As Amended by House Committee
As Amended by Senate Committee
Session of 1999
SENATE BILL No. 79
By Committee on Financial Institutions and
Insurance
1-21
11 AN ACT relating
to insurance; concerning municipal funded pools;
12 amending K.S.A.
12-2618, 12-2620, 12-2622, 12-2627 and 44-586
and
13 K.S.A. 1998
Supp. 12-2621, 44-584 and 44-585 and 12-2630
and re-
14 pealing the existing
sections section.
15
16 Be it enacted by the Legislature of the
State of Kansas:
17
Section 1. K.S.A. 12-2618 is hereby amended
to read as follows: 12-
18 2618. Application for a
certificate of authority to operate a pool shall
be
19 made to the commissioner of
insurance not less than 30 days prior to the
20 proposed inception date of the
pool. The application shall include the
21 following:
22 (a) A
copy of the bylaws of the proposed pool, a copy of the
articles
23 of incorporation, if any, and a
copy of all agreements and rules of the
24 proposed pool. If any of the
bylaws, articles of incorporation, agreements
25 or rules are changed, the pool
shall notify the commissioner within 30
26 days after such
change.
27
(b) Designation of the initial board of trustees and
administrator.
28 When there is a change in the
membership of the board of trustees or
29 change of administrator, the
pool shall notify the commissioner within 30
30 days after such
change.
31
(c) The address where the books and records of the pool will
be
32 maintained at all times. If this
address is changed, the pool shall notify
33 the commissioner within 30 days
after such change.
34
(d) Evidence that the annual Kansas gross premium of the pool
will
35 be not less than $250,000 for
each of the categories described in subpar-
36 agraphs (1) through (4) of this
subsection: (1) All property insurance un-
37 der article 9 of chapter 40 of
the Kansas Statutes Annotated except motor
38 vehicle physical damage; (2)
motor vehicle liability and physical damage
39 insurance; (3) workers'
compensation and employers' liability insurance;
40 (4) all casualty insurance under
article 11 of chapter 40 of the Kansas
41 Statutes Annotated except
insurance under categories (2) and (3) above;
42 (5) group sickness and accident
insurance if at the date of issue the annual
2
1 gross premium for such
coverage will be not less than $1,000,000; and
2 (6) group life insurance
if at the date of issue the coverage will insure
at
3 least 60% of the eligible
participants or the total number of persons cov-
4 ered will exceed 600. The
pool shall notify the commissioner within 30
5 days if the minimum
premium qualification or participation requirement
6 is less than that
specified in this subsection for any of the above
categories
7 of
insurance.
8
(e) An agreement binding the group and each member thereof
to
9 comply with the provisions
of the workers compensation act if such cov-
10 erage is to be provided by the
pool. For all lines of coverage, all members
11 of the pool shall be jointly
liable for the payment of claims to the extent
12 of the assets of the
pool.
13 (f) A
copy of the procedures adopted by the pool to provide
services
14 with respect to underwriting
matters and, with respect to the categories
15 identified in subsection (d)(1)
through (4), safety engineering.
16 (g) A
copy of the procedures adopted by the pool to provide
claims
17 adjusting and accumulation of
income and expense and loss data.
18 (h) A
confirmation that specific and aggregate excess
insurance, ap-
19 proved by the commissioner as
appropriate for use by municipal group-
20 funded
pools, provided by an insurance company
holding a Kansas cer-
21 tificate of authority is or will
be in effect concurrent with the assumption
22 of risk by the pool, as selected
by the board of trustees of the pool, or
23 adequate surplus funds as
approved by the commissioner, in the pool.
24 The pool shall notify the
commissioner within 30 days of any change in
25 the specific or aggregate excess
insurance carried by the pool. For the
26 purposes hereof, ``surplus
funds'' shall mean retained earnings of the pool
27 after reserves have been
established for all known and incurred but not
28 reported losses of the pool and
after all other liabilities of the pool, in-
29 cluding unearned premium
reserves, have been deducted from total as-
30 sets. The term ``adequate
surplus funds'' shall mean the amount necessary
31 for the pool to fund its
self-insured obligations.
32
(i) After evaluating the application the commissioner shall
notify the
33 applicant if the plan submitted
is inadequate, fully explaining to the ap-
34 plicant what additional
requirements must be met. If the application is
35 denied, the applicant shall have
10 days to make an application for hearing
36 by the commissioner after the
denial notice is received. A record shall be
37 made of such hearing, and the
cost thereof shall be assessed against the
38 applicant requesting the
hearing.
39
(j) Any other relevant factors the commissioner may deem
necessary.
