing, Mr. Thomas provided no documentation to support his testimony regarding these assumptions.
Mr. Thomas did not break his analysis down further to identify how much of the $750 million loss would be attributable to "guaranteed cost" policies as opposed to loss sensitive policies. Without this information, it is difficult to understand how AIG could project its terrorism charge for those policies. This is especially true in light of Mr. Thomas's testimony that workers' comp insurance for major employers with high concentrations of employees in target areas constitutes a significant portion of AIG's worker's comp line of business.
It is undisputed that large employers are attractive targets for terrorist. However, most large employers purchase loss sensitive policies, which are not the subject of this proceeding. In fact, AIG could not identify a single Fortune
500 company as one of its "guaranteed cost" policyholders.
AIG provided very little Florida specific information during the hearing. Mr. Thomas testified that AIG's "guaranteed cost" policies constituted 50% of its Florida workers' comp portfolio in 2003 and 45% of its Florida workers' comp portfolio in 2004. Mr. Thomas testified that AIG's market share of the total workers' comp market in Florida was 11.8% in 2003.
Mr. Thomas provided no documentation to support his testimony regarding these alleged facts.
Mr. Thomas also testified that AIG had identified 11 target cells in Florida, where AIG had concentrations of insured employees ranging from a little over 2,000 people to over 5,000 people. Mr. Thomas presented no documentation to support this testimony. Moreover, Mr. Thomas did not explain why AIG was collecting data on prime target locations in Florida if, as he also testified, AIG did not believe one could predict the likelihood of a terrorist event occurring in a particular place.
Mr. Thomas presented no testimony regarding the following: (a) information to indicate the number of AIG's "guaranteed cost" policies in Florida or the percentage of Florida premium that is attributable to AIG's "guaranteed cost" plan as opposed to its loss sensitive plans; and (b) information regarding the number of Florida employees covered under each type of workers’ comp policy, "guaranteed cost" or "large deductible." Based on the evidence presented as a whole, AIG has not shown that its severity assumption is reasonable.
Regarding Mr. Thomas's frequency assumption, he testified that he consulted with terrorism experts to understand the objectives and operational capabilities of terrorist organizations. From these undocumented conversations,
Mr. Thomas concluded that the likely time frame for another significant attack in the United States was within six to ten years after September 11, 2001. Mr. Thomas chose the mid-point
of eight years ending in 2009 as the time frame within which AIG should expect another major terrorist attack.
Oliver Revell is an expert in terrorist organizations and threat assessment in regard to such organizations.
Mr. Revell testified on AIG's behalf during the hearing, but he was not one of the experts whom Mr. Thomas consulted in developing AIG's 3% terrorism charge.
Mr. Revell opined that no one could predict if or when another terrorist attack will occur, but that an event like the one by Al-Qaeda on September 11, 2001, will have to occur within
10 years of September 11, 2001. Failing this, Al-Qaeda will risk losing the support of the International Jihadist Movement.
Mr. Revell expects an all-out terrorist attack of the September 11, 2001, magnitude within the next two to four years. Mr. Revell also anticipates that terrorists will attempt many more attacks on a smaller scale. AIG's terrorism filing does not consider the probability of multiple terrorist attacks on a smaller scale than the attack on September 11, 2001.
Mr. Thomas's frequency assumption of another major terrorist attack within eight years ending in 2009 was based in large part on discussion with experts who did not testify at hearing. There is no evidence that any of the experts told
Mr. Thomas that an attack was imminent in eight years or even two years.
NCCI made a frequency assumption of one terrorism event per year, but acknowledged the difficulty in predicting the timing of terrorist activities. NCCI's actuaries reviewed its filing. Additionally, NCCI relied on the opinions of terrorism experts and EQECAT modeling to make its frequency assumption, closely tracking the recommendations in Actuarial Standard of Practice Number 38 (ASOP 38) entitled "Using Models Outside the Actuary's Area of Expertise."
Having made estimates of its TRIA retentions,
Mr. Thomas allegedly compared them to his undocumented estimates of AIG's severity of expected losses to policyholders from a future terrorism event. Once again he testified, without supporting documentation, that AIG's expected losses from a future terrorist attack would likely exceed AIG's retentions for 2003 and 2004, and would likely be approximately equal to AIG's TRIA retention for 2005. In other words, Mr. Thomas believed AIG's losses in any given TRIA year would equal or exceed AIG's projected TRIA retentions in any particular year.
Mr. Thomas next proceeded to estimate the premium rate that AIG would need to collect over the eight-year period to accumulate enough capital to cover its TRIA retention through premiums and investment income on such premiums. Mr. Thomas allegedly considered a number of factors such as:
assumptions regarding the spreading of the risk with
conservative pricing to encourage customers to buy coverage;
assumptions related to take-up rate or buy rate;
assumptions about portfolio mix; (d) assumptions as to projected growth rate in workers' comp and other lines of insurance; and (e) assumptions related to investment income and the effects of taxes on capital accumulation.
