Indicates Matter Stricken
Indicates New Matter
The Senate assembled at 11:00 A.M., the hour to which it stood adjourned and was called to order by the ACTING PRESIDENT, Senator JACKSON.
The Joint Insurance Study Committee, created in 1989 by Act 37, repealing Act 1143 of 1966 and Act 612 of 1971, submits herewith a report of its recent studies, recommendations and activities.
SENATE MEMBERS HOUSE MEMBERS
/s/Edward E. Saleeby, Chm. /s/Joseph T. McElveen, Jr.
/s/John C. Land, III /s/Richard M. Quinn, Jr.
/s/Glenn F. McConnell /s/John L. Scott
/s/C. Tyrone Courtney
/s/Luke A. Rankin
GOVERNOR'S APPOINTEES EX-OFFICIO MEMBER
/s/Charles M. Potok /s/John G. Richards
/s/Dr. S. Travis Pritchett Chief Insurance Commissioner
/s/Ronald D. Scheetz
/s/Frank S. Smith, Jr. STAFF
/s/Roland C. Young Mary Lou Price
The Joint Insurance Study Committee was created by Act 37, 1989, which amended Act 612, 1971 and Act 1161, 1974, to make a continuous study and investigation of all facets of the insurance industry and related laws including, but not limited to, the study of revisions to this state's insurance laws, and to the review of medical, automobile and property insurance premium rates so as to recommend appropriate statutory or regulatory controls. This study committee combined the Joint Legislative Automobile Liability Insurance Study Committee and the Insurance Law Study Committee and provides for its members, powers, duties, staff and expenses to be similar to that of the aforementioned study committees.
1994 COMMITTEE LEGISLATION ENACTED
SMALL EMPLOYER HEALTH INSURANCE AVAILABILITY ACT, S.541, Act.339
In 1991, the general Assembly enacted a package of reforms designed to improve the small group health insurance marketplace in South Carolina. These reforms included (1) a requirement that, if health insurance coverage is issued to a small group (25 employees or less), all members of the group would be covered; (2) rating restrictions on the amount a small group's premium can increase each year; (3) restrictions on cancellation of renewal of a small group; and (4) portability requirements. At the time these reforms were considered, they were described as the first small step toward overall reform for the small group health insurance market, with the next step requiring that the small groups be guaranteed access to health insurance. The Small Employer Health Insurance Availability Act builds on these earlier reforms and provides that next step, by requiring that small group health insurers guarantee issue two health insurance plans to small employers.
The Senate passed version of the bill provides:
1. That all small group insurers offer a "basic" and "standard" health insurance plan to any small employer that desires to purchase it;
2. That any small employer, that is, an employer with 50 or less employees, is entitled to be issued a "basic" or "standard" plan;
3. That small employer insurers must elect to participate in this guarantee issue environment as either a risk-assuming insurer or as a reinsuring insurer;
4. That those small employer insurers which participate as reinsuring insurers may reinsure individual risks or entire small groups written on either the basic or the standard plan in a program known as the South Carolina Small Employer Insurer Reinsurance Program;
5. That the benefit levels for the basic and standard plans be developed and recommended by the Governor's Committee on Basic Health Services; and
6. That its effectiveness be reviewed and reported to the Commissioner at least every three years.
During the interim, Governor Campbell appointed an Ad Hoc Group, which was composed of representatives from most every interested organization to formulate amendments to S.541 which, in turn, would strengthen the original bill. The Ad Hoc Committee proposed three basic changes:
1. Health insurers in the small group market can no longer refuse to issue a standard policy to any small group. The basic policy will not be offered as the Committee discovered that no one was buying it in other states where two policies were offered. This guarantees availability of health insurance coverage to any small group wanting to purchase it, regardless of their health risk.
2. Small groups can join together in large pools to negotiate directly with health insurers. This will allow small groups to form large purchasing pools, and give them the flexibility to gain the competitive advantages of large groups.
3. Claim experience, health status, duration of coverage, and industry are eliminated as rating factors. Limits are placed on the remaining rating factors so that the range of the possible highest and lowest premiums for a given benefit plan in a class of business will be no more than 5.1. These rating reforms will spread losses due to high cost persons across a large number of insured persons, give small employers much more stability in annual premium changes, and encourage insurers to compete based on efficiency and ability to manage costs instead of refusing to insure people in need of health care.
This legislation passed the General Assembly in April of 1994 and was the most important health insurance legislation passed during the two year session.
