2011 ANNUAL REPORT COMPENSATION ADVISORY ORGANIZATION OF MICHIGAN P.O. Box 3337 • Livonia, MI 48151-3337 • (734) 462-9600 • Fax (734) 462-9721 Internet WEB Site: www.caom.com • E-Mail: [email protected] AGENDA FOR THE 2012 ANNUAL MEETING SCHEDULED FOR TUESDAY, APRIL 24, 2012 AT 10:00 A.M. IN THE CAOM OFFICE The Agenda for the Annual Meeting will be as follows: 1. Call to Order, determination of a quorum. 2. Approval of Minutes of the April 26, 2011 Annual Meeting. 3. Chairperson’s remarks. 4. Annual Report overview. 5. Election of Governing Board Members. Current members are: Accident Fund Insurance Company of America Amerisure Insurance Companies Auto-Owners Insurance Company Citizens Insurance Company of America Frankenmuth Mutual Insurance Company Harleysville Lake States Insurance Company The Hartford Liberty Mutual Insurance Company The Travelers Companies 6. Any additional business to come before the members. 7. Adjournment. ANNUAL REPORT FOR THE YEAR 2011 FOR PRESENTATION TO THE MEMBERS OF THE COMPENSATION ADVISORY ORGANIZATION OF MICHIGAN Submitted by: Jerry J. Stage President MISSION STATEMENT The mission of the Compensation Advisory Organization of Michigan is to enhance the Michigan Workers’ Compensation System through customer service, education and the administration of the Michigan Workers’ Compensation Placement Facility. The Compensation Advisory Organization of Michigan will perform its duties in an equitable, professional and responsive manner when dealing with all participants in the system. - 1 - The following is our Annual Report for the year ending December 31, 2011 as presented to the Members and Subscribers of the Compensation Advisory Organization of Michigan. We are pleased to offer this report highlighting the activities and operational results of CAOM for the year 2011. BOARD OF GOVERNORS Article X and Article XIII, respectively, of the Bylaws of the Compensation Advisory Organization, provide for the establishment of the Board of Governors and standing committees. The Board of Governors was elected by the membership of the Compensation Advisory Organization at the Twenty-Ninth Annual Meeting on April 26, 2011. Pursuant to the Bylaws, each governor serves until the next Annual Meeting of the membership. The governors were elected as follows: Accident Fund Insurance Company of America Amerisure Insurance Companies Auto-Owners Insurance Company Citizens Insurance Company of America Frankenmuth Mutual Insurance Company Harleysville Lake States Insurance Company The Hartford Liberty Mutual Insurance Company The Travelers Companies, Inc. The Board held two meetings in 2011. Agenda items included: the appointment of officers and committee members, the operational status of CAOM, Status of Competition, the American Cooperative Council on Compensation Technology (ACCCT), Compensation Data Exchange (CDX), the Worker’s Compensation Research Institute’s Compscope™ Report, Federal Coverage, the 2010 Annual Audit of CAOM and the 2012 Annual Budget. OPERATIONS COMMITTEE The Chairperson of the Board of Governors appointed the Operations Committee as required by Article XIII of the Bylaws. The following members served on the committee in 2011. Accident Fund Insurance Company of America Amerisure Insurance Companies Citizens Insurance Company of America - 2 - The Operations Committee met in 2011 to consider CAOM’s 2012 budget and other administrative matters. DATA COORDINATION COMMITTEE The companies serving on the Data Coordination Committee were as follows: Accident Fund Insurance Company of America American Compensation Insurance Company Amerisure Companies Auto-Owners Insurance Company CNA Insurance Company Farm Bureau Mutual Insurance Company of Michigan Liberty Mutual Insurance Company The Travelers Companies, Inc. The primary function of the Data Coordination Committee is the development and review of the statistical plan and reporting requirements for Michigan. The committee met in July 2011 to discuss the Data Collection Agency’s Pure Premium Publication, the Michigan Workers’ Compensation Placement Facility’s proposed January 1, 2012 Rate Filing, and the Retrospective Evaluation of the Assigned Risk Rating Plans. CAOM released the annual Data Collection Agency Pure Premium Publication in September. The 2012 pure premium indications reflected an overall decrease of 7.4%. PUBLIC ACT 266 In December of 2011 Michigan Governor Rick Snyder signed House Bill 5002 into law changing several aspects of Michigan’s workers compensation act. In February 2012 the Data Collection Agency directed CAOM to evaluate Public Act 266 to determine what effect these changes have on pure premiums. Summary of Important Provisions Require injury to be “medically distinguishable” from employee’s prior condition