SB 95: "An Act relating to workers' compensation self-insurance."
00SENATE BILL NO. 95 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 of $500. The 03 application must include the group's name, location of its principal office, date of 04 organization, name and address of each member, and other information that the 05 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. 501(c)(6) and 21 exemption from taxation under 26 U.S.C. 501(a); and 22 (10) proof of payment to the group by each member of not less than 23 25 percent of that member's first year estimated annual net premium on a date 24 prescribed by the director; payment shall be considered to be part of the first year 25 premium payment of a member if the proposed group is granted a certificate of 26 approval. 27 (b) To obtain and to maintain its certificate of approval, a workers' 28 compensation self-insurance group shall meet the following requirements, as well as 29 other requirements established by law: 30 (1) a combined net worth of all members of the group of at least 31 $1,000,000;
01 (2) security in a form and amount prescribed by the director that shall 02 be provided by either a surety bond, security deposit, or financial security endorsement 03 or any combination of bond, deposit, or endorsement; if a surety bond is used to meet 04 the security requirement, it shall be issued by a corporate surety company authorized 05 to transact business in this state; if a security deposit is used to meet the security 06 requirement, securities shall be limited to bonds or other evidences of indebtedness 07 issued, assumed, or guaranteed by the United States of America, or by an agency or 08 instrumentality of it; certificates of deposit in a federally insured bank; shares or 09 savings deposits in a federally insured savings and loan association or credit union; or 10 any bond or security issued by a state of the United States of America and backed by 11 the full faith and credit of the state; securities shall be deposited with the director and 12 assigned to and made negotiable by the commissioner of labor under a trust document 13 acceptable to the director; interest accruing on a negotiable security shall be collected 14 and transmitted to the depositor, provided the depositor is not in default; a financial 15 security endorsement, issued as part of an acceptable excess insurance contract, may 16 be used to meet all or part of the security requirement; the director may establish and 17 adjust, from time to time, requirements for the amount of security based on differences 18 among groups in their size, types of employment, years in existence, and other relevant 19 factors; the bond, security deposit, or financial security endorsement must be 20 (A) for the benefit of the state solely to pay workers' 21 compensation claims and associated expenses; and 22 (B) payable upon the failure of the group to pay workers' 23 compensation benefits that it is legally obligated to pay; 24 (3) specific and aggregate excess insurance in a form, in an amount, 25 and by an insurance company acceptable to the director; the director may establish 26 minimum requirements for the amount of specific and aggregate excess insurance 27 based on size differences among groups, types of employment, years in existence, and 28 other relevant factors, and may permit a group to meet this requirement by placing in 29 a designated depository securities of the type referred to in (2) of this subsection; 30 (4) an estimated annual standard premium of at least $250,000 during 31 a group's first year of operation; in subsequent years, the annual standard premium
01 must be at least $500,000; 02 (5) an indemnity agreement jointly and severally binding the group and 03 each member of the group to meet the workers' compensation obligations of each 04 member; the indemnity agreement must be in a form prescribed by the director and 05 must include minimum uniform substantive provisions prescribed by the director; 06 subject to the director's approval, a group may add other provisions needed because 07 of its particular circumstances; 08 (6) a fidelity bond for the administrator in a form and amount 09 prescribed by the director; and 10 (7) a fidelity bond for the service company in a form and amount 11 prescribed by the director; the director may also require the service company providing 12 claim services to furnish a performance bond in a form and amount prescribed by the 13 director. 14 (c) A group shall notify the director of any change in the information required 15 to be filed under (a) of this section or in the manner of its compliance with (b) of this 16 section not later than 30 days after the change. 17 (d) The director shall 18 (1) evaluate the information provided by the application required to be 19 filed under (a) of this section to assure that gaps in funding do not exist and that funds 20 necessary to pay workers' compensation benefits will be available on a timely basis; 21 (2) act upon a completed application for a certificate of approval within 22 60 days; if, because of the number of applications, the director is unable to act upon 23 an application within this period, the director may have an additional 60 days to act 24 on an application; 25 (3) issue to the group a certificate of approval upon finding that the 26 proposed group has met all requirements, or the director shall issue an order refusing 27 the certificate setting out reasons for refusal upon finding that the proposed group does 28 not meet all requirements of this chapter. 29 (e) A workers' compensation self-insurance group shall be considered to have 30 appointed the director as its attorney to receive service of legal process issued against 31 it in this state. The appointment is irrevocable, binds any successor in interest, and