RECOVERY OF PREMIUMS OWED, S.969, H.4491, Act 368
This legislation, requested by the Independent Insurance Agents of South Carolina, amends Section 38-27-520 (Recovery of Premiums Owed) in the company liquidation provisions so that agents would not be responsible for payment of unpaid, unearned, uncollected premium in the case of an insurance company liquidation. There is concern among the agents and their association that the NAIC Rehabilitation and Liquidation model made agents liable to liquidators for unearned, uncollected premium in the event of a company insolvency. The South Carolina General Assembly adopted the basic provisions of the NAIC model. In July of 1989, IIAA and the Independent Insurance Agents of Missouri won a Federal lawsuit on this issue; the Iowa National case. The court order declared that a liquidator cannot demand unearned, uncollected premiums from an agent because it violates the United States Constitution. Several states (Connecticut, Florida, Iowa and South Dakota) have amended the NAIC model as amended in this bill, without adversely impacting the NAIC insolvency certification process, according to IIAA.
SOUTH CAROLINA PROPERTY AND CASUALTY GUARANTY ASSN -PLACE OF VENUE FOR LAWSUITS - S.970, H.4496, Act 366
This legislation, proposed by the South Carolina Property and Casualty Insurance Guaranty Association, deals with legal expenses caused when suits against the Association are filed in states other than South Carolina. The Association recommended that the code be amended to provide that, with respect to the power to sue or be sued, any action brought directly against the Association must be brought against the Association in South Carolina as a condition precedent to recovery directly against the Association.
UNINCORPORATED MEMBER CREDIT, S.971, H.4495, Act 370
This legislation was specifically intended to amend Lloyd's of London's provision in South Carolina credit for reinsurance law. It will enable the Lloyd's market to continue to be fully available to South Carolina domestic insurers as the leading international market for reinsurance, including, but not limited to catastrophe reinsurance. It is important to the members of the South Carolina Coastal Insurance Pool as Lloyd's is the world's leading market for catastrophe reinsurance against such perils as windstorm and earthquake.
The legislation also amends the law to enable Lloyd's to admit corporate names. Lloyd's is not an insurance company, but a marketplace where approximately 20,000 natural persons called "Names" trade each for their own account and not one for another. In the past only natural persons have been permitted to become Names. Corporate Names will be admitted and trade alongside natural Names. This amendment will be a benefit to South Carolina preserving Lloyd's status in South Carolina as an accredited reinsurer. If not adopted Lloyd's status in South Carolina could be jeopardized. If Lloyd's loses its trading privileges as an accredited reinsurer, domestic insurers that seek to cede reinsurance to Lloyd's will be inhibited from doing so, and in turn there will likely be an additional cost to the more than thirty South Carolina domestic insurers to obtain reinsurance from the Lloyd's market. Domestics will suffer because most of their major competitors are licensed in South Carolina, but domiciled in other states. This law has been enacted thus far in California, Louisiana, Nevada, New Jersey, Pennsylvania, Texas and Washington, D.C.
DEFINITION OF "OCEAN MARINE INSURANCE" - S.973, H.4498, Act 367
The amendment which defines "Ocean Marine Insurance", proposed by the South Carolina Property and Casualty Guaranty Association, would allow the Association to effectively handle ocean marine claims as they arise with any liquidation.
CUT-OFF DATE FOR FILING OF CLAIMS AGAINST ANY LIQUIDATION AFFECTING THE SOUTH CAROLINA PROPERTY AND CASUALTY GUARANTY ASSOCIATION - S.974, H.4494, Act 591
The legislation provides a definite cut-off of eighteen months after the declaration of insolvency for filing of all claims against any liquidation that affects the South Carolina Guaranty Fund and thereby will help streamline the claim handling for the Association.
MATERIAL TRANSACTIONS MODEL ACT - S.975, H.4492, Act 372
This Act, an Insurance Department recommendation, is part of compliance of the latest accreditation standards by the NAIC. The Act strengthens the Commissioner's regulatory authority by requiring domestic insurers to notify the Commissioner of material acquisitions or dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements. It strengthens the control over domestics as they deal with consumers.
CREDIT LIFE INSURANCE - S.976, H.4493, Act 363
This legislation, another recommendation of the South Carolina Insurance Department in conjunction with the South Carolina Department of Consumer Affairs, increases the minimum charge of $2.00 to $3.00, and decreases the rate charged for individual credit life from $.75 to $.65. South Carolina's current credit life insurance premium of $.75 is fourth highest in the nation. Our sister state, Georgia's premium is $.45, and our other sister state North Carolina lowers theirs $.05 every year. In 1993 their premium was $.65, and this will be lowered in 1994 to $.60.