Mr. Thomas reached the conclusion that a 3% terrorism charge, against all of AIG's workers' comp policies over eight years, would accumulate the proportionate share of terrorism premium to fund AIG's TRIA retention that is attributable to AIG's workers' comp business. In other words, AIG's workers' comp terrorism charge would generate 25% of AIG's total collections from all of AIG's TRIA covered lines of business.
Mr. Thomas provided no documentation to support his assumptions relative to AIG's 3% of premium terrorism charge as it applies to "guaranteed cost" policies. OIR has access to some information that AIG annually reports to NCCI about AIG's workers' comp business. However, AIG's terrorism charge is based on its business nationwide, making it especially difficult to verify Mr. Thomas's conclusions.
In fact, AIG admits that its method of determining its terrorism charge on a national basis means that a policyholder's premium in Utah helps to spread the risk of loss to
policyholders in more risk prone locations, such as Washington,
D.C. In this regard, Mr. Thomas testified as follows:
. . . [I]f we write a $10,000 policy in Utah, it adds to the amount of net loss that we would have to retain from a terrorism event anywhere in the country by the same amount as if we wrote that same $10,000 policy in New York City.
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Is it more likely that the attack would occur in New York than Salt Lake City?
Absolutely. But we don't know that for certain, but it's more probable in a major metropolitan city. But if we write a portfolio of a million dollars in comp in Utah, it adds to our TRIA retention to the same extent that if we write that same million dollars in Illinois or New York or California.
It follows that AIG is more concerned with funding its TRIA retention than actually charging Florida's "guaranteed cost" workers' comp policyholders a proportionate share of their anticipated risk of loss on an individual or statewide basis.
Mr. Thomas and Mr. Toothman testified that NCCI's terrorism rate is not appropriate for AIG. They assert that AIG requires a higher workers' comp terrorism rate than NCCI's rate for three reasons: (a) AIG has a higher TRIA retention level than the one that NCCI used; (b) AIG's portfolio has a larger concentration of business in urban areas, which are likely to be targets of a terrorist attack; and (c) NCCI treats the insurance
industry as if it were a pool of insurers and as if any insurer had access to all of the premium in that pool.
The record indicates that NCCI's rate is based in part on the TRIA retention level for an average company in the amount of $266 million. In its May 2003 terrorism filing, AIG stated that its national retention level ranged from approximately $1.2 billion in TRIA's first year (2003) to approximately $4 billion in TRIA's last year (2005). During the hearing, Mr. Thomas provided undocumented, but updated information, to show that AIG's retention in 2003 was approximately $1.8 billion and that it projected approximately $3 billion in TRIA retention by the end of 2005.
It may be that AIG's TRIA retention level is higher by some amount than the retention level for the average company that NCCI used in developing its terrorism charge. NCCI's representatives acknowledge that NCCI's terrorism rate is not appropriate for every insurer. NCCI's representatives also agree that an insurer's exposure to loss and market position may require a different terrorism charge than the one charged by NCCI. However, AIG provided very little information, and no documentation containing detail, regarding its national and Florida TRIA retention that is attributable to its "guaranteed cost" policies as opposed to its "large deductible" policies.
During the hearing, AIG presented testimony that its terrorism charge is not excessive or unfairly discriminatory under TRIA's regime. AIG makes this assertion on the premise that writing any individual policy under TRIA increases an insurer's exposure to loss from a terrorism event, occurring anywhere, and affecting any policyholder, dollar for dollar as to each dollar of premium collected on each individual policy.
AIG chose to implement its terrorism charge using a uniform percentage of premium method as opposed to NCCI's payroll method for several reasons. First, AIG asserts that the premium method treats each policyholder who purchases terrorism coverage the same in direct proportion to AIG's increased exposure under TRIA's retention regime. Second, AIG does not believe that any workers' comp payroll class is more or less exposed to terrorism than any other class. Third, AIG claims that the payroll method may cause underwriters in the market to avoid writing insurance for "higher-rated" NCCI payroll classes because they yield very little terrorism premium relative to the increase in retention that results from writing the coverage.
Regarding AIG's third reason for using the premium method to determine its terrorism charge, Mr. Thomas testified that AIG's competitors, who have adopted NCCI's lower payroll rate, write approximately 88% of the market for workers' comp in Florida. Mr. Thomas stated that, despite AIG's implementation
of a rate higher than NCCI's rate, AIG's "guaranteed cost" policies for workers' comp have increased in Florida by 34% or 35% for 2003 and by 32% or 33% for 2004 across all workers' comp classes.
Mr. Thomas provided no documentation to support his testimony regarding the growth rate of AIG's "guaranteed cost" business in Florida. Additionally, Mr. Thomas did not document the following conclusions: (a) AIG's growth rate indicates market acceptance of the 3% of premium terrorism charge, including the higher-rated NCCI payroll classes; and (b) underwriters using the NCCI payroll method may be avoiding writing coverage for higher-rated class employers due to the disparity between the amount of terrorism premium they would receive under the NCCI method and the degree of exposure to terrorism losses under TRIA that writing such policies creates.
