Section 408.43e. Group self-insurers; new and renewal application requirements.

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

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

(b)   An original signed 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 shall not be less than $1,000,000.00.

(ii)    Working capital, which shall 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 which is issued by an authorized carrier in an amount acceptable to the bureau and which is  in   compliance  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 bureau.

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

(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 shall conform to an indemnity agreement as approved by the bureau.

(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 bureau, that the annual gross premiums of the fund will be not less than $500,000.00.

The premium collected from each member shall be based upon applying the appropriate manual rates per payroll code classification  as   approved   by the bureau and the excess carrier. The premium collected from each participant in a group self-insurance program shall be adjusted by an experience modification formula approved by the bureau. The total premium collected from all participants shall 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 shall 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 bureau.

(n)   Proof, satisfactory to the bureau, shall 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 shall be used to handle claims adjusting and reporting  of loss   data   to   the bureau.

(2)   Each group fund shall submit a renewal application to the bureau 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 self- insurance privilege shall be extended until it has been acted upon by the director. The application  shall   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 which is issued by an authorized carrier in an amount acceptable to the bureau and which is in compliance 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 bureau 6 months' notice of its intent to use a letter of credit.

(c)   A copy of a signed service contract which designates an approved service company, which provides for claims administration and reporting of loss data to the bureau, 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 bureau.

(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 bureau, the rates used by the fund to develop final audited premium shall 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 shall 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 shall be based upon applying the appropriate manual rates per payroll code classification as approved by the bureau and the excess insurance carrier or consulting actuary. Each member's premium shall be experience rated. The experience modification formula shall be approved by the bureau. The total premium collected from all participants shall  be sufficient  to fund all administrative expenses and the estimated loss fund developed   under the excess insurance contract. The loss fund shall be  75% of

final audited premium or as approved by the bureau. 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:

(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 self- administration 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 Act No. 218 of the Public Acts of 1956, as  amending, being S500.1201 et seq. of the Michigan Compiled Laws, 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 bureau.

(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 bureau 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.

History: 1980 AACS; 1984 AACS; 1996 AACS; 1997 AACS.