SB 212-FN – AS AMENDED BY THE HOUSE
SENATE BILL 212-FN
SPONSORS: Sen. White, Dist 9; Sen. Barnes, Jr., Dist 17; Sen. Boutin, Dist 16; Sen. Gallus, Dist 1; Sen. Lambert, Dist 13; Sen. Luther, Dist 12; Rep. Sapareto, Rock 5; Rep. Azarian, Rock 4; Rep. Tucker, Rock 17
I. Makes changes in the laws regulating pooled risk management programs.
II. Requires pooled risk management programs to return any surplus through premium holiday and cash in certain circumstances.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Explanation: Matter added to current law appears in bold italics.
Matter removed from current law appears [
in brackets and struckthrough.]
Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Twelve
AN ACT relative to pooled risk management programs.
Be it Enacted by the Senate and House of Representatives in General Court convened:
5-B:1 Purpose. The purpose of this chapter is to provide for the establishment of pooled risk management programs and to affirm the status of such programs for the benefit of political subdivisions of the state. The purpose of this chapter is also to give structure and clarity to the regulation and operation of pooled risk management programs.
5-B:1-a Findings; Intent.
I. The legislature finds that:
(a) Insurance and risk management is essential to the proper functioning of political subdivisions.
(b) Risk management can be achieved through purchase of traditional insurance or by participation in pooled risk management programs established for the benefit of political subdivisions.
(c) Pooled risk management is an essential governmental function by providing focused public sector loss prevention programs, accrual of interest and dividend earnings which may be returned to the public benefit, and establishment of costs predicated solely on the actual experience of political subdivisions within the state.
(d) The resources of political subdivisions have at times been burdened by the securing of insurance protection through standard carriers.
II. Based on these findings and that the legislative intent of this chapter is to provide political subdivisions with the best, most appropriate, and potentially lowest cost risk management programs available, no program established under this chapter shall enter into any type of free market preemption such as exclusive arrangements or right of first refusal arrangements with any carrier licensed to do business in this state. This will ensure that political subdivisions have the greatest latitude in procuring risk management programs from whatever free market distribution method and channel they find to their advantage.
5-B:2 Definitions. In this chapter:
I. “Annual filing” means an annual filing with the department made for the purpose of providing public access to certain information concerning the nature and organization of pooled risk management programs. Such annual filing shall include but not be limited to the following:
(a) The name and legal address of each pooled risk management program.
(b) A list of current officers, their titles and addresses.
(c) A brief description of the coverage provided.
(d) The annual audit of financial transactions required under RSA 5-B:5, I(d).
(e) A written plan of operation or bylaws.
(f) The annual actuarial accounting required under RSA 5-B:5, III.
(g) A policy adopted on an annual basis by the board of the risk pool management program regarding the level of reserves needed and a description of the principles utilized by the board to set that policy.
(h) A policy adopted by the board on an annual basis related to the timing of returning any surplus to the pool members and a description of the principles utilized by the board in setting that policy.
(i) The amount of reserves, contingency reserves listed by the categories outlined in paragraph IV(b), any surplus at the end of the fiscal year.
(j) The amount of any surplus returned to members.
(k) A policy adopted by the board on an annual basis regarding program investments and investment management.
(l) A list of all securities held at year end, including, if applicable, each security’s purchase and sale date, price, the number of shares held, and final maturity.
II. “Department” means the department of state, but shall not include the bureau of securities regulation, except where a clear and specific securities-related infraction has occurred.
III. “Political subdivision” means any city, town, county, school district, charted public school, village district, school administrative unit, or any district or entity created for a special purpose administered or funded by any of the above named governmental units. “Political subdivision” intentionally and specifically does not mean the state.
IV. “Reserves” shall mean and include the amounts of program assets in the following categories:
(a) Reserves for program liabilities, including claims reported but unpaid, claims incurred but unreported, unallocated loss adjustment expenses, and the reasonable and prudent administrative expenses associated with such claims.
(b) Contingency reserves limited to protection from excess claim losses, catastrophic claim losses, insufficient contributions and underwriting risk, losses on rate guarantees, ceded reinsurance denial or failure, adverse market developments, and capital asset or investment losses not included in the rates.
