SCS CSHB 116(FIN): "An Act relating to workers' compensation self-insurance."
00SENATE CS FOR CS FOR HOUSE BILL NO. 116(FIN) 01 "An Act relating to workers' compensation self-insurance." 02 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 03 * Section 1. AS 21 is amended by adding a new chapter to read: 04 Chapter 47. Workers' Compensation Self-insurance Groups. 05 Sec. 21.47.010. Scope. The provisions of this chapter apply to workers' 06 compensation self-insurance groups. This chapter does not apply to public employees 07 or governmental entities. A workers' compensation self-insurance group that is issued 08 a certificate of approval by the director may not be considered to be an insurer or an 09 insurance company and is not subject to the provisions of the insurance laws of this 10 title except as otherwise provided in this chapter. 11 Sec. 21.47.020. Authority to act as a workers' compensation self-insurance 12 group. A person may not act as a workers' compensation self-insurance group unless 13 the person has been issued a certificate of approval by the director. 14 Sec. 21.47.030. Required qualifications. (a) A proposed workers'
01 compensation self-insurance group shall file with the director an application for a 02 certificate of approval accompanied by a nonrefundable filing fee established by the 03 director under AS 21.06.250. The application must include the group's name, location 04 of its principal office, date of organization, name and address of each member, and 05 other information that the director may reasonably require, together with the following: 06 (1) proof of compliance with the provisions of (b) of this section; 07 (2) a copy of the group's articles of association, if any; 08 (3) a copy of agreements with the administrator and with any service 09 company; 10 (4) a copy of the bylaws of the proposed group; 11 (5) a copy of the agreement between the group and each member 12 securing the payment of workers' compensation benefits; the agreement must include 13 a provision for payment of assessments as provided under AS 21.47.170; 14 (6) designation of the initial board of trustees and administrator; 15 (7) the address in this state where the books and records of the group 16 shall be maintained at all times; 17 (8) a pro forma financial statement on a form acceptable to the director 18 showing the financial ability of the group to pay the workers' compensation obligations 19 of its members; 20 (9) proof of the group's qualification under 26 U.S.C.; and 21 (10) proof of payment to the group by each member of not less than 22 25 percent of that member's first year estimated annual net premium on a date 23 prescribed by the director; payment may be considered to be part of the first year 24 premium payment of a member if the proposed group is granted a certificate of 25 approval. 26 (b) To obtain and to maintain its certificate of approval, a workers' 27 compensation self-insurance group shall meet the following requirements, as well as 28 other requirements established by law: 29 (1) a combined net worth of all members of the group of at least 30 $1,000,000, evidenced by financial statements that have been audited by an 31 independent certified public accountant;
01 (2) security in the amount of $450,000 that shall be provided by either 02 cash, a surety bond, security deposit, or financial security endorsement or any 03 combination of cash, bond, deposit, or endorsement; if a surety bond is used to meet 04 the security requirement, the surety bond shall be issued by a corporate surety 05 company authorized to transact business in this state; if a security deposit is used to 06 meet the security requirement, securities shall be limited to bonds or other evidences 07 of indebtedness issued, assumed, or guaranteed by the United States of America, or by 08 an agency or instrumentality of the United States of America; certificates of deposit 09 in a federally insured bank; shares or savings deposits in a federally insured savings 10 and loan association or credit union; or any bond or security issued by a state of the 11 United States of America and backed by the full faith and credit of the state; securities 12 shall be deposited with the director and assigned to and made negotiable by the 13 commissioner of labor under a trust document acceptable to the director; interest 14 accruing on a negotiable security shall be collected and transmitted to the depositor, 15 provided the depositor is not in default; a financial security endorsement, issued as part 16 of an acceptable excess insurance contract, may be used to meet all or part of the 17 security requirement; the cash, bond, security deposit, or financial security endorsement 18 must be 19 (A) for the benefit of the state solely to pay workers' 20 compensation claims and associated expenses; and 21 (B) payable upon the insolvency of the group as described 22 under AS 21.47.170(d); 23 (3) evidence of the availability of specific and aggregate excess 24 insurance in a form, in an amount, and by an insurance company acceptable to the 25 director; the director may establish minimum requirements for the amount of specific 26 and aggregate excess insurance based on size differences among groups, types of 27 employment, years in existence, and other relevant factors, and may permit a group to 28 meet this requirement by placing in a designated depository securities of the type 29 referred to in (2) of this subsection; 30 (4) an annual standard premium of at least $1,000,000; 31 (5) an indemnity agreement jointly and severally binding the group and