40 Sec.
2. K.S.A. 12-2620 is hereby amended to read as follows:
12-
41 2620. (a) All certificates
granted hereunder shall be perpetual unless
42 sooner suspended or revoked by
the commissioner or the attorney
43 general.
3
1
(b) Whenever the commissioner shall deem it necessary the
com-
2 missioner may make, or
direct to be made, an examination of the affairs
3 and the financial
condition of any pool, except that once every five
years
4 the commissioner shall
conduct an examination of the affairs and the
5 financial condition of
each pool. Each pool shall submit a certified
inde-
6 pendent audited financial
statement no later than 90 days after the end
7 of the fiscal year. The
financial statement shall include outstanding re-
8 serves for claims and for
claims incurred but not reported. Each pool
9 shall file reports as to
income, expenses and loss data at such times and
10 in such manner as the
commissioner shall require. Any pool
which does
11 not use rates developed by an
approved rating organization shall file with
12 the commissioner an actuarial
certification that such rates are actuarially
13 sound.
Whenever it appears to the commissioner from such
examination
14 or other satisfactory evidence
that the ability to pay current and future
15 claims of any such pool is
impaired, or that it is doing business in
violation
16 of any of the laws of this
state, or that its affairs are in an unsound con-
17 dition so as to endanger its
ability to pay or cause to be paid claims in the
18 amount, manner and time due, the
commissioner shall, before filing such
19 report or making the same
public, grant such pool upon reasonable notice
20 a hearing, and, if on such
hearing the report be confirmed, the commis-
21 sioner shall
may require any of the actions allowed under K.S.A.
40-222b
22 and amendments thereto
or suspend the certificate of authority
for such
23 pool until its ability to pay
current and future claims shall have been fully
24 restored and the laws of the
state fully complied with. The commissioner
25 may, if there is an unreasonable
delay in restoring the ability to pay claims
26 of such pool and in complying
with the law or if rehabilitation or
correc-
27 tive action taken under
K.S.A. 40-222b and amendments thereto is un-
28
successful, revoke the
certificate of authority of such pool to do
business
29 in this state. Upon revoking any
such certificate the commissioner shall
30 communicate the fact to the
attorney general, whose duty it shall be to
31 commence and prosecute an action
in the proper court to dissolve such
32 pool or to enjoin the same from
doing or transacting business in this state.
33 The commissioner of insurance
may call a hearing under K.S.A. 40-222b,
34 and amendments thereto, and the
provisions thereof shall apply to group-
35 funded pools.
36 (c) On an
annual basis, or within 30 days of any change
thereto,
37 each pool shall supply to
the commissioner the name and qualifi-
38 cations of the designated
administrator of the pools and the terms
39 of the specific and
aggregate excess insurance contracts of the
pool.
40 Sec.
3. K.S.A. 1998 Supp. 12-2621 is hereby amended to read
as
41 follows: 12-2621. (a) With
respect to the categories of coverage described
42 in subparagraphs (d)(1) through
(4) of K.S.A. 12-2618, and amendments
43 thereto, premium contributions
to the pool shall be based upon appro-
4
1 priate manual
classification and rates, plus or minus applicable
experience
2 credits or debits, and
minus any advance discount approved by the trus-
3 tees, not to exceed 25% of
manual premium. The pool shall use rules,
4 classifications and rates
as promulgated by an approved rating organiza-
5 tion for workers
compensation if the pool has been in operation for
less
6 than five years. Such
rates shall either be the rates effective June 1,
1994,
7 or the prospective loss
costs, as defined in K.S.A. 40-1113c, and amend-
8 ments thereto, plus
expenses necessary to administer the pool. For
pur-
9 poses of subsection (b),
the prospective loss costs shall be presumed to
10 be the 70% required to be
deposited in the claims fund. If the pool has
11 been in operation for more than
five years, the board of trustees may
12 determine such rates and
discounts as approved by the commissioner.
13 Premium contributions to the
pool for all other lines of insurance shall
14 be based on rates filed by a
licensed rating organization or on rates of
15 certain companies filing rates
with the commissioner and approved by
16 the commissioner for the pool.
In lieu of the foregoing, the board of
17 trustees may determine such
classification, rates and discounts as ap-
18 proved by the
commissioner.
19 Premium
contributions to any pool providing life insurance or any
pool
20 providing group sickness and
accident insurance as described in K.S.A.
21 12-2617, and amendments thereto,
shall be based on sound actuarial
22 principles.
