Excess Loss Insurance Written in Connection with Noninsured Benefit Plans

Issued and entered May 10, 2000 by Frank M. Fitzgerald, Commissioner of Financial and Insurance Services

On April 3, 2000, the Michigan Insurance Bureau, Financial Institutions Bureau, and Securities Division became the Office of Financial and Insurance Services.

The former Insurance Bureau issued Bulletins 94-9 and 97-7 in an effort to answer certain questions pertaining to the offering of excess loss insurance for a noninsured benefit plan. This bulletin does not represent a change in the Division of Insurance's position, but is simply a restatement offered to clarify the position presented in those previous bulletins.

Authorization Needed to Offer Excess Loss Insurance for a Noninsured Benefit Plan

For some employers, self-insurance programs increase the affordability of health insurance. In 1981, Section 5208 of the Insurance Code, MCL 500.5208; MSA 24.15208, was amended by authorizing insurers, including life and health insurers, to provide administrative services only to those plans. However, unexpected losses could have a catastrophic effect on employers. In light of this, the legislature required insurers providing administrative services only to offer, in connection with a noninsured benefit plan, a program of specific or aggregate excess loss coverage. Section 5208 allows life and health insurers, who are not generally authorized to do so, to offer excess loss coverage in this unique circumstance. As excess loss coverage is considered casualty insurance, a property and casualty insurer with casualty authority under Section 624, MCL 500.624; MSA 24.1624, has independent authority to write such insurance and does not need to rely on Section 5208 for authority. Therefore, unlike a life and health insurer, a casualty insurer can offer excess loss insurance without the stipulation that it is also providing plan administrative services to a noninsured benefit plan.

With respect to required company authorization, excess loss insurance written in connection with a noninsured benefit plan is considered casualty insurance and requires casualty authorization under Section 624 of the Insurance Code. The only exception to this is where a life and health insurer itself is providing plan administrative services for a noninsured benefit plan and has authorization to offer excess loss insurance under Section 5208 of the Insurance Code.

A property & casualty insurer with authorization under Section 624 may offer excess loss insurance for a noninsured benefit plan regardless of whether the insurer is providing plan administrative services.

A life & health insurer may offer excess loss insurance for a noninsured benefit plan when providing administrative services for that plan, pursuant to authority granted under section 5208. Section 5208 does not grant life and health insurers authority to offer excess loss insurance without also providing administrative services to that noninsured benefit plan. Excess loss insurance is considered casualty insurance. To offer excess loss insurance without providing plan administrative services requires casualty authorization under Section 624.

Rate and Form Requirements

As casualty contracts, excess loss insurance contracts written in connection with noninsured benefit plans are subject to the casualty rate and form requirements of Chapters 24 and 30 of the Insurance Code, MCL 500.2400, MCL 500.3004 et. seq; MSA 24.12400 et. seq, MSA 24.13004 et. seq. These provisions apply regardless of whether the excess loss insurance is written by a property and casualty insurer or by a life and health insurer.

Guaranty Fund Coverage and Annual Statement Reporting

When written by a life and health insurer, with authorization pursuant to Section 5208, excess loss insurance is backed by the Michigan Life and Health Insurance Guaranty Association (MLHIGA). If written by a property and casualty insurer, only those premiums identified as disability coverage in its annual statement will be covered by the MLHIGA. Any premiums identified as casualty coverage will be covered by the Michigan Property and Casualty Guaranty Association (MPCGA). This is appropriate because the associations base their assessments on premiums as reported in annual statements.

Any questions regarding excess loss insurance should be directed to:

Rates and Forms Audit
Michigan Division of Insurance
611 West Ottawa Street
P.O. Box 30220
Lansing, MI 48909-7720
Phone: (517) 373-0220
Toll Free (877) 999-6442

This bulletin supersedes Bulletin 97-7.

This Informational Statement is issued under Section 7(h) of the Administrative Procedures Act, MCL 24.207(h); MCL 3.560(107), does not have the force and effect of law, and is merely explanatory.
 

NOTE: On January 23, 2001, the Commissioner issued a guidance memo in regard to this bulletin. Please refer to the attached memo for additional information on this bulletin.