01 remains in effect as long as there is in this state an obligation or liability of the group 02 for workers' compensation benefits. 03 Sec. 21.47.040. Certificate of approval; termination. (a) A certificate of 04 approval issued by the director to a workers' compensation self-insurance group 05 authorizes the group to provide workers' compensation benefits as required under 06 AS 23.30. The certificate of approval remains in effect until terminated at the request 07 of the group or revoked by the director under AS 21.47.190. 08 (b) The director may not grant the request of a group to terminate its 09 certificate of approval unless the group has insured or reinsured all incurred workers' 10 compensation obligations with an authorized insurer under an agreement filed with and 11 approved in writing by the director. Workers' compensation obligations must include 12 both known claims and associated expenses and claims incurred but not reported and 13 associated expenses. Subject to the approval of the director, a group may merge with 14 another group engaged in the same or similar type of business only if the resulting 15 group assumes in full all obligations of the merging groups. The director may hold 16 a hearing on the merger and shall hold a hearing if any party, including a member of 17 either group, requests a hearing. 18 Sec. 21.47.050. Examinations. The director may examine the affairs, 19 transactions, accounts, records, and assets and liabilities of a group as often as the 20 director requires. The expense of an examination shall be assessed against the group 21 in the same manner that an insurer is assessed for an examination. 22 Sec. 21.47.060. Board of trustees: membership, powers, duties, and 23 prohibitions; accounts. (a) A group shall be operated by a board of trustees of not 24 less than five persons whom the members of a group elect for stated terms of office. 25 At least two-thirds of the trustees shall be employees, officers, or directors of members 26 of the group. The group's administrator, service company, or an owner, officer, 27 employee of, or another person affiliated with the administrator or service company 28 may not serve on the board of trustees of the group. A trustee shall be a resident of 29 this state or an officer of a corporation authorized to do business in this state. The 30 board of trustees of a group shall ensure that all claims are paid promptly and take all 31 necessary precautions to safeguard the assets of the group.
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, and special fund contributions, including second injury 07 and other loss related funds; this shall be called the "claims fund account"; the 08 remaining net premium shall be placed into a designated depository for the payment 09 of taxes, general regulatory fees and assessments, and administrative costs; this shall 10 be called the "administrative fund account"; the director may approve an administrative 11 fund account of more than 30 percent and a claims fund account of less than 70 12 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. The group 11 shall maintain coverage of a cancelled or terminated member for 30 days after notice 12 to the director, at the terminating member's expense, unless the group is notified 13 sooner by the division of workers' compensation that the cancelled or terminated 14 member has procured workers' compensation insurance, has become an approved self- 15 insurer, or has become a member of another group. 16 (c) The group shall pay all workers' compensation benefits for which a 17 member incurs liability during its period of membership. A member who elects to 18 terminate its membership or is cancelled by a group remains liable for any workers' 19 compensation obligations of the group and its members that were incurred during the 20 cancelled or terminated member's period of membership. 21 (d) A group member is not relieved of its workers' compensation liabilities 22 incurred during its period of membership except through payment by the group or the 23 member of workers' compensation benefits required under AS 23.30. 24 (e) The insolvency or bankruptcy of a member does not relieve the group or 25 another member of liability for the payment of any workers' compensation benefits 26 incurred during the insolvent or bankrupt member's period of membership. 27 Sec. 21.47.080. Service companies. (a) A service company or its employees, 28 officers, or directors may not be an employee, officer, or director of, or have either a 29 direct or indirect financial interest in, an administrator. An administrator or its 30 employees, officers, or directors may not be an employee, officer, or director of, or 31 have either a direct or indirect financial interest in, a service company.