V. “Risk management” means the defense of claims and indemnification for losses arising out of the ownership, maintenance, and operation of real or personal property and the acts or omissions of officials, employees, and agents; the provision of loss prevention services including, but not limited to, inspections of property and the training of personnel; and the investigation, evaluation, and settlement of claims by and against political subdivisions. Risk management also means and includes disease management, medical management, legal risk management, wellness programs and incentives, and educational programs directly related to the risks covered under this chapter.
VI. “Surplus” means the amount of assets in excess of the sum of reserves as defined in paragraph IV. Assets for purposes of this paragraph shall not include fixed assets, prepaid expenses, or any other amount required to be recognized as an unrealized gain or loss under generally accepted accounting principles (GAAP).
5-B:3 Pooled Risk Management Authorized and Affirmed; Membership.
I. A political subdivision, by a properly documented majority resolution of its governing body, may establish and enter into agreements for obtaining or implementing insurance by self-insurance; for obtaining insurance from any insurer authorized to transact business in this state as an admitted or surplus lines carrier; or for obtaining insurance secured in accordance with any method provided by law; or for obtaining insurance by any combination of the provisions of this paragraph. Agreements made pursuant to this paragraph may provide for pooling of self-insurance reserves, risks, claims and losses, and of administrative services and expenses associated with them among political subdivisions. To accomplish the purposes of this chapter, 2 or more political subdivisions, with the approval of the secretary of state, may form an association under the laws of this state or affirm an existing association so formed to develop and administer a risk management program having as its purposes reducing the risk of its members; improving the health and wellness of the employees, dependents, and retirees of its members; safety engineering; distributing, sharing, and pooling risks; acquiring insurance, excess loss insurance by purchase or by self-funding, or reinsurance; and processing, paying, and defending claims against the members of such association.
II. Pooled risk management programs shall be subject to the provisions of RSA 31:8-a.
III. In a pooled risk management program’s budget there shall be a separate line item accounting for advocacy work. All lobbyists shall comply with the provisions of RSA 15:5 and shall be limited to issues relative to RSA 5-B.
IV. RSA 53-A shall not apply to an association formed or affirmed under this chapter, nor to the participation in such an association by a political subdivision.
V. Any association formed or affirmed under this chapter offering pooled risk management programs established for the benefit of political subdivisions may provide any or all of the following coverages; provided that each pooled risk management program shall only provide one of 2 such categories of coverage:
(a) Property and casualty coverage:
(1) Casualty, including general and professional liability; errors and omissions; workers’ compensation and employer’s liability; medical expense reimbursement payments; or unemployment compensation as authorized under federal law.
(2) Property, including marine and inland navigation, transportation, boiler and machinery; fire, theft, or natural hazards.
(3) Vehicle, including any liability or loss arising from the ownership or operation of vehicles.
(4) Surety and fidelity.
(5) Environmental impairment.
(6) Third party liability protection.
(7) Public official schedule bonds.
(8) Faithful performance and crime coverage.
(9) Legal fee protection.
(b) Employee benefit coverage:
(1) Hospital, medical, or surgical benefits for employees, retirees, and their dependents.
(2) Life, accidental death and dismemberment, vision loss or impairment benefits for employees, retirees, and their dependents.
(3) Short-term or long-term disability coverage for employees.
(4) Dental coverage for employees, retirees, and their dependents.
(5) Legal benefits for employees.
(6) Flexible spending account services, COBRA administration services and retiree billing services.
(7) Wellness programs for employees, retirees, and their dependents.
(8) Prescription drug coverage for employees, retirees, and their dependents, except that pharmacy benefit management programs with the state are specifically prohibited after December 31, 2015.
2 Pooled Risk Programs; Annual Filing Requirements. Amend RSA 5-B:4 to read as follows:
Informational] Annual Filing Required; Fee. Pooled risk management programs established for the benefit of political subdivisions shall make an [ informational] annual filing, as defined in RSA 5-B:2, [ II] I, with the department and shall pay an annual filing fee of $150. The department may make requests for additional information necessary to exercise regulatory or enforcement authority pursuant to, but not limited to, the hearings procedures under RSA 421-B:26-a over any pooled risk management program formed or affirmed in accordance with this chapter. Pooled workers’ compensation and unemployment compensation programs which are regulated by and which report to the department of labor and the department of employment security, under RSA 281-A and RSA 282-A, respectively, shall be exempt from the requirements of this [ section] chapter as long as their operations and reports conform to the laws and rules adopted by those departments.