23 (b) An
amount equal to at least 70% of the annual premium shall
be
24 maintained in a designated
depository for the purpose of paying claims
25 in a claims fund
account. If the pool has been in
operation for more than
26 five years the commissioner
may authorize allocation of a different
27 amount to the claims fund
account, if solvency of the pool would not be
28 endangered.
The remaining annual premium shall be placed into a
des-
29 ignated depository for the
payment of taxes, fees and administrative and
30 other operational costs in an
administrative fund account.
31
(c) Any moneys for a fund year in excess of the amount
necessary to
32 fulfill all obligations of the
pool for that fund year, including any obligation
33 to retain adequate surplus
funds, as defined by subsection (h) of K.S.A.
34 12-2618, and amendments thereto,
in lieu of specific and aggregate excess
35 insurance, may be declared to be
refundable by the trustees not less than
36 12 months after the end of the
fund year. Any such refund shall be paid
37 only to those members who
remained participants in the pool for an entire
38 year. Payment of previously
earned refunds shall not be contingent on
39 continued membership in the
pool.
40 Sec.
4. K.S.A. 12-2622 is hereby amended to read as follows:
12-
41 2622. The trustees shall not
utilize any of the contributions collected as
42 premiums for any purpose
unrelated to the pool. Moneys not needed for
43 current obligations may be
invested by the trustees. Such investments
5
1 shall be limited to bonds
or other evidences of indebtedness issued, as-
2 sumed or guaranteed by the
United States of America, or by any agency
3 or instrumentality
thereof; in certificates of deposit in a federally
insured
4 bank located in Kansas; or
in shares or savings deposits in a federally
5 insured savings and loan
association located in Kansas Unless
authorized
6 elsewhere in this act,
all funds of a pool shall be invested only in
Such
7 investments shall be
limited to investments permitted by K.S.A.
12-
8 1677b and 75-4209
and amendments thereto, except that a pool
9 which has been in
existence for at least five years shall be
permitted
10 to invest in any of
the securities or other
investments permitted by Ar-
11 ticle 2a of Chapter 40 of the
Kansas Statutes Annotated, or
such other
12 securities or investments
as the commissioner may
permit.
13 Sec.
5. K.S.A. 12-2627 is hereby amended to read as follows:
12-
14 2627. To ensure the financial
stability of the operations of each group-
15 funded pool, the board of
trustees of each pool is responsible for all
16 operations of the pool. The
board of trustees shall consist of not less than
17 three persons selected according
to the bylaws of the pool for stated terms
18 of office to direct the
administration of a pool, and whose duties include
19 approving applications by new
members of the pool. The majority of the
20 trustees must be a member of the
governing body or an officer or em-
21 ployee of members of the pool,
but a trustee may not be an owner, officer
22 or employee of any service agent
or representative. All trustees shall be
23 residents of this state unless
the pool was formed on or before January
24 1, 1990, in which event the
number of Kansas resident trustees of the
25 pool must be that percentage of
all trustees of the pool that equals the
26 percentage of the number of
Kansas lives covered by the pool with respect
27 to all lives covered by the pool
on the last day of the prior fiscal year of
28 the operation of the pool. The
board of trustees of each fund shall take
29 all necessary precautions to
safeguard the assets of the fund, including all
30 of the
following:
31
(a) Designate an administrator to administer the financial
affairs of
32 the pool who shall furnish a
fidelity bond to the pool in an amount de-
33 termined by the trustees to
protect the pool against the misappropriation
34 or misuse of any moneys or
securities. Such administrator shall be
an
35 experienced administrator of
group or self-funded pools, a licensed third
36 party administrator or a risk
manager. The administrator shall file
evi-
37 dence of the bond with the
commissioner. The bond shall be one of the
38 conditions required for approval
of the establishment and continued op-
39 eration of a pool. Any
administrator so designated shall be a resident of
40 Kansas if an individual or shall
be authorized to do business in Kansas if
41 a corporation.
42
(b) Retain control of all moneys collected or disbursed from
the pool
43 and segregate all moneys into a
claims fund account and an administrative
6
1 fund account. All
administrative costs and other disbursements shall
be
2 made from the
administrative fund account. The trustees may
establish
3 a revolving fund for use
by the authorized service agent which is replen-
4 ished from time to time
from the claims fund account. The service agent
5 and its employees shall be
covered by a fidelity bond, with the pool as
6 obligee, in an amount
sufficient to protect all moneys placed in the re-
7 volving
fund.
8
(c) Audit the accounts and records of the pool annually or at
any time
9 as required. The
commissioner shall prescribe the type of audits and
a
10 uniform accounting system for
use by pool and service agents to deter-
11 mine the ability of the pool to
pay current and future claims.