The greater weight of the evidence indicates that the focus of AIG's terrorism rate making was to fund its TRIA deductible instead of funding the risk of loss to its insureds. During the hearing, Mr. Toothman asserted that there are two types of risk that must be considered when developing TRIA charges. Mr. Toothman testified as follows:
The first risk is that there will be a loss to the policyholder from a terrorism event, that a policyholder that AIG writes in Ocala will be--will suffer a loss because of a foreign terrorism event.
The second risk that they assume is the increase to the TRIA retention, in writing that policy, and the increased loss that they will have to pay because of a loss to any other insured anywhere else in the country from a terrorism event.
It is my judgment that that second risk, that second exposure, is much greater than the first exposure. . . .
The rate, the premium charged for the terrorism policy needs to reflect both of those loss exposures. AIG's method much better measures the second exposure, which I believe is by far the more serious exposure, [and which] is where most of the losses will come from. And that exposure is precisely a function of the premium, the nonterrorism premium of the insured, which is basically the base for AIG's premium charge.
* * *
And the second risk is what AIG is measuring with their (sic) 3 percent of premium charge.
Mr. Toothman's testimony that AIG's premium method of determining its terrorism charge is the best measure of its exposure to loss is not persuasive. In the event of a future terrorism attack, AIG will suffer the losses of its individual policyholders that it has agreed to pay. The TRIA retention is only a reinsurance mechanism in which the federal government agrees to be responsible for a percentage of losses over a certain amount. There is no difference in the federal TRIA reinsurance and any other reinsurance agreement except that the federal government provides the reinsurance free of charge and does not negotiate the amount of the deductible. There is no
principle of actuarial science, in the Statement of Principles or otherwise, that discusses funding a reinsurance deductible.
To the extent that AIG's premium method of calculating its terrorism charge measures both types of risks described by Mr. Toothman, AIG has not presented persuasive evidence that its rate is not excessive and unfairly discriminatory. AIG failed to demonstrate that its "exposure to terrorism loss" vastly differs based on employer classifications or that the amount of the terrorist charge is related to the rate charged for the employer classifications.
AIG's surcharge for terrorism on the underlying premium for the different employer classifications results in a charge that is higher than the NCCI charge for 577 of the 584 employer classifications in Florida. For a $10,000 policy, the terrorism charge for the iron or steel erection class would generate revenue in the amount of $8 using NCCI's $.03 per $100 of payroll method and in the amount of $300 using AIG's 3% of premium method. With no more detail than that provided by AIG's May 2003 filing or Mr. Thomas's and Mr. Toothman's undocumented testimony at hearing, one cannot say that AIG has justified the higher rate.
In workers' comp, employers are grouped by occupational classifications such as roofers, carpenters, or retailers. For non-terrorism coverage, employers pay a rate,
adjusted by loss experience, depending on their group classification. Additionally, each employer may have employees working in multiple occupational classes.
"Unfairly discriminatory" refers to relationships among the individual policyholders as a result of the rate, so that some of the employers are charged more or less than other employers for the same risk of loss. "Unfairly discriminatory" also refers to relationships among the classes within the rate for a group of employers. For example, if a roofing employer has five roofers and two clerical employees, it would be unfairly discriminatory for an insurer to charge the employer a significantly higher terrorism rate for employees in the roofer class than employees in the clerical class, where the risk of loss due to a terrorist attack is the same for both classes of employees.
AIG's terrorism rate results in employers in the roofing classification paying 80 times as much as employers in the clerical classification. Additionally, AIG's terrorism rate for the iron or steel erection class ($3.87 per $100 of payroll) is 129 times higher than AIG's terrorism rate for the clerical employee class (0.02 per $100 of payroll.) There is no evidence that iron or steel workers face a greater risk of loss from terrorism than clerical employees. Therefore, AIG's terrorism rate is unfairly discriminatory.
AIG could have generated sufficient revenue to fund its alleged TRIA retention and avoided a charge of unfair discrimination by utilizing NCCI's payroll method, albeit at significantly more than $.03 per $100 of payroll. AIG would have to charge approximately $.12 per $100 of payroll to generate the same revenue as its 3% of premium method.
Mr. Thomas admitted that using the payroll method to generate its target revenue would have made AIG incredibly uncompetitive at the lower-rated classes, such as clerical workers. He also admitted that AIG would have been reluctant to write higher-rated risks, such as iron or steel workers, to generate its target revenue based on the payroll method because of the relatively small increase in premium compared to the increase in TRIA retention for writing that policy. Instead, AIG elected to charge a uniform percent of premium to collect what it considered was the appropriate contribution from every policy, regardless of the class covered and regardless of the discriminatory impact of the charge, to fund the amount AIG would pay before the federal program would kick in.
Florida Administrative Code Rule 69O-189.004 implements the requirement of Section 627.211, Florida Statutes (2003), for workers' comp insurers to make deviation filings if they do not intend to adhere to the filings made on their behalf by NCCI. The statute and the rule ask for some information
which workers' comp insurers could not supply with regard to terrorism losses because such information is not available.
