Session of 1998
                   
HOUSE BILL No. 2638
         
By Committee on Insurance
         
1-16
            9             AN ACT concerning Kansas group-funded municipal pools, relating to
10             solvency requirements; amending K.S.A. 12-2618 and 12-2620 and
11             K.S.A. 1997 Supp. 12-2621 and 44-584 and repealing the existing
12             sections.
13            
14       Be it enacted by the Legislature of the State of Kansas:
15           Section 1. K.S.A. 12-2618 is hereby amended to read as follows:
16       12-2618. Application for a certificate of authority to operate a pool shall
17       be made to the commissioner of insurance not less than 30 days prior to
18       the proposed inception date of the pool. The application shall include the
19       following:
20           (a) A copy of the bylaws of the proposed pool, a copy of the articles
21       of incorporation, if any, and a copy of all agreements and rules of the
22       proposed pool. If any of the bylaws, articles of incorporation, agreements
23       or rules are changed, the pool shall notify the commissioner within 30
24       days after such change.
25           (b) Designation of the initial board of trustees and administrator.
26       When there is a change in the membership of the board of trustees or
27       change of administrator, the pool shall notify the commissioner within 30
28       days after such change.
29           (c) The address where the books and records of the pool will be
30       maintained at all times. If this address is changed, the pool shall notify
31       the commissioner within 30 days after such change.
32           (d) Evidence that the annual Kansas gross premium of the pool will
33       be not less than $250,000 for each of the categories described in subpar-
34       agraphs (1) through (4) of this subsection: (1) All property insurance un-
35       der article 9 of chapter 40 of the Kansas Statutes Annotated except motor
36       vehicle physical damage; (2) motor vehicle liability and physical damage
37       insurance; (3) workers' compensation and employers' liability insurance;
38       (4) all casualty insurance under article 11 of chapter 40 of the Kansas
39       Statutes Annotated except insurance under categories (2) and (3) above;
40       (5) group sickness and accident insurance if at the date of issue the annual
41       gross premium for such coverage will be not less than $1,000,000; and
42       (6) group life insurance if at the date of issue the coverage will insure at
43       least 60% of the eligible participants or the total number of persons cov-

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  1       ered will exceed 600. The pool shall notify the commissioner within 30
  2       days if the minimum premium qualification or participation requirement
  3       is less than that specified in this subsection for any of the above categories
  4       of insurance.
  5           (e) An agreement binding the group and each member thereof to
  6       comply with the provisions of the workers compensation act if such cov-
  7       erage is to be provided by the pool. For all lines of coverage, all members
  8       of the pool shall be jointly liable for the payment of claims to the extent
  9       of the assets of the pool.
10           (f) A copy of the procedures adopted by the pool to provide services
11       with respect to underwriting matters and, with respect to the categories
12       identified in subsection (d)(1) through (4), safety engineering.
13           (g) A copy of the procedures adopted by the pool to provide claims
14       adjusting and accumulation of income and expense and loss data.
15           (h) A confirmation that specific and aggregate excess insurance pro-
16       vided by an insurance company holding a Kansas certificate of authority
17       is or will be in effect concurrent with the assumption of risk by the pool,
18       as selected by the board of trustees of the pool, or adequate surplus funds
19       in an amount and form as approved by the commissioner, in the pool. In
20       addition, each pool shall maintain adequate surplus funds in the pool in
21       an amount and form as approved by the commissioner. The pool shall
22       notify the commissioner within 30 days of any change in the specific or
23       aggregate excess insurance carried by the pool. For the purposes hereof,
24       ``surplus funds'' shall mean retained earnings of the pool after reserves
25       have been established for all known and incurred but not reported losses
26       of the pool and after all other liabilities of the pool, including unearned
27       premium reserves, have been deducted from total assets. The term ``ad-
28       equate surplus funds'' shall mean the amount necessary for the pool to
29       fund its self-insured obligations.
30           (i) After evaluating the application the commissioner shall notify the
31       applicant if the plan submitted is inadequate, fully explaining to the ap-
32       plicant what additional requirements must be met. If the application is
33       denied, the applicant shall have 10 days to make an application for hearing
34       by the commissioner after the denial notice is received. A record shall be
35       made of such hearing, and the cost thereof shall be assessed against the
36       applicant requesting the hearing.
37           (j) Any other relevant factors the commissioner may deem necessary.
38           (k) If any pool fails to file any report or other documentation or in-
39       formation with the commissioner as required by this act or fails to respond
40       to any proper inquiry of the commissioner, the commissioner, after notice
41       and opportunity for hearing, may impose a penalty of up to $500 for each
42       violation or act, along with an additional penalty of up to $100 for each
43       week thereafter that such report or other information is not provided to

