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