1.1                          A bill for an act 
  1.2             relating to insurance; regulating workers' 
  1.3             compensation self-insurance; providing reporting and 
  1.4             financial requirements; amending Minnesota Statutes 
  1.5             1998, sections 79A.21, subdivisions 2 and 3; 79A.22, 
  1.6             subdivisions 2 and 3; 79A.23; and 79A.24, subdivision 
  1.7             2. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  Minnesota Statutes 1998, section 79A.21, 
  1.10  subdivision 2, is amended to read: 
  1.11     Subd. 2.  [REQUIRED DOCUMENTS.] All applications must be 
  1.12  accompanied by the following: 
  1.13     (a) A detailed business plan including the risk profile of 
  1.14  the proposed membership, underwriting guidelines, marketing 
  1.15  plan, minimum financial criteria for each member, and financial 
  1.16  projections for the first year of operation.  
  1.17     (b) A plan describing the method in which premiums are to 
  1.18  be charged to the employer members.  The plan shall be 
  1.19  accompanied by copies of the member's workers' compensation 
  1.20  insurance policies in force at the time of application.  In 
  1.21  developing the premium for the group, the commercial 
  1.22  self-insurance group shall base its premium on the Minnesota 
  1.23  workers' compensation insurers association's manual of rules, 
  1.24  loss costs, and classifications approved for use in Minnesota by 
  1.25  the commissioner.  Each member applicant shall, on a form 
  1.26  approved by the commissioner, complete estimated payrolls for 
  2.1   the first 12-month period that the applicant will be 
  2.2   self-insured.  Premium volume discounts per the plan will be 
  2.3   permitted if they can be shown to be consistent with actuarial 
  2.4   standards.  
  2.5      (c) A schedule indicating actual or anticipated operational 
  2.6   expenses of the commercial self-insurance group.  No authority 
  2.7   to self-insure will be granted unless, over the term of the 
  2.8   policy year, at least 65 percent of total revenues from all 
  2.9   sources for the year are available for the payment of its claim 
  2.10  and assessment obligations.  For purposes of this calculation, 
  2.11  claim and assessment obligations include the cost of allocated 
  2.12  loss expenses as well as special compensation fund and 
  2.13  commercial self-insurance group security fund assessments but 
  2.14  exclude the cost of unallocated loss expenses. 
  2.15     (d) An indemnity agreement from each member who will 
  2.16  participate in the commercial self-insurance group, signed by an 
  2.17  officer of each member, providing for joint and several 
  2.18  liability for all claims and expenses of all of the members of 
  2.19  the commercial self-insurance group arising in any fund year in 
  2.20  which the member was a participant on a form approved by the 
  2.21  commissioner.  The indemnity agreement shall provide for 
  2.22  assessments according to the group's bylaws on an individual and 
  2.23  proportionate basis. 
  2.24     (e) A copy of the commercial self-insurance group bylaws. 
  2.25     (f) Evidence of the security deposit required under section 
  2.26  79A.24, accompanied by the actuarial certification study for the 
  2.27  minimum security deposit as required under section 79A.24.  
  2.28     (g) Each initial member of the commercial self-insurance 
  2.29  group shall submit to the commercial self-insurance group 
  2.30  accountant its most recent annual financial statement.  
  2.31  Financial statements for a period ending more than six months 
  2.32  prior to the date of the application must be accompanied by an 
  2.33  affidavit, signed by a company officer under oath, stating that 
  2.34  there has been no material lessening of the net worth nor other 
  2.35  adverse changes in its financial condition since the end of the 
  2.36  period.  Individual group members ~~constituting at least 75~~ 
  3.1   ~~percent of the group's annual premium~~ shall submit reviewed ~~or~~, 
  3.2   audited ~~financial statements.  The remaining members may submit~~, 
  3.3   or compilation level financial statements.  Any group member who 
  3.4   has an annual premium constituting more than 15 percent of the 
  3.5   group's annual premium shall submit to the group reviewed or 
  3.6   audited financial statements.  Statements for a period ending 
  3.7   more than 12 months prior to the date of application cannot be 
  3.8   accepted. 