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  1       the commissioner.
  2           Sec. 2. K.S.A. 12-2620 is hereby amended to read as follows: 12-
  3       2620. (a) All certificates granted hereunder shall be perpetual unless
  4       sooner suspended or revoked by the commissioner or the attorney gen-
  5       eral.
  6           (b) Whenever the commissioner shall deem it necessary the com-
  7       missioner may make, or direct to be made, an examination of the affairs
  8       and the financial condition of any pool, except that once every five years
  9       the commissioner shall conduct an examination of the affairs and the
10       financial condition of each pool. Each pool shall submit a certified inde-
11       pendent audited financial statement no later than 90 days after the end
12       of the fiscal year. The financial statement shall include outstanding re-
13       serves for claims and for claims incurred but not reported. Each pool
14       shall file reports as to income, expenses and loss data at such times and
15       in such manner as the commissioner shall require. Whenever it appears
16       to the commissioner from such examination or other satisfactory evidence
17       that the ability to pay current and future claims of any such pool is im-
18       paired, or that it is doing business in violation of any of the laws of this
19       state, or that its affairs are in an unsound condition so as to endanger its
20       ability to pay or cause to be paid claims in the amount, manner and time
21       due, the commissioner shall, before filing such report or making the same
22       public, grant such pool upon reasonable notice a hearing, and, if on such
23       hearing the report be confirmed, the commissioner shall suspend the
24       certificate of authority for such pool until its ability to pay current and
25       future claims shall have been fully restored and the laws of the state fully
26       complied with. The commissioner may, if there is an unreasonable delay
27       in restoring the ability to pay claims of such pool and in complying with
28       the law, revoke the certificate of authority of such pool to do business in
29       this state. Upon revoking any such certificate the commissioner shall com-
30       municate the fact to the attorney general, whose duty it shall be to com-
31       mence and prosecute an action in the proper court to dissolve such pool
32       or to enjoin the same from doing or transacting business in this state. The
33       commissioner of insurance may call a hearing under K.S.A. 40-222b, and
34       amendments thereto, and the provisions thereof shall apply to group-
35       funded pools.
36           (c) In the event of an insolvency of any municipal group-funded pool,
37       such insolvency shall be handled in the same manner as that of an insol-
38       vent insurance company as provided in K.S.A. 40-3605 et seq., and
39       amendments thereto.
40           Sec. 3. K.S.A. 1997 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-

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  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 prin-
22       ciples.
23           Not less than 30 days prior to any rate adjustment and not less than
24       30 days prior to the end of each plan year, all municipal group-funded
25       pools which provide accident and sickness coverage shall file an actuarial
26       certification with the commissioner which states:
27           (1) that the underwriting and rating methods of the pool comply with
28       accepted actuarial principles;
29           (2) that the premiums charged by the pool are adequate to fund the
30       plan year; and
31           (3) the projections of earned premiums and incurred claims for the
32       entire period for which the rate were calculated.
33           (b) An amount equal to at least 70% of the annual premium shall be
34       maintained in a designated depository for the purpose of paying claims
35       in a claims fund account. The remaining annual premium shall be placed
36       into a designated depository for the payment of taxes, fees and adminis-
37       trative and other operational costs in an administrative fund account.
38           (c) Any moneys for a fund year in excess of the amount necessary to
39       fulfill all obligations of the pool for that fund year, including any obligation
40       to retain adequate surplus funds, as defined by subsection (h) of K.S.A.
41       12-2618, and amendments thereto, in lieu of specific and aggregate excess
42       insurance, may be declared to be refundable by the trustees not less than
43       12 months after the end of the fund year. Any such refund shall be paid