01 (b) A service contract must state that unless the director permits otherwise, the 02 service company shall handle, to conclusion, all workers' compensation claims and 03 other obligations incurred during the contract period. 04 Sec. 21.47.090. Licensing of agent. Except for a salaried employee of a 05 group, its administrator, or its service company, a person soliciting membership for a 06 workers' compensation self-insurance group must be licensed as provided under 07 AS 21.27. 08 Sec. 21.47.100. Financial statements and other reports. (a) A group shall 09 submit to the director a statement of the financial condition of the group that is 10 annually audited by an independent certified public accountant on or before the last 11 day of the sixth month following the end of the group's fiscal year. The financial 12 statement must be on a form prescribed by the director and must include actuarially 13 appropriate reserves, known as liabilities, for 14 (1) known claims and associated expenses; 15 (2) claims incurred but not reported and associated expenses; 16 (3) unearned premiums; and 17 (4) bad debts. 18 (b) The actuarial opinion required under (a) of this section shall be given by 19 a member of the American Academy of Actuaries or other qualified loss reserve 20 specialist as defined in the annual statement adopted by the National Association of 21 Insurance Commissioners. 22 (c) A person may not make an untrue statement of a material fact, or omit to 23 state a material fact necessary in order to make the statement made, in light of the 24 circumstances under which it is made, not misleading, in connection with the 25 solicitation of membership in a group. 26 (d) The director may prescribe the format and frequency of other required 27 reports including payroll audit reports, summary loss reports, and quarterly financial 28 statements. 29 Sec. 21.47.110. Required second injury contribution. A group is subject to 30 the required contribution provisions of the second injury fund under AS 23.30.040. 31 If an employee of a member of a group suffers a compensable injury, the member
01 shall contribute to the second injury fund as required under AS 23.30.040. 02 Sec. 21.47.120. Misrepresentation prohibited. A person may not make a 03 material misrepresentation or omission of a material fact in connection with the 04 solicitation of membership of a group. 05 Sec. 21.47.130. Investments. Funds not needed by a group for current 06 obligations may be invested by the board of trustees as provided under AS 21.21. 07 Sec. 21.47.140. Rates and reporting of rates. (a) A workers' compensation 08 self-insurance group shall adhere to the uniform classification system, uniform 09 experience rating plan, and manual rules designated by the director. 10 (b) Premium contributions to the group shall be determined by applying the 11 manual rates and rules to the appropriate classification of a member. Premium 12 contributions shall be adjusted by a member's experience credit or debit. Subject to 13 approval by the director, the premium contributions may also be reduced by an 14 advance premium discount reflecting the group's expense levels and loss experience. 15 (c) Notwithstanding (b) of this section, a group may apply to the director for 16 permission to make its own rates. Rates established under this subsection shall be 17 based on at least five years of the group's experience. 18 (d) A group shall use the premium rates designated by the director plus an 19 additional amount representing the member's portion of estimated expenses. A group 20 may contract with an advisory organization approved by the director for assistance in 21 developing appropriate rates. 22 (e) A group shall be audited at least annually by an auditor acceptable to the 23 director to verify proper classifications, experience rating, payroll, and rates. A report 24 of the audit shall be filed with the director in a form acceptable to the director. A 25 group or a member of a group may request a hearing on objections to the 26 classifications. If the director determines that as a result of an improper classification 27 a member's premium contribution is insufficient, the director shall order the group to 28 assess that member an amount equal to the deficiency. If the director determines that 29 as a result of an improper classification a member's premium is excessive, the director 30 shall order the group to refund to the member the excess premium collected. The 31 audit required under this subsection shall be at the expense of the group.
01 Sec. 21.47.150. Refunds. (a) Money for a fiscal year in excess of the amount 02 necessary to fund all obligations for that fiscal year may be declared to be refundable 03 by the board of trustees not less than 12 months after the end of the fiscal year. 04 (b) A member shall be given a written description of the refund plan at the 05 time of application for membership. A refund for any fiscal year shall be paid only 06 to those employers who remain participants in the group for the entire fiscal year. 07 Sec. 21.47.160. Premium payment; reserves. (a) A group shall establish to 08 the satisfaction of the director a premium payment plan; the plan must include 09 (1) an initial payment by each member of at least 25 percent of that 10 member's annual premium before the start of the group's fiscal year; and 11 (2) payment of the balance of each member's annual premium in 12 monthly or quarterly installments. 13 (b) A group shall establish and maintain actuarially appropriate loss reserves 14 that must include reserves for 15 (1) known claims and associated expenses; and 16 (2) claims incurred but not reported and associated expenses. 