The version of Florida Administrative Code Rule 69O- 189.004, which was in effect at all times relevant here, states as follows:
Florida Statutes authorize the filing of premium deviations, which automatically expire after a period of one year unless refiled and reapproved. Any such premium deviation filing shall include the following information:
Proposed effective date of deviation.
Proposed deviation percentage.
The basis for the proposed deviation including all relevant factors to explain the justification for the deviation request.
Calendar year earned premium, accident year incurred losses, accident year loss adjustment expense, and loss ratios of the preceding three years. Show the ratio of accident year loss adjustment expense to accident year incurred losses for each year, including Florida experience for the company filing for the deviation. If no Florida experience is available for part of the experience period requested, so state and show the experience in the group as a whole.
Provide an exhibit showing anticipated expenses for the period of the deviation. This exhibit should show production expenses and general expenses. All companies are generally expected to have the same taxes and profit and contingencies as included in National Council on Compensation Insurance (hereinafter referred to as NCCI) filings. Do not include taxes or profit and contingencies unless justification for such factors is provided.
As support for expense exhibits, show actual expenses for the latest three years for production and general expenses.
Section 627. 211, Florida Statutes, states that the deviation is to be applied to the premiums produced by the rating system. Since minimum premiums, expense constants, and premium discounts have been filed based on industrywide experience, no deviation will be allowed unless specific justification is provided. Indicate in the filing where the uniform premium deviations will be applied and provide a copy of your manual page showing how the deviation will be applied.
The filing should state if the company is a domestic, foreign, or alien insurer.
A copy of the filing must be submitted to the NCCI. To assure that premium deviation filings are acted upon on a timely basis, such filings should be submitted to the Bureau of Property and Casualty Forms and Rates, Office of Insurance Regulation, ninety days in advance of the proposed effective date. Filings shall be accompanied with a self-addressed, stamped envelope for return of final order.
Mr. Watford admitted during the hearing that AIG would not be able to supply all of the information related to terrorism rates for Florida Administrative Code Rule 69O- 189.004(4). However, AIG could have supplied that information as it related to its "guaranteed cost" non-terrorism rates and simply identified information that was not available for terrorism coverage. AIG could also have supplied Mr. Watford with information regarding its losses and expenses, if any, as a result of the September 11, 2001, terrorists' attacks. Based on
the undocumented testimony of Mr. Thomas during the hearing, AIG must have had some information related to its anticipated premiums, losses, and expenses as a result of its terrorism coverage when AIG filed its May 2003 filing.
AIG's May 2003 filing did not contain an effective date, indicating when AIG had begun or would begin collecting the terrorism charges in Florida, as required by Florida Administrative Code Rule 69O-189.004(1). During the hearing, AIG presented testimony that it began collecting the 3% surcharge sometime in February 2003. Information about the effective date would have been important to Mr. Watford during his evaluation of AIG's filing.
Florida Administrative Code Rule 69O-189.004(2) required AIG to disclose the proposed deviation percentage. AIG did not provide this information until Mr. Thomas testified that, expressed as a deviation rate, AIG's workers' comp terrorism rate would be the NCCI terrorism charge of $.03 per
$100 of payroll plus a 2.3% increase applied against the overall premium produced by NCCI rates for terrorism and non-terrorism risks.
Neither AIG's May 2003 filing nor the record as a whole identifies whether AIG's participating companies were domestic, foreign, or alien insurers as required by Florida Administrative Code Rule 69O-189.004(8). AIG did not even name
the participating companies until AIG responded to Mr. Watford's July 25, 2003, letter.
Mr. Watford's November 4, 2003, disapproval letter stated that AIG "has not provided the information required by Section 627.211, Florida Statutes, to allow the Office to determine if the filing complies with the statutory requirements." Despite this statement, Mr. Watford's letter goes on to address the merits of AIG's filing, finding that AIG's terrorism rate was excessive and unfairly discriminatory.
During the hearing, Mr. Watford admitted that he had approved the terrorism rate filing of Protective Insurance Company (Protective), which like AIG, is a NCCI subscriber. Protective's filing stated that it intended to make no charge for terrorism risk exposure in the workers' comp line of business. Protective's filing, which consisted of a letter and an e-mail message, did not request approval to deviate downward from the approved NCCI rate.
The e-mail portion of Protective's filing states as follows in relevant part:
. . . We desire to non-adopt the terrorism loss cost because our book of business is composed primarily of large-deductible work (sic) comp policies. Our premium volume is low, and the percentage of premium resulting from the terrorism charge would be too small to justify the cost of making the change in our programming.
Mr. Watford approved the filing based on Protective's representations and his knowledge that Protective only had
$87,000 of total Florida business for the latest year.
Mr. Watford testified that Section 627.211, Florida Statutes (2003), requires him to apply the same standards in reviewing both upward and downward deviations from NCCI's approved rates. Mr. Watford agreed that Protective's filing did not comply with Section 627.211, Florida Statutes (2003), and Florida Administrative Code Rule 69O-189.004 and that he should not have approved it.
