West Virginia BrickStreet To Refund $18M But Passes First Market Exam

Citing errors in BrickStreet Mutual Insurance Co.’s application of approved underwriting and rating rules, West Virginia Insurance Commissioner Jane L. Cline has ordered the insurer to refund $18.1 million to more than 6,000 policyholders. The refunds include $3 million to approximately 300 state and local government entities.

The refunds were ordered as part of a market conduct examination of the young private insurer by Cline’s office, a report that actually paints the insurer in a mostly positive light. In fact, while the state examiners found sporadic errors with respect to claims handling, they also found that the error ratios for all of the claims standards were within the tolerance levels to warrant a “pass” according to the standards tested.

BrickStreet was also found fully compliant with respect to initial contact with claimants.

The report makes specific note of the “monumental task” undertaken by the state to transition the workers’ compensation system from a state run monopolistic program to a competitive commercial system.

BrickStreet was formed in 2006 to provide coverage to all West Virginia businesses, replacing the state-backed insurer that monopolized the market

“The underwriting and rating areas presented BrickStreet with more challenges as the changes in these areas underwent the most revisions during the privatization process,” Cline noted.

The market conduct exam reviews claims handling, underwriting practices, producer licensing requirements, complaint handling and various other aspects of company operations and management. In order to pass, the insurer must pass 93 percent of all files tested for each standard in claims handling and 90 percent in other areas reviewed. These examinations are conducting according to National Association of Insurance Commissioners’ standards.

According to Cline, BrickStreet passed 59 of the 67 applicable standards. “These results are encouraging because BrickStreet has only been a private company for three years,” Cline said.

Officials at BrickStreet said that they were pleased with the findings and recommendations of the market conduct examination.

“We view this report as a positive affirmation of the speed and accuracy with which we grew a healthy private company in a very compressed timeframe,” said BrickStreet President and CEO Gregory A. Burton.

Burton said the exam, which took place over a nine-month period from January to November 2008, found that BrickStreet successfully completed every national insurance standard related to claims management during the exam period of 2007, just the second year of its existence as a private company. “BrickStreet had just opened its doors a year earlier, in 2006, and we were at that time still processing claims for the entire West Virginia market,” Burton said.

According to the report, BrickStreet “fell short” of achieving full compliance with eight standards. Six of these were associated with its underwriting and rating operations and two were associated with agent licensing and company operations and management.

But the report further noted that underwriting and rating did not exist during the 92-year history of the former state workers’ compensation system.

“The archaic and antiquated rate making practices that developed in West Virginia during the 92 years preceding privatization had to be quickly disposed of so that our state could offer a workers’ compensation marketplace resembling other states,” said Burton.

He said that less than 2 percent of its written premium for the period was found to be in need of correction in the report.

The report requires BrickStreet to undertake an account reconciliation process with policyholders impacted by the underwriting and rating shortfalls. BrickStreet said it will develop a plan within 30 days to implement the reconciliation process over next six months.

BrickStreet began its role as West Virginia’s first private workers’ compensation carrier on Jan. 1, 2006. The workers’ compensation insurance market opened to competition on July 1, 2008. As a mutual company, BrickStreet is owned by its policyholders.

The privatization of the workers compensation market is generally viewed as a success. Currently 142 carriers are writing coverage in West Virginia, treatment of injured workers has improved and rates have been reduced over 30 percent, according to state officials.

Source: West Virginia Insurance Commissioner
BrickStreet Mutual