12
(d) The trustees shall not extend credit to individual members
for any
13 purpose.
14
(e) The board of trustees shall not borrow any moneys from the
pool
15 or in the name of the pool
without advising the commissioner of the
16 nature and purpose of the
loan.
17
(f) The board of trustees may delegate authority for specific
functions
18 to the administrator of the
pool. The functions which the board may
19 delegate include such matters as
contracting with a service agent, deter-
20 mining the premium chargeable to
and refunds payable to members,
21 investing surplus moneys and
approving applications for membership.
22 The board of trustees shall
specifically define all authority it delegates in
23 the written minutes of the
trustees' meetings. Any delegation of authority
24 shall not be effective without a
formal resolution passed by the trustees.
25 Sec.
6. K.S.A. 1998 Supp. 44-584 is hereby amended to read as
fol-
26 lows: 44-584. (a) The
application for a new certificate shall be signed
by
27 the trustees of the trust fund
created by the pool. Any application for a
28 renewal of an existing
certificate shall meet at least the standards
estab-
29 lished in subsections (f), (g),
(h), (i), (j), (k), (l), (m) and (n) of K.S.A. 44-
30 582 and amendments thereto.
After evaluating the application the com-
31 missioner shall notify the
applicant that the plan submitted is approved
32 or conversely, if the plan
submitted is inadequate, the commissioner shall
33 then fully explain to the
applicant what additional requirements must be
34 met. If the application is
denied, the applicant shall have 15 days to make
35 an application for hearing by
the commissioner after service of the denial
36 notice. The hearing shall be
conducted in accordance with the provisions
37 of the Kansas administrative
procedure act.
38 (b) An
approved certificate of authority shall remain in full force
and
39 effect until such certificate is
suspended or revoked by the commissioner.
40 An existing pool operating under
an approved certificate of authority must
41 file with the commissioner,
within 120 days following the close of the
42 pool's fiscal year, a current
financial statement on a form approved by the
43 commissioner showing the
financial ability of the pool to meet its obli-
7
1 gations under the worker
compensation act and confirmation of specific
2 and aggregate excess
insurance as required by law for the pool. If an
3 existing pool's
certificate of authority is suspended or revoked, such
pool
4 shall have the same rights
to a hearing by the commissioner as for appli-
5 cants for new certificates
of authority as set forth in subsection (a) above.
6
(c) Whenever the commissioner shall deem it necessary the
commis-
7 sioner may make, or direct
to be made, an examination of the affairs and
8 financial condition of any
pool in accordance with K.S.A. 40-222
and
9 K.S.A. 40-223 and
amendments thereto, except that once
every five years
10 the commissioner shall conduct
an examination of the affairs and financial
11 condition of each pool. Each
pool shall submit a certified independent
12 audited financial statement no
later than 90 days after the end of the
13 pool's fiscal year. The
financial statement shall include outstanding re-
14 serves for claims and for claims
incurred but not reported. Each pool
15 shall file payroll records,
accident experience and compensation reports
16 and such other reports and
statements at such times and in such manner
17 as the commissioner shall
require. Whenever it appears to the commis-
18 sioner from such examination or
other satisfactory evidence that the sol-
19 vency of any such pool is
impaired, or that it is doing business in
violation
20 of any of the laws of this
state, or that its affairs are in an unsound con-
21 dition so as to endanger its
ability to pay or cause to be paid the com-
22 pensation in the amount, manner
and time due as provided for in the
23 Kansas workers compensation act,
the commissioner shall, before filing
24 such report or making the same
public, grant such pool upon reasonable
25 notice a hearing in accordance
with the provisions of the Kansas admin-
26 istrative procedure act, and, if
on such hearing the report be confirmed,
27 the commissioner shall suspend
the certificate of authority for such pool
28 until its solvency shall have
been fully restored and the laws of the state
29 fully complied with. The
commissioner may, if there is an unreasonable
30 delay in restoring the solvency
of such pool and in complying with the
31 law, revoke the certificate of
authority of such pool to do business in this
32 state. Upon revoking any such
certificate the commissioner shall com-
33 municate the fact to the
attorney general, whose duty it shall be to com-
34 mence and prosecute an action in
the proper court to dissolve such pool
35 or to enjoin the same from doing
or transacting business in this state. The
36 commissioner of insurance may
call a hearing under K.S.A. 40-222b, and
37 amendments thereto, and the
provisions shall apply to group workers
38 compensation
pools.
