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Maine.gov > PFR Home > Insurance Regulation > Bureau Reports > Foreign Company Examination Reports > Hanover Insurance Company
Market Conduct Examination
The Hanover Insurance Company
|WCB-1, First Report of Injury||39-A M.R.S.A. § 303|
|WCB-2, Wage Statement||39-A M.R.S.A. § 303|
|WCB-2A, Schedule of Dependent(s)
And Filing Status
|39-A M.R.S.A. § 303|
|WCB-3, Memorandum of Payment||ME WCB Rules & Regs, Ch 1 § 1.1|
|WCB-9, Notice of Controversy||39-A M.R.S.A. § 205 (2)|
|WCB-11, Statement of Compensation Paid||ME WCB Rules & Regs, Ch 8 § 1|
Standard G-4 establishes a general framework for the timely correspondence of claim documentation. Failure to file any WCB forms within established time frames is a violation of Title 39-A M.R.S.A. § 360 (1) (A) or (B).
(2) Standard G-3
Claims are resolved in a timely manner.
Test Step 2: Determine if initial and subsequent claim payments are made in a timely manner.
Standard G-3 establishes a general framework for the timely settlement of claims in accordance with Title 39-A M.R.S.A. § 205 (2).
(3) Standard G-5
Claim files are adequately documented.
Test Step 3: Determine if quality of the claim documentation (e.g. wage statements, schedule of dependents and filing status) is sufficient to support or justify the ultimate claim determination (accuracy of payment) and meets state requirements.
Standard G-5 establishes a general framework for the adequacy of claim file documentation to correctly calculate claim payments in accordance with Title 39-A M.R.S.A. § 212, § 213, § 215.
(4) Standard G-14
Loss statistical coding is complete and accurate.
Test Step 4: Determine that the Company accurately codes the penalties separately from the loss amounts.
Standard G-14 establishes a general framework that encompasses all loss data coding. For purposes of ratemaking, penalties do not constitute elements of loss. The following Title 39-A M.R.S.A. sections apply: § 205 (3), § 324 (2) (B), § 360 (5).
This section outlines the application of the tests to the random sample of 50 claims selected from a population of indemnity claims with a date of injury in 2002, with the exception of penalty payments in Test 4 which were 100% tested. The results of applying the criteria outlined in the tests are as follows:
TEST 1: Verify the timely filing of the following forms with the Workers’ Compensation Board in accordance with the applicable Statute, Rules & Regulations, or Protocol:
|Not Filed Timely||Not Filed||N/A||2004 Exam
|Test 1||WCB-1||42||8 (B)||0||84%||<50%|
|Test 1||WCB-2||35||12 (C)||3 (D)||70%||<50%|
|Test 1||WCB-2A||36||11 (E)||3 (F)||72%||<50%|
|Test 1||WCB-11||46||32 (G)||5 (H)||55% (I)||<50%|
TEST 2: Verify that initial and subsequent indemnity payments were made in accordance with 39-A M.R.S.A. § 205 (2).
|Paid Timely||Not Paid Timely||% In Compliance|
|Initial Payment||50||0||100 %|
|Subsequent Payments||50||0||100 %|
TEST 3: Verify that indemnity payments are calculated accurately for both total and partial incapacity.
|Paid Accurately||Not Paid Accurately||% In Compliance|
|Partial & Total
Results of testing:
There were 18 instances of overpayments and 4 instances of underpayments due to the following reasons:
TEST 4: Verify that the Company accurately codes the penalties separately from the loss amounts.
The WCB provided the examination team with 23 penalties (actual or pending) for 2002 dates of injury. Of the 23 penalties, only 1 was identified as a penalty against the Company which was subsequently traced to the Company’s claim system and found to be properly coded as a penalty. The remaining 22 penalties were either penalties against the employer or pending further review by the WCB.
Timely Filing of Forms (Test 1)
The Company has significantly improved the timely filing of all forms and improved the accuracy of indemnity payment information contained within the WCB-11s. The most “frequent and egregious” problem identified in the Hearing Officer’s Decree dated December 31, 2002 related to the Company’s computer system deficiency as it specifically related to the timely and accurate filing of WCB-11s. The results of this examination indicate that the untimely submission of WCB-11s is now a manual problem due to the Company requesting the printing of the WCB-11s on a bi-weekly basis. Whereas the average late filing was 4.72 days and the Company is implementing a change to request the printing of WCB-11s on a weekly basis, this problem should no longer exist. Furthermore, it was also noted in the Hearing Officer’s Decree that the Company had “taken appropriate action to correct its questionable claims-handling techniques, including fixing the computer system”, with which the Superintendent of Insurance agrees and further proof of the Company’s progress was the removal of the WCB Corrective Action Plan in May 2003. Although the Company has room for improvement, the Company is implementing action to prevent the untimely filing of the WCB-11s. (See Comments and Recommendations #1)
The untimely filing of WCB-1s, WCB-2s and WCB-2As was also identified as a “questionable claims-handling technique” in the Hearing Officer’s Decree dated December 31, 2002. The Company has substantially fixed the problem surrounding the timely filing of WCB-1s as evidenced by the removal of the WCB Corrective Action Plan in May 2003 and further substantiated by the results of this examination. The Company has improved the timeliness of filing WCB-2s and WCB-2As; however, the untimely filing of these forms contributed to the Company’s inability to accurately calculate some indemnity payments as indicated in Test 3. The Superintendent of Insurance recognizes the Company has to continue to aggressively scrutinize the timely filing of WCB-2s and WCB-2As. (See Comments and Recommendations #2)
Based on the results of this examination, it is in the opinion of the Superintendent of Insurance that a “pattern of questionable claims-handling techniques” no longer exists in regards to the untimely filing of forms, and as it pertains to WCB-11s, the inaccurate reporting of indemnity payment information.
