Mich. Admin. Code R. 408.43e - Group self-insurers; new and renewal application requirements

Rule 13e.

(1) A new application, as submitted by the initial board of trustees of the self-insurer's fund, must be accompanied by all of the following:

(a) A copy of the approved bylaws of the proposed group self-insurers' fund.

(b) A copy of the original individual member application approved by the board of trustees for each member of the group applying for coverage in the fund.

(c) A current financial statement of each member of a private self-insurers' group that, taken collectively, shows both of the following:

(i) The combined net assets of all members applying for coverage on the inception date of the fund, which may not be less than $1,000,000.00.

(ii) Working capital, which must be in an amount that establishes the financial strength and liquidity of the business.

(d) A composite listing of the estimated standard premium to be developed by each member of the group individually and in total as a group.

(e) Proof of payment by each member of not less than 25% of the estimated annual standard premium into a designated depository.

(f) An excess insurance policy that is issued by an authorized carrier in an amount acceptable to the agency and complies with the requirements set forth in R 408.43k.

(g) A copy of a signed service agreement that designates an approved service company.

(h) A copy of the current contract or agreement between the trustees and the administrator if one is used.

(i) Proof of a fidelity policy in a form and amount acceptable to the agency.

(j) If required, a surety bond written by an authorized carrier or other security in a form and amount acceptable to the agency.

(k) In the case of a private employer's group, an indemnity agreement jointly and severally binding the group and each member of the group to comply with the provisions of the act. The indemnity agreement must conform to an indemnity agreement as approved by the agency.

(l) A breakdown of all rates by code classification that will be used by the group fund to develop final audited premium, including an exhibit that shows all administrative expenses as a percentage of estimated final audited premium and loss fund developed under the aggregate excess contract as a percentage of final audited premium.

(m) The trustees shall provide proof, satisfactory to the agency, that the annual gross premiums of the fund will be not less than $500,000.00.

The premium collected from each member must be based upon applying the appropriate manual rates per payroll code classification as approved by the agency and the excess carrier. The premium collected from each participant in a group selfinsurance program must be adjusted by an experience modification formula approved by the agency.

The total premium collected from all participants must be sufficient to fund the loss fund developed under the excess insurance contract and the total administrative expenses of the group fund. A written excess insurance policy must confirm that the rate structure proposed by the aggregate excess insurer will be used by the group fund to develop the loss fund under the aggregate excess contract. The loss fund shall be 75% of final audited premium or as approved by the agency.

(n) Proof, satisfactory to the agency, must be provided to prove that the fund has, within its own organization, ample facilities and competent personnel to service its own program with respect to underwriting matters and loss control services or the fund shall contract with an approved service company to provide the services. An approved service company must be used to handle claims adjusting and reporting of loss data to the agency.

(2) Each group fund shall submit a renewal application to the agency 30 days before the expiration of the self-insurance privilege, together with the terms of renewal for the excess insurance contract. Upon receipt of the renewal application, the selfinsurance privilege is extended until it has been acted upon by the director. The application must be accompanied by all of the following:

(a) Evidence of the financial ability of the group to meet its obligations under the act.

(b) Confirmation of an excess insurance policy that is issued by an authorized carrier in an amount acceptable to the agency and complies with the requirements set forth in R 408.43k. With the approval of the director and after meeting all requirements the director imposes, a group self-insurance fund may use a letter of credit in place of aggregate excess insurance if the fund gives the agency 6 months' notice of its intent to use a letter of credit.

(c) A copy of a signed service contract that designates an approved service company, which provides for claims administration and reporting of loss data to the agency, and which may include underwriting and loss control services, unless approval has been granted to self-administer claims.

(d) Proof of a fidelity policy in a form and amount acceptable to the agency.

(e) A breakdown of all rates by code classification that will be used by the group fund to develop final audited premium. If aggregate excess insurance is required by the agency, the rates used by the fund to develop final audited premium must be the rates used by the aggregate excess insurer and shall be included as an exhibit to the aggregate excess insurance policy. In addition, an exhibit that shows all administrative expenses as a dollar amount and a percentage of estimated final premium and the loss fund developed under the aggregate excess contract as a percentage of final audited premium must be provided.

(f) A copy of the current contract or agreement between the trustees and the fund administrator, if one is used.

(g) Proof provided by the trustees that the premium collected from each member is based upon applying the appropriate manual rates per payroll code classification as approved by the agency and the excess insurance carrier or consulting actuary. Each member's premium must be experience rated. The experience modification formula must be approved by the agency. The total premium collected from all participants must be sufficient to fund all administrative expenses and the estimated loss fund developed under the excess insurance contract. The loss fund must be 75% of final audited premium or as approved by the agency. If a letter of credit is used in place of aggregate excess insurance, the fund shall collect sufficient premiums to fund the ninetieth percentile confidence level of losses, as calculated by a consulting actuary, and all administrative expenses. If a public employer group fund operates with specific excess insurance only, the fund shall collect sufficient premiums to fund the ninetieth percentile confidence level of losses, as calculated by a consulting actuary, and all administrative expenses of the fund.

(h) If the fund intends to provide underwriting and loss control services, the fund shall provide proof that the fund has ample facilities and competent personnel to service the programs.

(i) If the fund requests approval to self-administer claims, then all of the following must be provided:

(i) Proof that the fund has been in operation not less than 5 years.

(ii) Proof that the fund has annual collected premium of more than $10,000,000.00.

(iii) A written document in which the fund agrees to all of the following provisions:

(A) The fund will demonstrate that the estimated cost of selfadministration of the claims program will be fully funded by premium collections.

(B) The fund will demonstrate that it has ample facilities and competent staff, including licensed adjusters with workers' compensation qualifications under chapter 12 of the insurance code of 1956, 1956 PA 218, MCL 500.1200 to 500.1247, who will be handling the workers' compensation claims.

(C) That the claims-handling function will be subject to an annual independent audit of all established cases and operational processes. The independent auditor will meet guidelines established by the agency.

(D) That annually, the fund administrator will provide a written assertion to the fund's independent certified public accountant that the fund's claim-paying function maintains an effective internal control structure over financial reporting as of the fund's fiscal year end. The fund's independent certified public accountant shall issue a report on the administrator's assertion in accordance with statements on standards for attestation engagements No. 2 (SSAE#2), as amended.

(E) The group fund will furnish loss data in a form acceptable to the agency and the excess carrier.

(F) That failure to provide accurate and timely payment of claims or failure to meet the requirements of self-administered claims may result in termination of approval to self-administer claims.

(G) That the excess insurer will provide documentation of its approval of the group fund's self-administration of claims.

Notes

Mich. Admin. Code R. 408.43e

1980 AACS; 1984 AACS; 1996 AACS; 1997 AACS; 2021 MR 23, Eff. 12/10/2021