3 Pooled Risk Programs; Authority of the Secretary of State; Investigations; Cease and Desist Orders; Penalties. Amend RSA 5-B:4-a to read as follows:
5-B:4-a Authority of the Secretary of State; Investigations; Cease and Desist Orders; Penalties.
I. Notwithstanding any other provision of law, the secretary of state shall have exclusive authority and jurisdiction:
(a) To bring administrative actions to enforce this chapter.
(b) To investigate and impose penalties for violations of this chapter, including but not limited to:
(2) Rescission, restitution, or disgorgement.
II. The secretary of state shall have all powers specifically granted or reasonably implied in order to perform the substantive responsibilities imposed by this chapter.
III. For the purpose of any investigation, hearing, or proceeding under this chapter, the secretary of state or any officer designated by him or her may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the secretary of state deems relevant or material to the inquiry.
IV. In the event that a person refuses to obey a subpoena issued to him or her or any order or determination the secretary of state is authorized to make, the superior court, upon application by the [
attorney general or] secretary of state or any officer designated by the secretary of state, may issue to the person an order directing him or her to appear before the [ attorney general or] secretary of state, or the officer designated by him or her, to produce documentary evidence if so ordered or to give evidence relative to the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as contempt of court.
V. In any investigation to determine whether any person has violated or is about to violate this chapter or any rule or order under this chapter, upon the secretary of state’s prevailing at hearing, or the person charged with the violation being found in default, or pursuant to a consent order issued by the secretary of state, the secretary of state shall be entitled to recover the costs of the investigation, and any related proceedings, including reasonable attorney’s fees, in addition to any other penalty provided for under this chapter.
VI. Whenever it appears to the secretary of state that any person has engaged or is about to engage in any act or practice constituting a violation of this chapter or any rule or order under this chapter, the secretary of state shall have the power to issue and cause to be served upon such person an order requiring the person to cease and desist from violations of this chapter. The order shall be calculated to give reasonable notice of the rights of the person to request a hearing on the order and shall state the reasons for the entry of the order. All hearings shall be conducted in accordance with RSA 421-B:26-a. Further, the secretary of state shall have all enforcement powers outlined in RSA 421-B:23, as well as examination authority pursuant to RSA 421-B:9.
VII. The following fines and penalties may be imposed on any person who has violated this chapter.
(a) Any person who, either knowingly or negligently, violates any provision of this chapter or any rule or order thereunder, may, upon hearing, and in addition to any other penalty provided for by law, be subject to an administrative fine not to exceed $2,500. Each of the acts specified shall constitute a separate violation.
(b) After notice and hearing, the secretary of state may enter an order of rescission, restitution, or disgorgement directed to a person who has violated this chapter, or rule or order under this chapter. Rescission, restitution, or disgorgement shall be in addition to any other penalty provided for under this chapter.
VIII. Notwithstanding paragraph IX, decisions of the secretary of state requiring rescission, restitution, or disgorgement may be appealed to the Merrimack county superior court. Upon appeal, the court shall review all findings of fact and rulings of law for legal sufficiency based upon the evidentiary record of the administrative proceedings. In conducting such review, the court may order and receive such additional evidence and testimony as it deems necessary. Any final decision of the Merrimack county superior court may be appealed to the supreme court to review rulings of law.
IX. Decisions of the secretary of state may be appealed to the supreme court pursuant to RSA 541.
4 Pooled Risk Programs; Requirements for Organization an Operation. Amend RSA 5-B:5 to read as follows:
5-B:5 Standards of Organization and Operation.
I. Each pooled risk management program shall meet the following standards of organization and operation. Each program shall be organized into one of the 2 categories of pools enumerated in RSA 5-B:3, V, and be separate and distinct from each other, to include no comingling of funds between distinct pools, and to have separate and distinct boards of directors for each pool. Each program shall:
(a) Exist as a [
legal entity] nonprofit corporation organized under New Hampshire law and RSA 292. No other organizational structures shall be permitted.
(b) Be governed by a board the majority of which is composed of elected or appointed public officials, officers, or employees. Board members shall not receive compensation but may be reimbursed for mileage and other reasonable expenses. All new board members after the effective date of this section shall serve a maximum of 3 3-year terms. After 2 years such former board members may return as members. Each board shall govern each distinct program based upon the needs of the member political subdivisions and in compliance with all provisions of this chapter, consistent with its fiduciary duties. Directors may only serve on one pooled risk management board at a time.