  3.9      (h) A compiled combined financial statement of all group 
  3.10  members prepared by the commercial self-insurance group's 
  3.11  accountant and a list of members included in such statements.  
  3.12     (i) A copy of each member's accountant's report letter from 
  3.13  the reports used in compiling the combined financial statements. 
  3.14     (j) A list of all members and the percentage of premium 
  3.15  each represents to the total group's annual premium for the 
  3.16  policy year.  
  3.17     Sec. 2.  Minnesota Statutes 1998, section 79A.21, 
  3.18  subdivision 3, is amended to read: 
  3.19     Subd. 3.  [APPROVAL.] The commissioner shall approve an 
  3.20  application for self-insurance upon a determination that all of 
  3.21  the following conditions are met: 
  3.22     (1) a completed application and all required documents have 
  3.23  been submitted to the commissioner; 
  3.24     (2) the financial ability of the commercial self-insurance 
  3.25  group is sufficient to fulfill all obligations that may arise 
  3.26  under this chapter or chapter 176; 
  3.27     (3) the annual premium of the commercial self-insurance 
  3.28  group to be charged to initial members is at least 
  3.29  ~~$500,000~~ $400,000; 
  3.30     (4) the commercial self-insurance group has contracted with 
  3.31  a service company to administer its program; and 
  3.32     (5) the required securities or surety bond shall be on 
  3.33  deposit prior to the effective date of coverage for the 
  3.34  commercial self-insurance group. 
  3.35     Sec. 3.  Minnesota Statutes 1998, section 79A.22, 
  3.36  subdivision 2, is amended to read: 
  4.1      Subd. 2.  [FINANCIAL STANDARDS.] Commercial self-insurance 
  4.2   groups shall have and maintain: 
  4.3      (1) combined net worth of all of the members in an amount 
  4.4   at least equal to ~~15~~ ten times the group's selected retention 
  4.5   level of the workers' compensation reinsurance association; 
  4.6      (2) sufficient assets and liquidity in the group's common 
  4.7   claims fund to promptly and completely meet all obligations of 
  4.8   its members under this chapter and chapter 176. 
  4.9      Sec. 4.  Minnesota Statutes 1998, section 79A.22, 
  4.10  subdivision 3, is amended to read: 
  4.11     Subd. 3.  [NEW MEMBERSHIP.] The commercial self-insurance 
  4.12  group shall file with the commissioner the name of any new 
  4.13  employer that has been accepted in the group prior to the 
  4.14  initiation date of membership along with the member's signed 
  4.15  indemnity agreement and evidence the member has deposited 
  4.16  sufficient premiums with the group as required by the commercial 
  4.17  self-insurance group's bylaws or plan of operation.  ~~The~~ 
  4.18  ~~security deposit of the group will be increased to an amount~~ 
  4.19  ~~equal to 50 percent of the new member's premium.~~  The department 
  4.20  of commerce may, at its option, review the financial statement 
  4.21  of any applicant whose premium equals 25 percent or more of the 
  4.22  group's total premium. 
  4.23     Sec. 5.  Minnesota Statutes 1998, section 79A.23, is 
  4.24  amended to read: 
  4.25     79A.23 [COMMERCIAL SELF-INSURANCE GROUP REPORTING 
  4.26  REQUIREMENTS.] 
  4.27     Subdivision 1.  [REQUIRED REPORTS TO COMMISSIONER.] Each 
  4.28  commercial self-insurance group shall submit the following 
  4.29  documents to the commissioner.  
  4.30     (a) An annual report shall be submitted by ~~April~~ May 1 
  4.31  showing the incurred losses, paid and unpaid, specifying 
  4.32  indemnity and medical losses by classification, payroll by 
  4.33  classification, and current estimated outstanding liability for 
  4.34  workers' compensation on a calendar year basis, in a manner and 
  4.35  on forms available from the commissioner.  In addition each 
  4.36  group will submit a quarterly interim loss report showing 
  5.1   incurred losses for all its membership. 
