Excess insurance for self-insured employers or groups

Issued and entered June 15, 1982 by Nancy A. Baerwaldt, Commissioner of Insurance

An increasing number of entities, such as corporations, associations, and municipalities, are choosing to become self-insured for many different lines of insurance. Therefor, the insurance industry practice of offering policies which indemnify such a group for losses incurred under a self-insured benefit plan in excess of a specified retention is becoming more prevalent.

The purpose of this bulletin is to clarify that the Insurance Bureau considers these policies to be excess insurance, and under no condition are they to be marketed as reinsurance.

Reinsurance is a contract whereby the reinsurer agrees to assume all or part of a risk undertaken by the original insurer. In other words, the first layer of coverage must be provided by an insurer before the second layer of coverage may be considered reinsurance.

"Insurer," as defined in Section 106 of the Michigan Insurance Code, means any individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds organization, fraternal benefit society, and any other legal entity, engaged or attempting to engage in the business of making insurance or surety contracts. Section 402 of the Code states that "no person shall act as an insurer and no insurer shall issue any policy or otherwise transact insurance in this state" without a certificate of authority issued by the Commissioner of Insurance. In addition, Attorney General Opinion No. 620 of 1947 affirmed a 1946 Opinion that "self-insurers are not insurers within the meaning of the Insurance Code, and that any company insuring these self-insurers is writing primary insurance."

Employers, associations, municipalities, self-insurance pools and other entities which have not been licensed by the Insurance Bureau may not be considered insurers. Therefore, policies of excess insurance provided to such entities are to be treated as primary insurance under the Insurance Code, and are subject to the same provisions such as filing requirements and premium taxes.

Insurers should note that such excess policies which are (a)-rated are subject to the provisions of Insurance Bureau Bulletin 81-21. Bulletin 81-21 provides that while policy forms and endorsements for (a)-rated policies remain subject to prior approval by the Commissioner of Insurance, rates for these policies do not require such approval. Each (a) rate must instead be kept on file at the insurer's home office for a period of not less than 3 years from its expiration date. In addition, a rule governing each (a)-rated program must be contained on a manual page and filed with and approved by the Bureau prior to use. Please refer to Bulletin 81-21 for more specific information regarding the suspension of the prior rate approval filing requirement for
(a)-rated programs.

Any questions regarding this Bulletin should be directed to the Market Standards Division.