AIG's May 2003 filing did not specify the overall impact of its 3% charge, considering the effect of premium discounts and experience rating. Mr. Watford requested this information in his July 25, 2003, letter. In AIG's August 25, 2003, response, AIG stated as follows in relevant part:
The 3% charge for terrorism is applied to manual premium and is not subject to experience modification or premium discount. With experience rating intended to be a balanced plan where debits and credits offset, it should have no impact on the terrorism percent of premium on our portfolio. While premium discount will be factor on mid-sized accounts, its impact on our portfolio will not be material.
Virtually all of our large accounts are written on a loss sensitive basis using basic premium and not premium discount.
During the hearing, Mr. Thomas presented undocumented testimony that taking experience modification into account, AIG's 3%
charge applied against manual premium is actually slightly less than 3%.
CONCLUSIONS OF LAW
DOAH has jurisdiction over the parties and the subject matter of this proceeding pursuant to Sections 120.569 and 120.57(1), Florida Statutes (2005).
AIG is adversely affected by OIR's disapproval of its rate filings. It is undisputed that AIG has standing in these consolidated cases.
AIG admits that it has never implemented its January 2003 terrorism rate filing. AIG did not present any evidence in support of that filing during the hearing. Consequently, issues raised in AIG's Consolidated Petition for Formal Administrative Hearing in DOAH Case No. 04-0163 are moot.
The parties' respective positions indicate their agreement that TRIA expressly preempts the Florida requirement for prior approval of a workers' comp rate before putting the rate into effect. See 116 U.S.C. § 105 and § 627.091, Fla. Stat. (2003). The following analysis is made on the basis of that agreement.
AIG argues that TRIA preempts Florida law in three additional respects. First, AIG claims that TRIA's preemption provisions only require it to establish a prima facie case here and then shifts the burden to OIR to prove otherwise. Second,
AIG claims that TRIA's "use and file" preemption gives OIR the burden to show what alternative rate is appropriate for AIG pursuant to Sections 627.062(2)(a)2. and 627.062(2)(h), Florida Statutes (2003). Third, AIG argues that TRIA preempts the application of Section 627.211, Florida Statutes (2003), and Florida Administrative Code Rule 69O-189.004. OIR argues that that TRIA does not preempt Florida law in any of these respects.
Section 106 of TRIA provides as follows in relevant part:
SEC. 106 PRESERVATION PROVISIONS.
State Law.--Nothing in this title shall affect the jurisdiction or regulatory authority of the insurance commissioner (or any agency or office performing like functions) of any State over any insurer or other person--
except as specifically provided in this title; and
except that--
the definition of the term "act of terrorism" in section 102 shall be the exclusive definition of that term for purposes of compensation for insured losses under this title, and shall preempt any provision of State law that is inconsistent with that definition, to the extent that such provision of law would otherwise apply to any type of insurance covered by this title;
during the period beginning on the date of enactment of this Act and ending on December 31, 2003, rates and forms for terrorism risk insurance covered by this title and filed with any State shall not be subject to prior approval or a waiting period under any law of a State that would otherwise be applicable, except that nothing in this title affects the ability of any
State to invalidate a rate as excessive, inadequate, or unfairly discriminatory, and, with respect to forms, where a State has prior approval authority, it shall apply to allow subsequent review of such forms; and
during the period beginning on the date of enactment of this Act and for so long as the Program is in effect, as provided in section 108, including authority in subsection 108(b), books and records of any insurer that are relevant to the Program shall be provided, or caused to be provided, to the Secretary, upon request by the Secretary, notwithstanding any provision of the laws of any State prohibiting or limiting such access.
When considering the applicability of federal and state law in the context of an administrative proceeding, the Administrative Law Judge must first decide whether the state law adopts the federal law by reference. If not, the Administrative Law Judge must consider whether there are features in the federal and state laws that deal with the same subject matter. If so, and the parties raise questions involving federal preemption (express, field, or conflict), the Administrative Law Judge does not have jurisdiction to resolve the issues. See Primeguard Insurance Company, Inc. v. Department of Insurance, DOAH Case No. 00-1172 (Recommended Order, October 3, 2000), adopted in toto by In the Matter of Primeguard Insurance Company, Inc., Department of Insurance Case No. 34104-00-CO (Final Order, December 4, 2000).
State and federal courts clearly have the authority and the jurisdiction to adjudicate issues pertaining to the preemption of state regulation by federal law. See Blue Cross & Blue Shield v. Weiner, 868 F.2d 1550, 1552 (11th Cir. 1989). An administrative agency has no authority to declare a statute void, or unenforceable on grounds that the statute is preempted by federal law, that it is contrary to federal law, or that it offends the Constitution of the United States or the Constitution of the State of Florida. See Palm Harbor Special Fire Control District v. Kelly, 516 So. 2d 240, 250 (Fla. 1987)(finding that an administrative agency has no power to declare a statute void or otherwise unenforceable).