  5.2      (b) Each commercial self-insurance group shall submit 
  5.3   within 45 days of the end of each quarter:  
  5.4      (1) a schedule showing all the members who participate in 
  5.5   the group, their date of inception, and date of withdrawal, if 
  5.6   applicable; 
  5.7      (2) a separate section identifying which members were added 
  5.8   or withdrawn during that quarter; and 
  5.9      (3) an internal financial statement and copies of the 
  5.10  fiscal agent's statements supporting the balances in the common 
  5.11  claims fund. 
  5.12     (c) The commercial self-insurance group shall submit an 
  5.13  annual certified financial audit report of the commercial 
  5.14  self-insurance group fund by ~~April~~ May 1 of the following year.  
  5.15  The report must be accompanied by an expense schedule showing 
  5.16  the commercial self-insurance group's operational costs for the 
  5.17  same year including service company charges, accounting and 
  5.18  actuarial fees, fund administration charges, reinsurance 
  5.19  premiums, commissions, and any other costs associated with the 
  5.20  administration of the group program. 
  5.21     (d) An officer of the commercial self-insurance group 
  5.22  shall, under oath, attest to the accuracy of each report 
  5.23  submitted under paragraphs (a), (b), and (c).  Upon sufficient 
  5.24  cause, the commissioner shall require the commercial 
  5.25  self-insurance group to submit a certified audit of payroll and 
  5.26  claim records conducted by an independent auditor approved by 
  5.27  the commissioner, based on generally accepted accounting 
  5.28  principles and generally accepted auditing standards, and 
  5.29  supported by an actuarial review and opinion of the future 
  5.30  contingent liabilities.  The basis for sufficient cause shall 
  5.31  include the following factors: 
  5.32     (1) where the losses reported appear significantly 
  5.33  different from similar types of groups; 
  5.34     (2) where major changes in the reports exist from year to 
  5.35  year, which are not solely attributable to economic factors; or 
  5.36     (3) where the commissioner has reason to believe that the 
  6.1   losses and payroll in the report do not accurately reflect the 
  6.2   losses and payroll of the commercial self-insurance group.  
  6.3   If any discrepancy is found, the commissioner shall require 
  6.4   changes in the commercial self-insurance group's business plan 
  6.5   or service company recordkeeping practices. 
  6.6      (e) Each commercial self-insurance group shall submit by 
  6.7   September 15 a copy of the group's annual federal and state 
  6.8   income tax returns or provide proof that it has received an 
  6.9   exemption from these filings. 
  6.10     (f) With the annual loss report each commercial 
  6.11  self-insurance group shall report to the commissioner any 
  6.12  worker's compensation claim where the full, undiscounted value 
  6.13  is estimated to exceed $50,000, in a manner and on forms 
  6.14  prescribed by the commissioner. 
  6.15     (g) Each commercial self-insurance group shall submit by 
  6.16  May 1 a list of all members and the percentage of premium each 
  6.17  represents to the total group's premium for the previous 
  6.18  calendar year.  
  6.19     (h) Each commercial self-insurance group shall submit by 
  6.20  ~~May 1~~ October 15 the following documents prepared by the group's 
  6.21  certified public accountant:  
  6.22     (1) a compiled combined financial statement of group 
  6.23  members and a list of members included in this statement; and 
  6.24     (2) a report that the statements which were combined have 
  6.25  met the requirements of subdivision 2.  
  6.26     (i) If any group member comprises over 25 percent of total 
  6.27  group premium, that member's financial statement must be 
  6.28  reviewed or audited, and, at the commissioner's option, must be 
  6.29  filed with the department of commerce by ~~May 1~~ October 15 of the 
  6.30  following year. 
  6.31     (j) Each commercial self-insurance group shall submit a 
  6.32  copy of each member's accountant's report letter from the 
  6.33  reports used in compiling the combined financial statements.  
  6.34     Subd. 2.  [REQUIRED REPORTS FROM MEMBERS TO GROUP.] Each 
  6.35  member of the commercial self-insurance group shall, by 
  6.36  ~~April~~ October 1, submit to the group its most recent annual 
  7.1   financial statement, together with other financial information 
  7.2   the group may require.  These financial statements submitted 
  7.3   must not have a fiscal year end date older than January 15 of 
  7.4   the group's calendar year end.  ~~Individual group members~~ 
  7.5   ~~constituting at least 50 percent of the group's annual premium~~ 
  7.6   ~~shall submit to the group reviewed or audited financial~~ 
  7.7   ~~statements.  The remaining members may submit compilation level~~ 
  7.8   ~~statements.~~  Individual group members shall submit to the group 
  7.9   compiled, reviewed, or audited financial statements.  Any group 
  7.10  member who has an annual premium constituting more than 15 
  7.11  percent of the group's annual premium shall submit to the group 
  7.12  reviewed or audited financial statements. 