17 (c) A group shall establish and maintain bad debt reserves based on the 18 historical experience of the group or other groups. 19 Sec. 21.47.170. Deficits and insolvencies. (a) If the assets of a group are at 20 any time insufficient to enable the group to discharge its legal liabilities and other 21 obligations and to maintain the reserves required of it under this chapter, it shall 22 immediately make up the deficiency or levy an assessment upon the group members 23 for the amount needed to make up the deficiency. 24 (b) In the event of a deficiency in any fiscal year, the deficiency shall be made 25 up immediately, either from 26 (1) surplus from a fiscal year other than the current fiscal year; 27 (2) administrative funds; 28 (3) assessment of the membership, if ordered by the group; or 29 (4) 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 30 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 60 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) The director shall proceed against an insolvent group in the same manner 08 as the director would proceed against an insolvent domestic insurer in this state as 09 provided under AS 21.78. 10 (f) In the event of the liquidation of a group, the director shall levy an 11 assessment upon its members in an amount the director determines to be necessary to 12 discharge all liabilities of the group, including the reasonable cost of liquidation. 13 Sec. 21.47.180. Penalties. (a) After notice and opportunity for a hearing, the 14 director may impose a civil penalty on a person or group found to be in violation of 15 any provision of this chapter. The civil penalty may not exceed $1,000 for each act 16 or violation and may not exceed $10,000 in the aggregate. 17 (b) After notice and opportunity for a hearing, the director may issue an order 18 requiring a person or group to cease and desist from engaging in an act or practice 19 found to be in violation of any provision of this chapter. 20 (c) Upon a finding, after notice and opportunity for a hearing, that a person 21 or group has violated a cease and desist order, the director may 22 (1) impose a civil penalty of not more than $10,000 for each act or 23 violation of the order not to exceed an aggregate amount of $100,000; or 24 (2) revoke the group's certificate of approval or any insurance license 25 held by the person. 26 Sec. 21.47.190. Revocation of certificate of approval. (a) After notice and 27 opportunity for a hearing, the director may revoke a group's certificate of approval if 28 the group 29 (1) is found to be insolvent; 30 (2) fails to pay any premium tax, regulatory fee or assessment, or 31 special fund contribution imposed upon the group; or
01 (3) fails to comply with any of the provisions of this chapter or with 02 any lawful order of the director within the time prescribed. 03 (b) In addition to (a) of this section, the director may revoke a group's 04 certificate of approval if, after notice and opportunity for hearing, the director finds 05 that 06 (1) a certificate of approval that was issued to the group was obtained 07 by fraud; 08 (2) there was a material misrepresentation in the application for the 09 certificate of approval; or 10 (3) the group or its administrator has misappropriated, converted, 11 illegally withheld, or refused to pay over upon proper demand any money that belongs 12 to a member, an employee of a member, or a person otherwise entitled to it, and that 13 has been entrusted to the group or its administrator in its fiduciary capacities. 14 Sec. 21.47.500. Definitions. In this chapter, 15 (1) "administrator" means an individual, partnership, or corporation 16 engaged by a workers' compensation self-insurance group's board of trustees to carry 17 out the policies established by the group's board of trustees and to provide day-to-day 18 management of the group; 19 (2) "insolvent" or "insolvency" means the inability of a workers' 20 compensation self-insurance group to pay its outstanding lawful obligations as the 21 obligations mature in the regular course of business, as may be shown either by an 22 excess of its required reserves and other liabilities over its assets or by its not having 23 sufficient assets to reinsure all of its outstanding liabilities after paying all accrued 24 claims owed by the group; 25 (3) "net premium" means premium derived from standard premium 26 adjusted by an advance premium discount; 27 (4) "service company" means a person that provides services not 28 provided by the administrator, including 29 (A) claims adjustment; 30 (B) safety engineering; 31 (C) compilation of statistics and the preparation of premium,
01 loss, and tax reports; 02 (D) preparation of required self-insurance reports; 03 (E) development of members' assessments and fees; and 04 (F) administration of a claim fund; 05 (5) "standard premium" means the premium derived from the manual 06 rates adjusted by experience modification factors but before advance premium 07 discounts; 08 (6) "workers' compensation self-insurance group" or "group" means a 09 not-for-profit unincorporated association that has qualified as a trade organization 10 under 26 U.S.C. 501(c)(6) (Internal Revenue Code) and is exempt from taxation under 11 26 U.S.C. 501(a) (Internal Revenue Code), and consists of five or more employers who 12 are engaged in the same or similar type of business, who are members of the same 13 bona fide trade or professional association that has been in existence for not less than 14 five years, and who enter into agreements to pool their liabilities for workers' 15 compensation benefits in this state.