(c) Return all earnings and surplus in excess of any amounts required for [
administration,] claims, reserves, [ and] the purchase of excess insurance, and reasonable and prudent costs of administration to the participating political subdivisions, to be paid to the political subdivisions which contributed to the pooled risk management program, annually. Management and investment of such funds shall comply with all provisions of RSA 35:9. If necessary, and with permission of the secretary of state, a certain percentage of any pooled risk management program’s entire investment portfolio, including cash and cash equivalents, may deviate, by agreement, from the requirements of RSA 35:9, but shall comply with RSA 402:28, I, with the exception of 402:28, I(o). The amount of any such deviation shall not exceed 10 percent of the pooled risk management program’s entire investment portfolio.
(1) For employee benefit coverage programs, reserves under RSA 5-B:2, IV(a) shall be calculated using an actuarially determined method. Contingency reserves under RSA 5-B:2, IV(b) shall not exceed a level calculated using stochastic modeling at a 95 percent confidence level. Any other actuarial method may be utilized to determine contingency reserves for employee benefit coverage programs if any such calculation does not exceed the level of contingency reserves determined using stochastic modeling at a 95 percent confidence level. Additional margins shall not be added to the modeling.
(2) For property-casualty coverage programs, reserves under RSA 5-B:2, IV(a) shall be calculated using an actuarially determined point estimate and associated range of values. Contingency reserves under RSA 5-B:2, IV(b) shall not exceed a risk-based capital target level of 3.0. Any other actuarial method may be utilized to determine contingency reserves for property-casualty coverage programs if any such calculation does not exceed the level of contingency reserves determined using a risk-based capital target level of 3.0.
(3) Once the calculations for reserves and surplus have been determined, as described, the board shall determine and publicly disclose the amount, if any, of surplus that will be returned to the member political subdivisions. Return of surplus shall be made through premium holiday to a political subdivision which continues to be a member. If a political subdivision ceases to be a member, the return of surplus shall be paid to it in cash. This cash option shall not be available when a prior legal agreement has been entered into with the secretary of state to return surplus in another manner. Any pooled risk management program established under this chapter may deviate from the above stated methods for calculating reserves, by board resolution, if the resolution states every reason in support of the deviation and is distributed to every participating political subdivision at least 30 days prior to the deviation. The pooled risk management program shall also post the resolution including its reasons for the deviation on its Internet website 30 days prior to the deviation.
Provide for] Submit and pay for an annual audit of financial transactions by an independent certified public accountant chosen by board of directors. [ The audit shall be filed with the department and distributed to participants of each pooled risk management program.]
(e) Submit to such other financial accountings as may be reasonably requested by member political subdivisions, which shall pay for such an accounting.
(f) Be governed by written bylaws which shall detail the terms of eligibility for participation by political subdivisions, the governance of the program and other matters necessary to the program’s operation. Bylaws and any subsequent amendments shall be filed with the department and shall be posted prominently on the program’s website. Reasonable rules and conditions may be adopted regarding returning to the pooled risk program, if they are only to prevent adverse selection or otherwise harming the remaining political subdivisions in the pool. Such rules shall be adopted in advance and communicated in writing to the secretary of state and members, and contained in the bylaws of each pool.
(f) Provide for an annual actuarial evaluation of the pooled risk management program. The evaluation shall assess the adequacy of contributions required to fund any such program and the reserves necessary to be maintained to meet expenses of all incurred and incurred but not reported claims and other projected needs of the plan. The annual actuarial evaluation shall be performed by a member of the American Academy of Actuaries qualified in the coverage area being evaluated, shall be filed with the department, and shall be distributed to participants of each pooled risk management program. (g) Provide notice to all participants of and conduct 2 public hearings for the purpose of advising of potential rate increases, the reasons for projected rate increases, and to solicit comments from members regarding the return of surplus, at least 10 days prior to rate setting for each calendar year.]
II. Membership in a pooled risk management program established and operated pursuant to this chapter shall not be considered a security under RSA 421-B.
III. Each pooled risk management program shall provide for an annual actuarial accounting of the pooled risk management program, which shall assess the adequacy of contributions required to fund any such program and the reserves necessary to be maintained to meet the expenses of all incurred and incurred but not reported claims and other projected needs of the plan. This accounting shall be performed by a member of the American Academy of Actuaries qualified in the coverage area being evaluated, filed with the department, and distributed to participants of each pooled risk management program.