01 each member of the group to meet the workers' compensation obligations of each 02 member; the indemnity agreement must be in a form prescribed by the director and 03 must include minimum uniform substantive provisions prescribed by the director; 04 subject to the director's approval, a group may add other provisions needed because 05 of its particular circumstances; 06 (6) in a form and amount prescribed by the director, a fidelity bond and 07 an errors and omissions insurance policy for the administrator and a professional 08 liability insurance policy for the trustees; and 09 (7) in a form and amount prescribed by the director, a fidelity bond and 10 an errors and omissions insurance policy for the service company; the director may 11 also require the service company providing claim services to furnish a performance 12 bond in a form and amount prescribed by the director. 13 (c) A group shall notify the director of any material change in the information 14 required to be filed under (a) of this section or in the manner of its compliance with 15 (b) of this section not later than 30 days after the change. 16 (d) The director shall 17 (1) evaluate the information provided by the application required to be 18 filed under (a) of this section to assure that gaps in funding do not exist and that funds 19 necessary to pay workers' compensation benefits will be available on a timely basis; 20 (2) act upon a completed application for a certificate of approval within 21 60 days; if, because of the number of applications, the director is unable to act upon 22 an application within this period, the director may have an additional 60 days to act 23 on an application; 24 (3) issue to the group a certificate of approval upon finding that the 25 proposed group has met all requirements, or the director shall issue an order refusing 26 the certificate setting out reasons for refusal upon finding that the proposed group does 27 not meet all requirements of this chapter. 28 Sec. 21.47.035. Premium tax. A group is subject to the premium tax imposed 29 on domestic insurers under AS 21.09.210(b)(1). 30 Sec. 21.47.040. Certificate of approval; termination. (a) A certificate of 31 approval issued by the director to a workers' compensation self-insurance group
01 authorizes the group to provide workers' compensation benefits as required under 02 AS 23.30. The certificate of approval remains in effect until terminated at the request 03 of the group or revoked by the director under AS 21.47.190. 04 (b) The director may not grant the request of a group to terminate its 05 certificate of approval unless the group has insured or reinsured all incurred workers' 06 compensation obligations with an authorized insurer under an agreement filed with and 07 approved in writing by the director. Workers' compensation obligations must include 08 both known claims and associated expenses and claims incurred but not reported and 09 associated expenses. Subject to the approval of the director, a group may merge with 10 another group engaged in the same or similar type of business only if the resulting 11 group assumes in full all obligations of the merging groups. The director may hold 12 a hearing on the merger and shall hold a hearing if any party, including a member of 13 either group, requests a hearing. 14 Sec. 21.47.050. Examinations. The director may examine the affairs, 15 transactions, accounts, records, and assets and liabilities of a group as often as the 16 director requires. The expense of an examination shall be assessed against the group 17 in the same manner that an insurer is assessed for an examination. 18 Sec. 21.47.060. Board of trustees: membership, powers, duties, and 19 prohibitions; accounts. (a) A group shall be operated by a board of trustees of not 20 less than five persons whom the members of a group elect for stated terms of office. 21 At least two-thirds of the trustees shall be employees, officers, or directors of members 22 of the group. The group's administrator, service company, or an owner, officer, 23 employee of, or another person affiliated with the administrator or service company 24 may not serve on the board of trustees of the group. A trustee shall be a resident of 25 this state or an officer of a corporation authorized to do business in this state. The 26 board of trustees of a group shall ensure that all claims are paid promptly and take all 27 necessary precautions to safeguard the assets of the group. A trustee shall observe the 28 standards in dealing with the assets of the group that would be observed by a prudent 29 person dealing with the property of another, and, if the trustee has special skills or is 30 named trustee on the basis of representations of special skills or expertise, the trustee 31 is under a duty to use those skills.