Definition of “wage earning capacity” Require the effect of medical treatment to be considered in determination of whether loss of a specific body part occurred Allow employer to direct medical treatment for 28 days after injury (previously 10 days) Links interest rate on comp payments to market rate (previously 10%) - 3 - CAOM’S OPERATIONS In 2011, CAOM continued to serve its membership in numerous capacities. Our data collection responsibilities were enhanced by new methods of data transmission. Several experience rating options were offered to member carriers. CAOM operations were improved through enhancements to its computer system and other computer technology advancements. Internet services were expanded and computer security continues to be enhanced. In 2011, CAOM continued to make improvements in many of its services to our members. CAOM experienced a reduction in staff of two (2) employees during 2011 mainly due to efficiencies gained by increased use of electronic data exchange along with new computer technologies. During 2011, CAOM’s IT Department implemented the following initiatives: Completed software installation and employee training on new desktop PCs. Migrated critical business applications such as HR, accounting, etc. Replaced printers, scanners, and UPS equipment. Upgraded network switches from 10/100 to gigabit, and verified 10x speed increase. Conducted security analysis of new OAR website software and related systems. Conducted Disaster Recovery backup image restores to dissimilar hardware. Upgraded enterprise security software to latest version. Installed new backup software on ARFSNET application server and MIFDRA web server. Migrated server backup media from tape to external portable hard drives with offsite rotation. Upgraded desktop image backup software to support Windows 7. Upgraded website development software from FrontPage to Expression Web. Installed new software to allow network alert messages to reach users faster. By collecting and processing all policy, statistical and annual financial call data, CAOM continues to fulfill its role as the “Designated Advisory Organization” for workers’ compensation insurance in Michigan. As indicated in CAOM Circular #244, the Michigan Statistical Plan Manual was updated in 2011. Following a major revision to the Michigan Financial Data Reporting Application (MIFDRA) in 2011, CAOM collected all financial calls in 2011using MIFDRA Version 2. This program allows all member carriers to submit all financial call data via a web based system that provides users the ability to upload, modify, edit, validate, export and submit - 4 - financial data. MIFDRA has proven to be very successful by helping to prevent reporting errors, ensure quality data, enhance timeliness of reporting and provide immediate feedback of failed data quality checks. CAOM receives all financial calls online, then reviews and when necessary contacts carriers for resubmission or further explanation of the financial calls. In 2011, CAOM once again provided the State of Michigan’s Workers Compensation Agency (WCA) Funds Administration with individual carrier workers’ compensation premiums for their yearly assessments. These assessments are for the Second Injury Fund, The Silicosis, Dust Disease and Logging Industry Compensation Funds. Section 551 of Public Act 317 recognizes CAOM as the source of data for this purpose. During 2011, CAOM and the Michigan WCA continued to test new carriers for electronic proof of coverage. Data is submitted through CAOM, based on the carrier’s WCPOLS submissions. Qualifying carriers no longer have to submit hard copy forms, Notices of Coverage (Form 400) or Cancellations (Form 401) to the WCA. CAOM Circular Letter #193 and the Worker’s Compensation Agency web site http://www.michigan.gov/wca/0,1607,7-191-26925-80536-,00.html provide further details on how carriers may utilize this system. We encourage all carriers currently submitting policy data to CAOM in the WCIO’s WCPOLS format to consider electronic proof of coverage here in Michigan. In 2011, the CAOM Board of Governors authorized CAOM to act on behalf of its members in supplying federal coverage data to the United States Department of Labor through the NCCI. Refer to CAOM Circular Letter #250 for further information. CAOM’s web site, http://www.caom.com, continues to have increased activity for access to CAOM/Facility data. On-line access to the Data Collection Agency (DCA) pure premiums, CAOM’s circular letters and aggregate financial calls along with Facility rates, forms and manuals increased during 2011. The Facility Classification Manual continues to be especially popular. This manual allows underwriters, agents and others the ability to look-up classification codes based on employer