  7.13     Subd. 3.  [OPERATIONAL AUDIT.] (a) The commissioner, prior 
  7.14  to authorizing surplus distribution of a commercial 
  7.15  self-insurance group's first fund year or no later than after 
  7.16  the third anniversary of the group's authority to self-insure, 
  7.17  shall conduct an operational audit of the commercial 
  7.18  self-insurance group's claim handling and reserve practices as 
  7.19  well as its underwriting procedures to determine if they adhere 
  7.20  to the group's business plan.  The commissioner may select 
  7.21  outside consultants to assist in conducting the audit.  After 
  7.22  completion of the audit, the commissioner shall either renew or 
  7.23  revoke the commercial self-insurance group's authority to 
  7.24  self-insure.  The commissioner may also order any changes deemed 
  7.25  necessary in the claims handling, reserving practices, or 
  7.26  underwriting procedures of the group. 
  7.27     (b) The cost of the operational audit shall be borne by the 
  7.28  commercial self-insurance group. 
  7.29     Subd. 4.  [UNIT STATISTICAL REPORT.] Each commercial 
  7.30  self-insurance group will annually file a unit statistical 
  7.31  report to the Minnesota workers' compensation insurers 
  7.32  association. 
  7.33     Sec. 6.  Minnesota Statutes 1998, section 79A.24, 
  7.34  subdivision 2, is amended to read: 
  7.35     Subd. 2.  [MINIMUM DEPOSIT.] The minimum deposit is ~~150~~ 110 
  7.36  percent of the commercial self-insurance group's estimated 
  8.1   future liability for the payment of compensation as determined 
  8.2   by an actuary.  ~~If all the members of the commercial~~ 
  8.3   ~~self-insurance group have submitted reviewed or audited~~ 
  8.4   ~~financial statements to the group's accountant, this minimum~~ 
  8.5   ~~deposit shall be 110 percent of the commercial self-insurance~~ 
  8.6   ~~group's estimated future liability for the payment of workers'~~ 
  8.7   ~~compensation as determined by an actuary.~~  The group must file a 
  8.8   letter with the commissioner from the group's accountant which 
  8.9   confirms that the compiled combined financial statements were 
  8.10  prepared from members reviewed or audited financial statements 
  8.11  only before the lower security deposit is allowed.  Each 
  8.12  actuarial study shall include a projection of future losses 
  8.13  during a one-year period until the next scheduled actuarial 
  8.14  study, less payments anticipated to be made during that time.  
  8.15  Deduction should be made for the total amount which is estimated 
  8.16  to be returned to the commercial self-insurance group from any 
  8.17  specific excess insurance coverage, aggregate excess insurance 
  8.18  coverage, and any supplementary benefits which are estimated to 
  8.19  be reimbursed by the special compensation fund.  Supplementary 
  8.20  benefits will not be reimbursed by the special compensation fund 
  8.21  unless the special compensation fund assessment pursuant to 
  8.22  section 176.129 is paid and the required reports are filed with 
  8.23  the special compensation fund.  In the case of surety bonds, 
  8.24  bonds shall secure administrative and legal costs in addition to 
  8.25  the liability for payment of compensation reflected on the face 
  8.26  of the bond.  In no event shall the security be less than the 
  8.27  group's selected retention limit of the workers' compensation 
  8.28  reinsurance association.  The posting or depositing of security 
  8.29  under this section shall release all previously posted or 
  8.30  deposited security from any obligations under the posting or 
  8.31  depositing and any surety bond so released shall be returned to 
  8.32  the surety.  Any other security shall be returned to the 
  8.33  depositor or the person posting the bond.  If the group 
  8.34  purchases an insurance policy with an aggregate limit of 
  8.35  $1,000,000, no bond is required.