In this case, the parties had an opportunity to present evidence as to the contested preemption issues. Consequently, those preemption issues have been preserved for possible appellate review, and a factual record is available if disposition of those issues is deemed appropriate by the appellate court. Until a court of competent jurisdiction determines that the TRIA preempts Florida law, Respondent is required to presume that the state's laws are enforceable and it should discharge its regulatory responsibilities accordingly.
Based on the forgoing analysis, AIG bears the burden to show the following by a preponderance of the evidence: (a) that OIR engaged in a non-rule policy and disapproved of AIG's
terrorism rate filing based on that policy; (b) that OIR improperly disapproved AIG's terrorism rate because AIG did not request a deviation pursuant to Section 627.211, Florida Statutes (2003), and did not make its filing using the deviation format prescribed by Florida Administrative Code Rule 69O- 189.044; and (c) that AIG's terrorism rate is not excessive or unfairly discriminatory. See Florida Department of Transportation v. J.W.C. Company, Inc., 396 So. 2d 778 (Fla. 1st DCA 1981).
NON-RULE POLICY
Section 120.52(15), Florida Statutes (2003), defines as rule as follows:
(15) "Rule" means each agency statement of general applicability that implements, interprets, or prescribes law or policy or describes the procedure or practice requirements of an agency and includes any form which imposes any requirement or solicits any information not specifically required by statute or by an existing rule. . . .
AIG asserts that OIR established and enforced a non- policy that it would not approve any terrorism rates above 1% of the non-terrorism premium. After careful weighing of the totality of the evidence, it is concluded that OIR did not establish or enforce such a policy in relation to NCCI, AIG, or any other workers' comp insurers.
OIR's Bureau of Property and Casualty Rates and Forms includes the workers' comp line of business. However, OIR handles matters involving workers' comp separately from other commercial lines.
Mr. Watford is the only actuary who reviews workers' comp rate filings. He did not attend meetings involving other commercial lines rate filings during the relevant time period. He was not involved in the preparation of standard letters to workers' comp insurers.
OIR does not routinely copy Mr. Watford on e-mail messages or memoranda involving other commercial lines. The only evidence that Mr. Watford was aware of OIR's decision regarding terrorism rates for other commercial insurers was the February 7, 2003, e-mail. There is no persuasive evidence that OIR's and Mr. Watford's decisions about NCCI's and AIG's terrorism rate filings were influenced by OIR's decisions regarding other commercial insurers.
SECTION 627.211, FLORIDA STATUTES
AIG admits that it did not formally "request" a deviation pursuant to Section 627.211, Florida Statutes (2003), which states as follows in relevant part:
627.211 Deviations; workers' compensation and employer's liability insurances.--
Every member or subscriber to a rating organization shall, as to workers' compensation or employer's liability insurance, adhere to the filings made on its behalf by such organization; except that any such insurer may make written application to the office for permission to file a uniform percentage decrease or increase to be applied to the premiums produced by the rating system so filed for a kind of insurance, for a class of insurance which is found by the office to be a proper rating unit for the application of such uniform percentage decrease or increase, or for a subdivision of workers' compensation or employer's liability insurance:
Comprised of a group of manual classifications which is treated as a separate unit for ratemaking purposes; or
For which separate expense provisions are included in the filings of the rating organization.
Such application shall specify the basis for the modification and shall be accompanied by the data upon which the applicant relies. A copy of the application and data shall be sent simultaneously to the rating organization.
Every member or subscriber to a rating organization may, as to workers' compensation and employer's liability insurance, file a plan or plans to use deviations that vary according to factors present in each insured's individual risk. The insurer that files for the deviations provided in this subsection shall file the qualifications for the plans, schedules of rating factors, and the maximum deviation factors which shall be subject to the approval of the office pursuant to s.
627.091. . . .
In considering an application for the deviation, the office shall give consideration to the applicable principles for ratemaking as set forth in ss. 627.062 and 627.072, the financial condition of the insurer, and the impact of the deviation on the current market conditions including the composition of the market, the stability of rates, and the level of competition in the market. In evaluating the financial condition of the insurer, the office may consider: (1) the insurer's audited financial statements and whether the statements provide unqualified opinions or contain significant qualifications or "subject to" provisions; (2) any independent or other actuarial certification of loss reserves; (3) whether workers’ compensation and employer's liability reserves are above the midpoint or best estimate of the actuary's reserve range estimate; (4) the adequacy of the proposed rate; (5) historical experience demonstrating the profitability of the insurer; (6) the existence of excess or other reinsurance that contains a sufficiently low attachment point and maximums that provide adequate protection to the insurer; and (7) other factors considered relevant to the financial condition of the insurer by the office. The office shall approve the deviation if it finds it to be justified, it would not endanger the financial condition of the insurer, it would not adversely affect the current market conditions including the composition of the market, the stability of rates, and the level of competition in the market, and that the deviation would not constitute predatory pricing. It shall disapprove the deviation if it finds that the resulting premiums would be excessive, inadequate, or unfairly discriminatory, would endanger the financial condition of the insurer, or would adversely affect current market conditions including the composition of the marketplace, the stability of rates, and the level of
competition in the market, or would result in predatory pricing. . . .
