05RS SB86


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SB 86/LM (BR 335) - D. Kelly

     AN ACT relating to workers' compensation self-insured groups and declaring an emergency.
     Create Subtitle 50 of KRS 304 to contain financial standards and establish regulatory authority for workers' compensation self-insurance groups in the Department of Insurance; create new sections of Subtitle 50 to: authorize the Commissioner of the Department of Insurance to permit 20 or more employers with common interests or membership in a bona fide trade association, or two or more governmental entities to form self-insurance groups to insure their liability under KRS Chapter 342; define terms applicable to self-insured groups; authorize the commissioner to promulgate administrative regulations necessary to implement and effectuate the provisions of Subtitle 50 and to govern creation, admission, certification, and regulation of self-insured groups; require existing groups to comply with the provisions of Subtitle 50 within one year, unless the commissioner permits additional time; provide that the certification of existing groups shall remain in full force and effect until revoked or suspended by the commissioner; require the commissioner to issue replacement certificates within thirty days of the effective date; exempt groups from other provisions of KRS Chapter 304, insurance code, unless specifically provided in Subtitle 50; establish application process for proposed groups that would require a nonrefundable $600 filing fee with each application and require submission of enabling or organizational documents along with a description of the group, copies of security and fidelity bonds, financial statements indicating a combined net worth for the group of at least $10 million, except for governmental entities, proposed schedule of rates, copies of joint and several liability agreements, managed care plans, names and terms of the board of trustees, example of policies for excess insurance, a feasibility study, and a three-year financial projection for the group; prohibit the premium of one member from exceeding 20% of the total estimated premium, except that the premium of one member of a governmental entity group may not exceed 60% of the estimated total premium of the group; require a first year minimum premium of $1 million for the group with a 25% initial deposit; require the commissioner to base certification on the financial strength of the group, the experience of the administrators, and an initial and ongoing surplus of not less than $1 million; require that a certificate of filing issued by the commissioner remain in effect until revoked or suspended by the commissioner, or terminated at the request of the group subject to approval of the commissioner; permit one group to merge with another group; require trustees, administrators, fiscal agents and service organizations to provide fidelity bonds; permit use of fidelity blanket bond in lieu of separate bonds; require the trustees to provide security deposits of not less than $250,000, 10% of the reserve requirement, or 10% of the annual premium, whichever is greater; authorize commissioner to require additional security; permit trustees to file cash, cash equivalents, letters of credit, or U.S. Treasuries as security deposits; establish mechanism permitting release of deposits under certain conditions and approval of the commissioner; require the commissioner to designate acceptable banks or trust companies; require a group member to pay 25% of estimated premium prior to beginning of the self-insurance year; restrict disbursements from a group fund except for workers' compensation purposes; require prior approval of dividend payments and plans; authorize trustees to invest surplus funds in listed approved investments; require multiple reports annually, including statement of financial condition, copies of bonds, deposits, letters of credit, enabling or organizational documents; direct commissioner to conduct financial examination of each self-insured group every four years; designate the Secretary of State to receive service of legal process for actions against a group; require appointment of board of trustees to operate each group and establish qualifications and duties; permit trustees to contract with an administrator, service organization and fiscal agent; prohibit trustees from having an interest in a service organization; require service organization or its employees to be licensed if license is required; exempt groups from requirement to appoint agents; require a member of a group to enter into an indemnity and joint and several liability agreement as a condition of membership; direct that each group be considered an individual employer for purposes of taxation; establish reasons for nonrenewal, cancellation or expulsion of a group member including adverse claims experience, failure to cooperate with safety and loss prevention policies, failure to report payroll, and failure to make timely payments of premium; permit a member to withdraw from group with sixty days advance notice; require the commissioner to report fraudulent behavior; require a group and each member to pay all workers' compensation benefits owed, including assessments, despite withdrawal, dissolution, or bankruptcy; prohibit an employer from being accepted as a group member unless the employer has a net worth two times its estimated premium or pays full premium in advance; establish method for dissolution of a group subject to approval of the commissioner; require each group to establish a conflict of interest policy; direct that rates and forms be filed for prior approval of the commissioner; apply rating standards contained in Subtitle 13 of KRS 304 to rate filings of groups; require each group to establish payment plans for premiums and assessment subject to prior approval of the commissioner; unless granted a waiver, require each group to purchase aggregate excess insurance as prescribed in administrative regulations; require trustees to purchase specific excess insurance with a limit of at least $25 million per occurrence; authorize discounting of reserves under certain conditions and if not disapproved by the commissioner; direct disclosure on evidences of coverage that group is not covered by the Kentucky Insurance Guaranty Association and that members will be assessed in the event of insolvency; establish mechanism for resolving impairment(fund balance of less than $1 million) or deficiency of a group self-insurance fund; require that deficiency shall be corrected from surplus funds or a plan approved by the commissioner, including assessments; require the commissioner to place a group into delinquency proceedings in accordance with Subtitle 33 of KRS Chapter 304 for failure to correct a deficiency; establish mechanism for suspension or revocation of certificate of filing, including authorization for commissioner to impose a $10,000 fine for certain offenses; authorize commissioner to suspend or revoke certificate of filing without hearing or advance notice if receivership, conservatorship, or rehabilitation proceedings are initiated against a group; prohibit any provision of Subtitle 15 or administrative regulations to require any governmental entity group to violate the Kentucky constitution; prohibit any provision of Subtitle 15 or administrative regulations to diminish the obligation of the group to comply with KRS Chapter 342; prohibit any person from making deceptive statements in soliciting membership for a group; or from engaging in unfair business practices as defined in Subtitle 12 of KRS 304; require timely response to inquiries from the Commissioner of Workers' Claims or Insurance; require annual report to the governor and Banking and Insurance Committee on status of self-insured groups; amend KRS 342.350 and other provisions of KRS Chapter 342 to confirm Executive Order 2004-835 to transfer regulatory authority of workers' compensation self-insured groups from the Department of Workers' Claims to the Department of Insurance; and declare an EMERGENCY.


