Mercury Insurance 2011 Annual Report Download - page 57

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is designed as an easy-to-use agency portal that provides a customized work queue for each agency user showing
new business leads, underwriting requests and other pertinent customer information in real time. Agents can also
assist customers with processing payments, reporting claims or updating their records. The system enables quick
access to documents and forms and empowers the agents with several self-service capabilities.
The NextGen system is designed to be a multi-state, multi-line system. NextGen serves as the primary
platform for all underwriting, billing, claims, and commission functions supporting the private passenger auto
line in seven states (Virginia, New York, Florida, California, Georgia, Illinois, and Texas).
During 2010, the Company launched Guidewire, a commercially available software solution, to replace
legacy platforms and implemented it for the Nevada homeowners line. In 2011, the Company expanded the
Guidewire implementation to Texas, Georgia, Illinois, Pennsylvania, and Oklahoma for the homeowners line of
business and for the Texas commercial auto line of business. The Company plans to expand Guidewire to other
states and lines of business during 2012.
In 2011, as part of its continuing commitment to service excellence, the Company piloted in Georgia a new
web capability for customers to bind and pay for new policies online. These policies will be serviced by the
Company’s independent agents. The Company plans to expand this capability to other states in the future.
B. Regulatory and Legal Matters
The process for implementing rate changes varies by state, with California, Georgia, New York, New
Jersey, Pennsylvania, and Nevada requiring prior approval from the respective DOI before a rate may be
implemented. Illinois, Texas, Virginia, Arizona, and Michigan only require that rates be filed with the DOI.
Oklahoma and Florida have a modified version of prior approval laws. In all states, the insurance code provides
that rates must not be excessive, inadequate, or unfairly discriminatory. For the Company’s two largest lines of
business, personal automobile and homeowners, the Company filed rate changes that were neutral in seven states
and increases in thirteen states during 2011.
The California DOI uses rating factor regulations requiring automobile insurance rates to be determined in
decreasing order of importance by (1) driving safety record, (2) miles driven per year, (3) years of driving
experience, and (4) other factors as determined by the California DOI to have a substantial relationship to the risk
of loss and adopted by regulation.
During 2011, the Company received approval from the California DOI to implement a revenue neutral
personal automobile class plan filing. The Company expects the plan will improve the pricing structure to better
align premium rates charged with risks insured. The new plan will lead to decreased rates for some risks and
increased rates for others. As a result, the Company may experience a short-term decrease in the number of
policies renewed. Preliminary indications are that policy renewals have only decreased slightly; however, it is
currently unknown what the full extent, if any, of the possible decrease will be. The plan was implemented in
December 2011 and is expected to make the Company more competitive in attracting new personal automobile
insurance business.
On April 9, 2010, the California DOI issued a Notice of Non-Compliance (“2010 NNC”) to MIC, MCC, and
CAIC based on a Report of Examination of the Rating and Underwriting Practices of these companies issued by
the California DOI on February 18, 2010. The 2010 NNC includes allegations of 35 instances of noncompliance
with applicable California insurance law and seeks to require that each of MIC, MCC, and CAIC change its
rating and underwriting practices to rectify the alleged noncompliance and may also seek monetary penalties. On
April 30, 2010, the Company submitted a Statement of Compliance and Notice of Defense to the 2010 NNC, in
which it denied the allegations contained in the 2010 NNC and provided specific defenses to each allegation. The
Company also requested a hearing in the event that the Statement of Compliance and Notice of Defense does not
establish to the satisfaction of the California DOI that the alleged noncompliance does not exist, and the matters
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