Each deviation permitted to be filed shall be effective for a period of 1 year unless terminated, extended, or modified with the approval of the office. .
. .
Section 627.091(2), Florida Statutes (2003), states as follows in pertinent part:
Every such filing shall state the proposed effective date thereof, and shall indicate the character and extent of the coverage contemplated. When a filing is not accompanied by the information upon which the insurer supports the filing, and the department does not have sufficient information to determine whether the filing meets the applicable requirements of this part, it shall within 15 days after the date of filing require the insurer to furnish the information upon which it supports the filing. The information furnished in support of a filing may include:
The experience or judgment of the insurer or rating organization making the filing;
Its interpretation of any statistical data it relies upon;
The experience of other insurers or rating organizations; or
Any other factors which the insurer or rating organization deems relevant.
OIR failed to take advantage of several opportunities to notify AIG that it had not "formally" requested the deviation or that it had not supplied specific information required by the statute or its implementing rule, Florida Administrative Code
Rule 69O-189.004. First, Mr. Watford could have raised this issue in his April 10, 2003, letter, disapproving AIG's January 2003 filing. Second, OIR's staff could have requested compliance with the deviation statute and rule during the
July 23, 2003, meeting. Third, Mr. Watford requested a lot of information in his July 25, 2003, letter, without reference to missing information required by the deviation statute and rule.
OIR correctly argues that Section 627.211, Florida Statutes (2003), is mandatory. Mr. Watford's November 4, 2003, disapproval letter, states that AIG had not made a deviation filing or provided the information required by statute so that he could determine if the filing complied with the statutory requirements. Without further comment, Mr. Watford could have disapproved AIG's terrorism charge on that basis alone. However, after making that statement, Mr. Watford proceeded to consider the merits of AIG's terrorism charge in several respects, concluding as follows in his November 4, 2003, disapproval letter:
For all of the above reasons, your filing would produce excessive premiums and would produce unfairly discriminatory premiums between employers. Therefore, your filing is disapproved. . . .
Apparently AIG's terrorism filing, together with the supplemental information provided by AIG, was not so deficient
as to prevent Mr. Watford from completing his review on matters of substance.
Furthermore, it is concluded that AIG's May 2003 filing was a deviation filing in substance if not in form. OIR had no difficulty accepting Protective Insurance Company's letter and e-mail as a deviation filing even though it did not comply with the statutory and rule requirements.
It is undisputed that some information required by the statute and the rule are not available for terrorism coverage. Nevertheless, if critical information was missing, OIR could have requested it, giving AIG an opportunity to provide it to the extent possible. For these reasons, AIG's terrorism charge should not be disapproved solely because of a failure to comply with Section 627.211, Florida Statutes (2003) as to form.
EXCESSIVE AND UNFAIRLY DISCRIMINATORY
Proceedings under Sections 120.569 and 120.57(1), Florida Statutes (2003), are de novo. See § 120.57(1)(k), Fla. Stat. (2003). OIR's argument that only the four corners of the supplemented rate filing may be considered and that no explanation of the filing by testimony and exhibits should have occurred, is rejected as contrary to Section 120.57(1), Florida Statutes (2003).
Because OIR cannot limit consideration here to AIG's supplemented filing as of November 2003, AIG had an opportunity during hearing to prove that its terrorism charge was not excessive or unfairly discriminatory by providing the statutorily required information to the extent it was available under the unique circumstances of this case. AIG did not meet its burden for the reasons set forth below.
Section 627.062(1), Florida Statutes (2003), states that "[t]he rates for all classes of insurance to which the provisions of this part are applicable shall not be excessive, inadequate, or unfairly discriminatory." This is the only provision of Section 627.062, Florida Statutes (2003), that applies to workers' comp.
Section 627.072, Florida Statutes (2003), provides as follows in relevant part:
As to workers' compensation and employer's liability insurance, the following factors shall be used in the determination and fixing of rates:
The past loss experience and prospective loss experience within and outside this state;
The conflagration and catastrophe hazards;
A reasonable margin for underwriting profit and contingencies;
Dividends, savings, or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers;
Investment income on unearned premium reserves and loss reserves;
Past expenses and prospective expenses, both those countrywide and those specifically applicable to this state; and
All other relevant factors, including judgment factors, within and outside this state.
Section 627.091(2), Florida Statutes (2003), quoted above, sets forth the type of information that an insurer may use to supplement a filing. OIR has a right to examine the underlying statistical data of filings and/or supplementary information pursuant to Section 627.091(5), Florida Statutes (2003).
The relevant provisions of Section 627.211, Florida Statutes (2003), quoted above, set forth the requirements for a deviation filing, in part, by referring to Sections 627.062 and 627.072, Florida Statutes (2003), and setting forth the type of financial information that insurers must provide to OIR.
