Excess Loss Insurance Written in Connection with Noninsured Benefit Plans

On May 10, 2000, the Office of Financial and Insurance Services issued Bulletin 2000-03 concerning excess loss insurance written in connection with noninsured benefit plans.

The bulletin included guidance as to the authority needed to write excess loss, a form of casualty coverage.  For life insurers wishing to write this coverage, authority is derived from MCL 500.5208 if the insurer provides administrative services to a noninsured benefit plan.

Some questions have arisen as to whether Section 5208 requires administrative services to be directly administered by the life insurer that is the excess loss carrier, or if it is permissible to have administrative services only (ASO) provided by a third party administrator (TPA).  The following guidance is provided in relation to Michigan law, and should not be read as addressing federal ERISA law.

Under Section 5208, a life insurer may enter into a service contract with a noninsured benefit plan containing an ASO arrangement.  Under such a service contract, the administrative services may be provided directly by the insurer, or through a licensed TPA.  In cases where a TPA provides the services, it is the insurer’s responsibility to verify that the TPA is licensed under Michigan’s Third Party Administrator Act, MCL 550.901 et seq., at the time the contract is signed.  In this way, we can be assured that the TPA will process claims in accordance with the requirements of MCL 550.940 and 550.942.  These TPA "fair dealing" requirements basically mirror those required under MCL 500.5208a for insurers who directly perform administrative services in connection with a noninsured benefit plan.