01 (b) The board of trustees shall 02 (1) be responsible for all money collected or disbursed from the group 03 and segregate all money into a claims fund account and an administrative fund 04 account; at least 70 percent of the net premium shall be placed into a designated 05 depository for the sole purpose of paying claims, allocated claims expenses, 06 reinsurance or excess insurance, income taxes, and special fund contributions, 07 including second injury and other loss related funds; this shall be called the "claims 08 fund account"; the remaining net premium shall be placed into a designated depository 09 for the payment of taxes, general regulatory fees and assessments, and administrative 10 costs; this shall be called the "administrative fund account"; the director may approve 11 an administrative fund account of more than 30 percent and a claims fund account of 12 less than 70 percent only if the group shows to the director's satisfaction that 13 (A) more than 30 percent is needed for an effective safety and 14 loss control program; or 15 (B) the group's aggregate excess insurance attaches at less than 16 70 percent; 17 (2) maintain minutes of its meetings and make the minutes available 18 to the director; 19 (3) designate an administrator to carry out the policies established by 20 the board of trustees and delineate in the written minutes of its meetings the areas of 21 authority the board of trustees delegates to the administrator; 22 (4) retain an independent certified public accountant to prepare the 23 statement of financial condition required under AS 21.47.100. 24 (c) The board of trustees may not 25 (1) extend credit to individual members for payment of a premium 26 except under a payment plan approved by the director; or 27 (2) borrow money from the group or in the name of the group, except 28 in the ordinary course of business, without first advising the director of the nature and 29 purpose of the loan and obtaining prior approval from the director. 30 Sec. 21.47.070. Group membership; termination; liability. (a) An 31 employer joining a workers' compensation self-insurance group after the group has
01 been issued a certificate of approval shall (1) submit an application for membership 02 to the board of trustees or its administrator; and (2) enter into the indemnity agreement 03 required under AS 21.47.030(b)(5); membership may not take effect earlier than each 04 member's date of approval. An application for membership and approval of the 05 application shall be maintained as a permanent record by the board of trustees. 06 (b) Individual membership in a group is subject to cancellation by the group 07 under the bylaws of the group. In addition, individual members may elect to terminate 08 their participation in the group. The group shall notify the director and the division 09 of workers' compensation regarding the termination or cancellation of a membership. 10 Notice shall be given within 10 days after the termination or cancellation. 11 (c) The group shall pay all workers' compensation benefits for which a 12 member incurs liability during its period of membership. A member who elects to 13 terminate its membership or whose membership is cancelled by a group remains liable 14 for any workers' compensation obligations of the group and its members that were 15 incurred during the cancelled or terminated member's period of membership. 16 (d) A group member is not relieved of its workers' compensation liabilities 17 incurred during its period of membership except through payment by the group or the 18 member of workers' compensation benefits required under AS 23.30. 19 (e) The insolvency or bankruptcy of a member does not relieve the group or 20 another member of liability for the payment of any workers' compensation benefits 21 incurred during the insolvent or bankrupt member's period of membership. 22 Sec. 21.47.080. Service companies. (a) A service company or its employees, 23 officers, or directors may not be an employee, officer, or director of, or have either a 24 direct or indirect financial interest in, an administrator. An administrator or its 25 employees, officers, or directors may not be an employee, officer, or director of, or 26 have either a direct or indirect financial interest in, a service company. 27 (b) A service contract must state that unless the director permits otherwise, the 28 service company shall handle, to conclusion, all workers' compensation claims and 29 other obligations incurred during the contract period. 30 Sec. 21.47.090. Licensing of agent. Except for a salaried employee of a 31 group, its administrator, or its service company, a person soliciting membership for a
01 workers' compensation self-insurance group must be licensed as provided under 02 AS 21.27. 03 Sec. 21.47.100. Financial statements and other reports. (a) A group shall 04 submit to the director a statement of the financial condition of the group that is 05 annually audited by an independent certified public accountant on or before the last 06 day of the sixth month following the end of the group's fiscal year. Upon request, the 07 director shall allow a 60 day extension of the deadline described in this subsection. 08 The financial statement must be on a form prescribed by the director and must include 09 actuarially appropriate reserves, known as liabilities, for 10 (1) known claims and associated expenses; 11 (2) claims incurred but not reported and associated expenses; 12 (3) unearned premiums; and 13 (4) bad debts. 14 (b) The actuarial opinion required under (a) of this section shall be given by 15 a member of the American Academy of Actuaries or other qualified loss reserve 16 specialist as defined in the annual statement adopted by the National Association of 17 Insurance Commissioners. 18 (c) A person may not make an untrue statement of a material fact, or omit to 19 state a material fact necessary in order to make the statement made, in light of the 20 circumstances under which it is made, not misleading, in connection with the 21 solicitation of membership in a group. 22 (d) The director may prescribe the format and frequency of other required 23 reports including payroll audit reports, summary loss reports, and quarterly financial 24 statements. 25 Sec. 21.47.110. Required second injury contribution. A group is subject to 26 the required contribution provisions of the second injury fund under AS 23.30.040. 27 If an employee of a member of a group suffers a compensable injury, the group shall 28 contribute to the second injury fund as required under AS 23.30.040. 29 Sec. 21.47.120. Misrepresentation prohibited. A person may not make a 30 material misrepresentation or omission of a material fact in connection with the 31 solicitation of membership of a group.