Timely Initial and Subsequent Payments (Test 2)
The results of this examination indicate the Company is in compliance with Title 39-A M.R.S.A. § 205 (2), as no deficiencies were noted during this examination and a “pattern of questionable claims-handling techniques” no longer exists.
Payment Accuracy (Test 3)
The primary cause of inaccurate indemnity payments identified in the Maine Workers’ Compensation Board Compliance Audit Report dated November 7, 2000 and State of Maine Workers’ Compensation Board Abuse Investigation Unit v. The Hanover Insurance Company dated December 31, 2002 were: 1) Company reliance on employer calculations of the average weekly wages (AWW) and 2) the Company’s incorrect application of Title 39-A M.R.S.A. § 102 (4) (A) and (B) as it pertains to averaging weekly wages regardless of whether employees wages vary or not.
Based on the results of this examination, the Company no longer relies on employer calculations to arrive at the AWW and independently recalculates each AWW; therefore, this practice no longer exists. Regarding the Company’s incorrect application of Title 39-A M.R.S.A. § 102 (4) (A) and (B), it was noted that for 2 claims the Company incorrectly applied Title 39-A M.R.S.A. § 102 (4) (A) and (B); however, not in the same manner as identified in the Hearing Officers Decree. These 2 errors were attributed to an error in judgment on the part of the claim adjuster which resulted in an incorrect calculation. As such, the Superintendent of Insurance deems that a “pattern of questionable claims-handling techniques” no longer exists.
As a result of this examination, it was noted that the Company has deficiencies (human errors) regarding the accurate mathematical application and attention to detail in the calculation of indemnity payments. (See Comments and Recommendations #3)
Miscoding of Penalties
The examination consisted of verifying only 1 penalty assessed against the Company, no exception was noted. Miscoding of penalties was not identified as a “questionable claims-handling technique”; however, miscoding of penalties was identified in the 2000 Audit and it was determined to incorporate the verification of coding penalties into this examination. No further action is required by the Company.
Comment #1: As noted during the testing of untimely form filing in Test 1, the WCB-11s were sometimes filed late due to the manual requirement to initiate the printing of the WCB-11. It is noted the Company intends to initiate the printing of the WCB-11s weekly instead of bi-weekly which should help to remedy the late filings.
Recommendation #1: The Company should require the computer system to automatically (without manual intervention) generate the WCB-11 within 5 days prior to the date required to be filed at the WCB.
Comment #2: While the Company has made significant strides in increasing its timeliness of filing WCB-2s and WCB-2As, there is room for improvement which will greatly aid in the Company’s ability to make accurate indemnity payments. The Superintendent of Insurance recognizes that cooperation of the employer is tantamount to solving this issue.
Recommendation #2: There is no easy solution to this problem, only diligence and perseverance will improve this situation. The Company needs to continue its efforts to educate employers through education, training and personal communication of the employers’ requirement to file WCB-2s and WCB-2As in a timely manner. Only through the training and education of employers and highlighting their significance in this process will further improvement be made.
Comment #3: During the testing of the accuracy of indemnity payments, the following was noted: on 6 occasions a mathematical error contributed to the over or under payment of an indemnity payment; on 2 occasions the adjuster used the wrong yearly benefit table; on 1 occasion the adjuster included the wrong wage information; and on 2 occasions the adjuster misapplied Title 39-A M.R.S.A. § 102 (4) (A) (B).
Recommendation #3: While the overall error rate was 44% (22/50) and a significant percentage of the errors was directly related to human error, this error rate is excessive. The Company shall establish a corrective action plan to address these issues and provide the corrective action plan to the Superintendent of Insurance for his review and approval within 45 days of the date of acceptance of this report of examination. In addition, the Company shall provide a copy of the approved corrective action plan to the Workers’ Compensation Board.
The Superintendent of Insurance recognizes the significant improvements made by the Company since the WCB audit in 2000. Based on the results of this examination and charged with the task of taking appropriate action as to bring such practices to a halt, the Superintendent of Insurance concludes the following:
STATE OF MAINE
COUNTY OF KENNEBEC, SS
James C. Williams, CPA, CFE, being duly sworn according to law, deposes and says that in accordance with the authority vested in him by Alessandro Iuppa, Superintendent of Insurance, pursuant to the Insurance Laws of the State Of Maine, he has made an examination of the condition and affairs of
The Hanover Insurance Company
of Portland, Maine for indemnity claims with 2002 dates of injury and that the foregoing report of examination subscribed to by him is true to the best of his knowledge and belief.
The following examiners from the Bureau of Insurance assisted:
Jill C. Tobey, CPA, CFE
Bradford L. Brown
James C. Williams CPA, CFE
Director of Financial Affairs and Solvency
Subscribed and sworn to before me this ____ day of _____________, 2004
______________________________ My Commission Expires:
Last Updated: August 22, 2012
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