     SCS/LM - Retain provisions of the original bill, except to delete the authority of the commissioner to require additional security; delete provision prohibiting members of the board of trustees from being officers, employees or agents of a service organization, fiscal agent or actuarial firm; require existing groups to file rates with the commissioner within one year, and require new groups to file initial rates with the commissioner for prior approval, thereafter require rates or supplementary rate information to be filed according to KRS 304.13-053; require existing groups to file coverage forms within one year, and require new groups to file initial coverage forms with the commissioner which shall be subject to prior approval before use or delivery, but future coverage forms shall be filed according to KRS 304.14-120; require the disclosure statement in evidences of coverage to state that workers' compensation self insured groups are covered by the Self-Insured Group Insurance Guaranty Association under KRS Chapter 342; require the provisions of KRS 304.33-020 to become applicable to workers compensation self insured groups retroactively, as of August 1, 2004.

     Feb 1-introduced in Senate
     Feb 2-to Banking and Insurance (S)
     Feb 10-reported favorably, 1st reading, to Calendar with Committee Substitute
     Feb 11-2nd reading, to Rules; posted for passage in the Regular Orders of the Day for Monday, February 14, 2005
     Feb 14-3rd reading, passed 36-0 with Committee Substitute
     Feb 15-received in House
     Feb 16-to Banking and Insurance (H); posted in committee
     Feb 17-posting waived; reported favorably, 1st reading, to Calendar
     Feb 18-2nd reading, to Rules; posted for passage in the Regular Orders of the Day for Tuesday, February 22, 2005
     Feb 22-3rd reading, passed 96-0
     Feb 23-received in Senate; enrolled, signed by each presiding officer; delivered to Governor
     Mar 1-signed by Governor (Acts ch.7)

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