IV. Each pooled risk management program shall conduct an annual meeting to elect board members. In addition, each pooled risk management program shall conduct 2 public hearings at least 10 days prior to rate setting for each year for the purpose of advising of potential rate increases, the reasons for projected rate increases, and to solicit comments from members regarding the return of surplus. Notice of the annual meeting and 2 public hearings shall be provided to all members of the pooled risk management program and to the public by means of a prominent posting on its website.
V. If a pooled risk management program fails to provide for an annual audit or an annual actuarial [
evaluation] accounting, the department shall perform or cause to be performed the required audit or [ evaluation] actuarial accounting and shall be reimbursed the [ cost] costs by the program.
5 Declaration of Status; Tax Exemption; Liability. Amend RSA 5-B:6, II and III to read as follows:
5-B:6 Declaration of Status; Tax Exemption; Liability.
II. Any such program operating under this chapter[
, whether or not a body corporate,] may sue or be sued; make contracts; hold and dispose of real property; and borrow money, contract debts, and pledge assets in its name.
III. Participation by a political subdivision in a pooled risk management program formed and affirmed under this chapter shall not subject any such political subdivision to any liability to any third party for the acts or omissions of the pooled risk management program or any other political subdivision participating in the program.
IV. Pooled risk management programs operated in accordance with this chapter shall not be deemed to be offering securities or engaged in the sale of securities.
6 Confidentiality of Certain Claims Information. RSA 5-B:7 is repealed and reenacted to read as follows:
5-B:7 Confidentiality of Certain Claims Information. Notwithstanding any provision of law to the contrary, any information of any pooled risk management program formed or affirmed under this chapter pertaining to claims analysis or claims management shall be privileged and confidential and not subject to disclosure to any third party. Private health information protected under the Health Insurance Portability and Accountability Act (HIPAA) or any other state or federal law shall also be considered privileged and confidential and not subject to disclosure to any third party.
7 Pooled Risk Management Programs; Exemption. Amend RSA 402-H:11-b to read as follows:
402-H:11-b Exemption. An association administering a pooled risk management program operated pursuant to RSA 5-B or conducting business that is exempt from taxation under the Internal Revenue Code, section 115 shall not be required to obtain a certificate of authority or to meet the other requirements of this chapter for services provided in connection with the administration of its pooled risk management plans or its section 115 business, but shall be required to register with the commissioner of insurance pursuant to RSA 402-H:11-a. Pooled risk management program registration may be accomplished by providing the commissioner of insurance a copy of the [
informational] annual accounting filing required to be filed with the department of state pursuant to RSA 5-B:4.
8 Repeal. 2010, 149:8, III, relative to a repeal of authority of the secretary of state to investigate, issue cease and desist orders, and impose penalties regarding pooled risk programs, is repealed.
9 Applicability. Any RSA 5-B enforcement action pending as of July 1, 2012 shall remain under the jurisdiction of the secretary of state and bureau of securities regulation.
10 Effective Date.
I. RSA 5-B:5, I(a) and (b) as inserted by section 4 of this act shall take effect July 1, 2013.
II. RSA 5-B:5, I(c) as inserted by section 4 of this act shall take effect July 1, 2014.
III. The remainder of this act shall take effect July 1, 2012.
SB 212-FN - FISCAL NOTE
AN ACT relative to pooled risk management programs.
The Insurance Department and the Department of Administrative Services state this bill will have an indeterminable impact on state revenues, and state, county and local expenditures in FY 2013 and each year thereafter. There will be no impact on county and local revenues.
The Insurance Department states while this bill has no direct impact on the state collected premium tax, it is not clear whether there would be any impact on the aggregate tax base due to entities now being attracted to forming risk pools, and away from the insurance market, or vice versa. Therefore, the Department is unable to determine this bill’s potential impact on state revenue. For similar reasons the Department states it is unable to determine if this bill would impact county and local expenditures as it does not know if this bill would impact the cost of providing benefits or the cost of covering other contingent risks.
The Department of Administrative Services states although this bill amends the purpose of RSA 5-B, it does not amend sections related to definitions or membership that would clarify the role of the state in pooled risk management programs, and therefore is unable to evaluate any fiscal impact to the state.
The Department of State states this bill imposes no new duties with regard to pooled risk management programs that would require expenditures for extra personnel or other resources.