01 Sec. 21.47.130. Rates and reporting of rates. (a) A workers' compensation 02 self-insurance group shall adhere to the uniform classification system, uniform 03 experience rating plan, and manual rules designated by the director. 04 (b) Premium contributions to the group shall be determined by applying the 05 manual rates and rules to the appropriate classification of a member. Premium 06 contributions shall be adjusted by a member's experience credit or debit. Subject to 07 approval by the director, the premium contributions may also be reduced by an 08 advance premium discount reflecting the group's expense levels and loss experience. 09 (c) Notwithstanding (b) of this section, a group may apply to the director for 10 permission to make its own rates. Rates established under this subsection shall be 11 based on at least five years of the group's experience. 12 (d) A group shall use the premium rates designated by the director. A group 13 may contract with an advisory organization approved by the director for assistance in 14 developing appropriate rates. 15 (e) A group shall be audited at least annually by an auditor acceptable to the 16 director to verify proper classifications, experience rating, payroll, and rates. A report 17 of the audit shall be filed with the director in a form acceptable to the director. A 18 group or a member of a group may request a hearing on objections to the 19 classifications. If the director determines that as a result of an improper classification 20 a member's premium contribution is insufficient, the director shall order the group to 21 assess that member an amount equal to the deficiency. If the director determines that 22 as a result of an improper classification a member's premium is excessive, the director 23 shall order the group to refund to the member the excess premium collected. The 24 audit required under this subsection shall be at the expense of the group. 25 Sec. 21.47.140. Refunds. (a) If approved by the director, money for a fiscal 26 year in excess of the amount necessary to fund all obligations for that fiscal year may 27 be declared to be refundable by the board of trustees not less than 12 months after the 28 end of the fiscal year. 29 (b) A member shall be given a written description of the refund plan at the 30 time of application for membership. A refund for any fiscal year shall be paid only 31 to those employers who remain participants in the group for the entire fiscal year.
01 Sec. 21.47.150. Premium payment; reserves. (a) A group shall establish to 02 the satisfaction of the director a premium payment plan; the plan must include payment 03 of the balance of each member's annual premium in monthly installments. 04 (b) A group shall establish and maintain actuarially appropriate loss reserves 05 that must include reserves for 06 (1) known claims and associated expenses; and 07 (2) claims incurred but not reported and associated expenses. 08 (c) A group shall establish and maintain bad debt reserves based on the 09 historical experience of the group or other groups. 10 Sec. 21.47.160. Workers' compensation self-insurance guaranty fund. A 11 group shall establish a workers' compensation self-insurance guaranty fund. The 12 purpose of the fund is to prevent insolvency and to allow a group to discharge its legal 13 liabilities and other obligations. In addition to any other deposit requirement under 14 this chapter, the group shall make a one time only deposit to the guaranty fund of five 15 percent of the group's estimated annual premium before the start of the group's first 16 fiscal year. A group shall obtain reinsurance for the fund described in this section in 17 a form and amount approved by the director. 18 Sec. 21.47.170. Deficits and insolvencies. (a) If the assets of a group are at 19 any time insufficient to enable the group to discharge its legal liabilities and other 20 obligations and to maintain the reserves required of the group under this chapter, the 21 group shall immediately make up the deficiency or levy an assessment upon the group 22 members for the amount needed to make up the deficiency. 23 (b) In the event of a deficiency in any fiscal year, the deficiency shall be made 24 up immediately, either from 25 (1) surplus from a fiscal year other than the current fiscal year; 26 (2) administrative funds; 27 (3) funds collected under AS 21.47.160; 28 (4) assessment of the membership, if ordered by the group and funds 29 described under (3) of this subsection are exhausted; or 30 (5) an alternate method that the director may approve or direct. 31 (c) The director shall be notified before a transfer of surplus funds from one