39 Sec.
7. K.S.A. 1998 Supp. 44-585 is hereby amended to read as
fol-
40 lows: 44-585. (a) Premium
contributions to the pool shall be based upon
41 appropriate manual
classification and rates, plus or minus applicable
ex-
42 perience credits or debits, and
minus any advance discount approved by
43 the trustees, not to exceed 15%
of manual premium. The pool must use
8
1 rules, classifications and
rates as promulgated by an approved rating or-
2 ganization and must report
premium and loss data to a rating organization.
3 Such rates shall either be
the rates effective June 1, 1994, or the pro-
4 spective loss costs, as
defined in K.S.A. 40-1113, and amendments
5 thereto, plus expenses
necessary to administer the pool. For purposes of
6 subsection (b) the
prospective loss costs shall be presumed to be the
70%
7 required to be deposited
in the claims fund. If the pool has been in
8 operation for more than
five years, the board of trustees may determine
9 such rates as approved by
the commissioner.
10 (b) At
least 70% of the annual premium shall be placed into a
des-
11 ignated depository for the sole
purpose of paying claims. If so approved
12 by the commissioner of
insurance, the annual premium to be designated
13 to such depository may be
determined to be the net amount of premium
14 after all or a portion of the
specific and aggregate excess insurance pre-
15 mium costs have been paid. This
shall be called the claims fund account.
16 The remaining annual premium
shall be placed into a designated depos-
17 itory for the payment of taxes,
fees and administrative costs. This shall be
18 called the administrative fund
account. If a pool has been in operation
for
19 more than five years, the
commissioner may authorize allocation of a
20 different amount to the
claims fund account, if solvency of the pool
would
21 not be
endangered.
22
(c) Any surplus moneys for a fund year in excess of the amount
nec-
23 essary to fulfill all
obligations under the workers compensation act for
24 that fund year may be declared
to be refundable by the trustees not less
25 than 12 months after the end of
the fund year, upon the approval of the
26 commissioner. Such approval can
be obtained only upon satisfactory ev-
27 idence that sufficient funds
remain on deposit for the payment of all
28 outstanding claims and expenses,
including incurred but not reported
29 claims. Any such refund shall be
paid only to those employers who re-
30 mained participants in the pool
for an entire year. Payment of previously
31 earned refunds shall not be
contingent on continued membership in the
32 pool.
33 Sec.
8. K.S.A. 44-586 is hereby amended to read as follows:
44-586.
34 The trustees shall not utilize
any of the moneys collected as premiums
35 for any purpose unrelated to
Kansas workers' compensation. Moneys not
36 needed for current obligations
may be invested by the trustees. Such
37 investments shall be limited to
bonds or other evidences of indebtedness
38 issued, assumed or guaranteed by
the United States of America, or by
39 any agency or instrumentality
thereof; in certificates of deposit in a fed-
40 erally insured bank; or in
shares or savings deposits in a federally insured
41 savings and loan
association Unless authorized elsewhere
in this act, all
42 funds of a pool shall be
invested only in securities or other
investments
43 permitted by Article 2a of
Chapter 40 of the Kansas Statutes Annotated,
9
1 or such other
securities or investments as the commissioner may
permit.
2 Section 1. K.S.A.
12-2630 is hereby amended to read as fol-
3 lows: 12-2630. Notwithstanding the
provisions of K.S.A. 12-2616
4 through 12-2629 and amendments
thereto, any municipalities as
5 defined in K.S.A. 75-6102 and
amendments thereto, located in and
6 including Douglas, Johnson,
Leavenworth, Miami and Wyandotte coun-
7 ties the state of
Kansas, may qualify to enter into agreements to pool
8 their sickness and
accident related liabilities in accordance with
9 K.S.A 12-2617 et seq.
and amendments thereto with municipalities
10 located in other states if such a pool
was formed on or before Jan-
11 uary 1, 1990. Any investments held by
such pool shall be held in
12 an entity described in K.S.A. 12-2622
and amendments thereto. In
13 the event the law or laws of any other
state in which a member of
14 the pool is located are inconsistent
with or contrary to any provi-
15 sion of K.S.A. 12-2617 through 12-2626,
12-2628 and 12-2629 and
16 amendments thereto, the law of the state
with the more stringent
17 requirement shall apply.
18 Sec. 9.
2. K.S.A. 12-2618, 12-2620, 12-2622, 12-2627
and 44-586 and
19 K.S.A. 1998 Supp. 12-2621,
44-584 and 44-585 are 12-2630 is hereby
20 repealed.
21 Sec.
10. 3. This act shall take
effect and be in force from and after
22 its publication in the statute book.