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  1       only to those members who remained participants in the pool for an entire
  2       year. Payment of previously earned refunds shall not be contingent on
  3       continued membership in the pool.
  4           New Sec. 4. If any pool fails to file any report or other documenta-
  5       tion or information with the commissioner as required by this act or fails
  6       to respond to any proper inquiry of the commissioner, the commissioner,
  7       after notice and opportunity for hearing, may impose a penalty of up to
  8       $500 for each violation or act, along with an additional penalty of up to
  9       $100 for each week thereafter that such report or other information is
10       not provided to the commissioner.
11           Sec. 5. K.S.A. 1997 Supp. 44-584 is hereby amended to read as fol-
12       lows: 44-584. (a) The application for a new certificate shall be signed by
13       the trustees of the trust fund created by the pool. Any application for a
14       renewal of an existing certificate shall meet at least the standards estab-
15       lished in subsections (f), (g), (h), (i), (j), (k), (l), (m) and (n) of K.S.A.
16       44-582 and amendments thereto. After evaluating the application the
17       commissioner shall notify the applicant that the plan submitted is ap-
18       proved or conversely, if the plan submitted is inadequate, the commis-
19       sioner shall then fully explain to the applicant what additional require-
20       ments must be met. If the application is denied, the applicant shall have
21       15 days to make an application for hearing by the commissioner after
22       service of the denial notice. The hearing shall be conducted in accordance
23       with the provisions of the Kansas administrative procedure act.
24           (b) An approved certificate of authority shall remain in full force and
25       effect until such certificate is suspended or revoked by the commissioner.
26       An existing pool operating under an approved certificate of authority must
27       file with the commissioner, within 120 days following the close of the
28       pool's fiscal year, a current financial statement on a form approved by the
29       commissioner showing the financial ability of the pool to meet its obli-
30       gations under the worker compensation act and confirmation of specific
31       and aggregate excess insurance as required by law for the pool. If an
32       existing pool's certificate of authority is suspended or revoked, such pool
33       shall have the same rights to a hearing by the commissioner as for appli-
34       cants for new certificates of authority as set forth in subsection (a) above.
35           (c) Whenever the commissioner shall deem it necessary the commis-
36       sioner may make, or direct to be made, an examination of the affairs and
37       financial condition of any pool, except that once every five years the com-
38       missioner shall conduct an examination of the affairs and financial con-
39       dition of each pool. Each pool shall submit a certified independent au-
40       dited financial statement no later than 90 days after the end of the pool's
41       fiscal year. The financial statement shall include outstanding reserves for
42       claims and for claims incurred but not reported. Each pool shall file pay-
43       roll records, accident experience and compensation reports and such

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  1       other reports and statements at such times and in such manner as the
  2       commissioner shall require. Whenever it appears to the commissioner
  3       from such examination or other satisfactory evidence that the solvency of
  4       any such pool is impaired, or that it is doing business in violation of any
  5       of the laws of this state, or that its affairs are in an unsound condition so
  6       as to endanger its ability to pay or cause to be paid the compensation in
  7       the amount, manner and time due as provided for in the Kansas workers
  8       compensation act, the commissioner shall, before filing such report or
  9       making the same public, grant such pool upon reasonable notice a hearing
10       in accordance with the provisions of the Kansas administrative procedure
11       act, and, if on such hearing the report be confirmed, the commissioner
12       shall suspend the certificate of authority for such pool until its solvency
13       shall have been fully restored and the laws of the state fully complied
14       with. The commissioner may, if there is an unreasonable delay in restoring
15       the solvency of such pool and in complying with the law, revoke the
16       certificate of authority of such pool to do business in this state. Upon
17       revoking any such certificate the commissioner shall communicate the
18       fact to the attorney general, whose duty it shall be to commence and
19       prosecute an action in the proper court to dissolve such pool or to enjoin
20       the same from doing or transacting business in this state. The commis-
21       sioner of insurance may call a hearing under K.S.A. 40-222b, and amend-
22       ments thereto, and the provisions shall apply to group workers compen-
23       sation pools.
24           (d) In the event of an insolvency of any pool, such insolvency shall be
25       handled in the same manner as that of an insolvent insurance company
26       as provided in K.S.A. 40-3605 et seq. and amendments thereto.
27           Sec. 6. K.S.A. 12-2618 and 12-2620 and K.S.A. 1997 Supp. 12-2621
28       and 44-584 are hereby repealed.
29           Sec. 7. This act shall take effect and be in force from and after its
30       publication in the Kansas register.
31