01 fiscal year to another. If a group fails to assess its members or to otherwise make up 02 a deficit within 60 days, the director shall order the group to make up the deficit. 03 (d) If a group fails to make the required assessment of its members within 30 04 days after the director orders it to do so, or if the deficiency is not fully made up 05 within 120 days after the date on which the assessment is made, or within a longer 06 period of time that is specified by the director, the group shall be considered to be 07 insolvent. 08 (e) In the event of the liquidation of a group, the director shall levy an 09 assessment upon its members in an amount the director determines to be necessary to 10 discharge all liabilities of the group, including the reasonable cost of liquidation. 11 Sec. 21.47.180. Penalties. (a) After notice and opportunity for a hearing, the 12 director may impose a civil penalty on a person or group found to be in violation of 13 any provision of this chapter. The civil penalty may not exceed $500 for each act or 14 violation and may not exceed $5,000 in the aggregate. 15 (b) After notice and opportunity for a hearing, the director may issue an order 16 requiring a person or group to cease and desist from engaging in an act or practice 17 found to be in violation of any provision of this chapter. 18 (c) Upon a finding, after notice and opportunity for a hearing, that a person 19 or group has knowingly violated a cease and desist order, the director may 20 (1) impose a civil penalty of not more than $5,000 for each act or 21 violation of the order not to exceed an aggregate amount of $25,000; or 22 (2) revoke the group's certificate of approval or any insurance license 23 held by the person. 24 (d) In this section, "knowingly" has the meaning given in AS 11.81.900. 25 Sec. 21.47.190. Revocation of certificate of approval. (a) After notice and 26 opportunity for a hearing, the director may revoke a group's certificate of approval if 27 the group 28 (1) is found to be insolvent; 29 (2) fails to pay any premium tax, regulatory fee or assessment, or 30 special fund contribution imposed upon the group; or 31 (3) fails to comply with any of the provisions of this chapter or with
01 any lawful order of the director within the time prescribed. 02 (b) In addition to (a) of this section, the director may revoke a group's 03 certificate of approval if, after notice and opportunity for hearing, the director finds 04 that 05 (1) a certificate of approval that was issued to the group was obtained 06 by fraud; 07 (2) there was a material misrepresentation in the application for the 08 certificate of approval; or 09 (3) the group or its administrator has misappropriated, converted, 10 illegally withheld, or refused to pay over upon proper demand any money that belongs 11 to a member, an employee of a member, or a person otherwise entitled to it, and that 12 has been entrusted to the group or its administrator in its fiduciary capacities. 13 Sec. 21.47.200. Other provisions applicable. The following provisions of law 14 are applicable to a workers' compensation self-insurance group as if the group were 15 an insurer: 16 (1) authority granted to the director under AS 21.06.120, 21.06.140 - 17 21.06.160, and 21.06.180 - 21.06.230; 18 (2) service of process provisions under AS 21.09.180 and 21.09.190; 19 (3) requirements imposed under AS 21.12.010 - 21.12.090; 20 (4) investment practices required under AS 21.21; 21 (5) administration of deposit requirements under AS 21.24; 22 (6) provisions applicable to producers, agents, administrators, brokers, 23 adjusters, and managers under AS 21.27.405, 21.27.410, 21.27.420, 21.27.440, and 24 21.27.460; 25 (7) unfair trade practice provisions under AS 21.36; 26 (8) provisions applicable to reciprocal and cooperative insurers under 27 AS 21.75.130, 21.75.135, and 21.75.270; 28 (9) provisions applicable to rehabilitation and liquidation under 29 AS 21.78. 30 Sec. 21.47.500. Definitions. In this chapter, 31 (1) "administrator" means an individual, partnership, or corporation
01 engaged by a workers' compensation self-insurance group's board of trustees to carry 02 out the policies established by the group's board of trustees and to provide day-to-day 03 management of the group; 04 (2) "insolvent" or "insolvency" means the inability of a workers' 05 compensation self-insurance group to pay its outstanding lawful obligations as the 06 obligations mature in the regular course of business, as may be shown either by an 07 excess of its required reserves and other liabilities over its assets or by its not having 08 sufficient assets to reinsure all of its outstanding liabilities after paying all accrued 09 claims owed by the group; 10 (3) "net premium" means premium derived from standard premium 11 adjusted by an advance premium discount; 12 (4) "service company" means a person that provides services not 13 provided by the administrator, including 14 (A) claims adjustment; 15 (B) safety engineering; 16 (C) compilation of statistics and the preparation of premium, 17 loss, and tax reports; 18 (D) preparation of required self-insurance reports; 19 (E) development of members' assessments and fees; and 20 (F) administration of a claim fund; 21 (5) "standard premium" means the premium derived from the manual 22 rates adjusted by experience modification factors but before advance premium 23 discounts; 24 (6) "workers' compensation self-insurance group" or "group" means 10 25 or more employers who are engaged in the same or similar type of business, who are 26 members of the same bona fide trade or professional association that has been in 27 existence for not less than five years, and who enter into agreements to pool their 28 liabilities for workers' compensation benefits in this state.