During the hearing, AIG presented testimony regarding the severity and frequency of its anticipated losses from a terrorist attack. AIG also presented testimony regarding its TRIA retention. For the most part, this testimony was based on undocumented assumptions. For example, AIG provided little or no detail about the following, in Florida or nationally:
(a) AIG's market share for all lines of business, including "guaranteed cost" workers' comp policies; (b) the amount of
AIG's "guaranteed cost" premiums and the number of insured employers and employees; (c) AIG's assumptions relative to investment income, conservative pricing, take-up rate, total portfolio mix, growth rates, general expenses, premium discounts, experience modifications, and taxes; and
(d) Mr. Thomas's conversations with terrorism experts who did not testify at hearing.
AIG did not provide detailed information about its "guaranteed cost" workers' comp policies, in Florida or on a nationwide basis, as opposed to its loss sensitive policies, which constitute a significant portion of AIG's workers' comp business but which are not at issue here.
On the one hand, AIG asserts that it does not believe that a terrorist attack is more likely to occur in one location as another. On the other hand, AIG admits that there is a difference in the expected cost depending on the location of an attack and that a metropolitan area like New York City or Washington D.C. is absolutely more vulnerable to attack than cities in Utah, such as Salt Lake City.
AIG's asserts that NCCI's terrorism rate is not appropriate for AIG because its TRIA retention ($1.8 billion in 2003 and approximately $3 billion by the end of 2005) is so much larger than the retention of the average NCCI insurer ($266 million). However, AIG does not provide any details or
documentation about its total premiums for all TRIA-covered lines, all AIG companies, showing how it arrived at its TRIA retention for each year. AIG does not explain what its workers' comp retention would be without its loss sensitive policies.
Regarding the information that is required by Section 627.211(3), Florida Statutes (2003), the record contains no evidence about AIG's financial condition. Information that is missing from the record, with no explanation as to its relevance or availability, includes but is not limited to the following:
(a) audited financial statements; (b) actuarial certification of loss reserves; (c) whether AIG's workers' comp reserves are above the midpoint or best estimate of the actuary's reserve range estimate; and (d) historical experience demonstrating profitability.
Regarding the information that is required by Florida Administrative Code Rule 69O-189.004, the following information was required but not provided in sufficient detail: (a) the effective date of the terrorism charge other than "sometimes early in 2003" or "in February or March 2003"; and (b) at a minimum loss and expense experience resulting from the terrorist attacks on September 11, 2001.
It is clear that AIG has focused on funding its TRIA retention rather than the expected losses to insureds. While this may be a sound business decision, it is contrary to Florida
law, which contemplates that expected losses will be considered during ratemaking.
After deciding to collect its TRIA deductible, AIG chose to charge a percent of premium instead of an amount per
$100 of payroll because it could not remain competitive while it generated its targeted revenues if it charged $.12 per $100 of payroll compared to NCCI's $.03 per $100 of payroll. The evidence indicates that AIG decided to charge a uniform 3% of premium regardless of whether the charge was excessive or unfairly discriminatory.
AIG's terrorism charge requires some policyholders to pay more than other policyholders even though there is no difference in the risk of loss between the two. For example, a 3% surcharge on the underlying rate causes the employer of an iron or steel worker to pay $3.87 per $100 of payroll. The NCCI rate, used by every other insurer in Florida would be $.03 for the same $100 of payroll.
The roofing employer who has a clerical worker at the same location would pay $.02 per $100 of payroll using the AIG method, slightly less than the $.03 per $100 charged by NCCI. However, because the risk of loss is identical, it is unfairly discriminatory for the employer of the iron worker to pay almost
200 times as much as the roofing employer pays for its clerical worker at the same location.
AIG has not provided sufficient information with adequate detail or documentation to justify its terrorism charge. AIG did not take advantage of the hearing to present evidence as to all required statutory information or to show that such information was not relevant or available. AIG has not met its burden of proving by a preponderance of the evidence that its rate is not excessive or unfairly discriminatory.
RECOMMENDATION
Based on the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED:
That OIR enter a final order dismissing the Consolidated Petitions for Formal Administrative Proceedings in these consolidated cases.
DONE AND ENTERED this 21st day of July, 2005, in Tallahassee, Leon County, Florida.
S
SUZANNE F. HOOD
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 21st day of July, 2005.
COPIES FURNISHED:
Elenita Gomez, Esquire Department of Financial Services Division of Legal Services
612 Larson Building
200 East Gaines Street Tallahassee, Florida 32399-4206
Daniel C. Brown, Esquire Kelly A. Cruz-Brown, Esquire Robert W. Pass, Esquire Carlton Fields, P.A.
Post Office Box 190 Tallahassee, Florida 32302-0190
S. Marc Herskovitz, Esquire Elenita Gomez, Esquire Department of Financial Services Division of Legal Services
612 Larson Building
200 East Gaines Street Tallahassee, Florida 32399-4206
Honorable Tom Gallagher Chief Financial Officer
Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Carlos G. Muniz, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Jul. 21, 2005 | Recommended Order | Petitioners did not meet their burden of proof that their terrorism rate was not excessive or unfairly discriminatory. |