NOT PASSED COMMITTEE LEGISLATION
WORKERS' COMPENSATION OMNIBUS BILL, S.540
This massive piece of legislation epitomized the efforts of a broad-based coalition including the Workers' Compensation Task Force, representing the State's leading employers, the AFL-CIO, the South Carolina Chamber of Commerce, the Carolina Alliance for Fair Employment, the National Federation of Independent Businesses, the South Carolina Trial Lawyers Association, the South Carolina Self-Insurers Association, the South Carolina Hospital Association, The Governor's Advisory Committee for Improvements of the Workers' Compensation Laws, the South Carolina Homebuilders Association, the Carolinas Branch Associated General Contractors, the South Carolina Merchants Self-Insurance Trust Fund, the South Carolina Automobile Dealers Self-Insurance Trust Fund, and the South Carolina Workers' Compensation Commission.
Through compromise and consensus-building, the proposed legislation intended to bring about needed change and improvement to workers' compensation programs in South Carolina. If enacted, the legislation would assure a greater equity within the system by closing the "opt out" loophole and providing for consistent and comprehensive fraud investigation and prosecution, better cost-effectiveness by reducing overhead costs associated with claims reporting and administration, and a more user-friendly system by establishing standards for prompt payment and responsible action.
The Senate version of the bill encompassed thirteen proposals. These included the computation of average weekly wages. Current law uses the "previous 52 weeks" as the basis, while the bill uses the "previous four quarters" as reported on the Employer Contribution Reports. Its clarifies work-related stress by adding a clarifying provision which states that such stress unaccompanied by physical injury is not compensable if it occurs during ordinarily personnel actions (such as demotions or terminations), unless the action is taken in an extraordinary or unusual manner. It requires all employers engaged in construction to have proof of coverage. It repeals the right to reject workers' compensation coverage. Currently, there are only three states which allow employers to opt-out of the system; Texas, New Jersey (where all employees must agree to opt-out), and South Carolina. Up until 1992 this provision was hardly utilized in this state. Entrepreneurs from Texas who have been marketing the product, entered South Carolina and have attempted to provide coverage for employers at a lower rate, but not comparable to the benefits presently received under the current workers's compensation system. Before 1992, approximately 80 employers had opted-out of the system. In the fiscal 1992-93, 106 employers opted out, and as of December of 1993, a total of 496 employers in South Carolina had dropped out of the workers' compensation system. The legislation also increases the fine for failure to provide coverage, provides for exhaustion of all remedies prior to paying an Uninsured Employer's Fund claim, clarifies payments to be made by check, prohibits dunning letters and provides for timely payment of medical services, stipulates liability for structured settlements, establishes an Insurance Fraud Division of the Attorney General's Office as part of the Omnibus Insurance Fraud Act, amends the reporting requirements for accidents to allow for summary reporting and electronic data interchange, and allows the Commission to review previously award claims at the request of the employer when fraud is suspected.
The House amended eight sections of S.540.
Section 2 - Work-Related Stress: The House version requires that work-related stress be supported by clear and convincing psychiatric evidence that the predominant cause of injury was the extraordinary and unusual conditions of employment, excluding normal personnel actions (for example, disciplinary actions, work evaluations, job transfers, etc.)
Section 3 - "Opt Out": The House version requires that upon notice to the Commission indicating which option it will operate under outside the system, an employer may "opt out" of the system by purchasing insurance coverage meeting certain statutory requirements or by posting $500,000 surety bond or security with the Chief Insurance Commissioner.
Section 8 - Certain Notices Require Conspicuous Posting: The amendment to this section is technical to adjust for maintaining the "opt out" option and its notice requirements.
Section 9 - Prohibits Use of Certain Common Law Defenses: This amendment makes technical changes to the code provision previously amended by the Senate reflecting that the "opt out" option has not been repealed. The addition of comparative negligence to the list of common law defenses such employer cannot utilize is maintained.
Section 17 - "Start Payment" Provision - The House amendment incorporates a "start payment " provision that would only apply to those operating within the Workers' Compensation System and not those who decide to opt out. An employer may start temporary total disability payments immediately when an employee is out of work eight consecutive days and may continue for up to 120 days without waiver of any grounds the employer may have for denying the claim discovered in a good faith investigation, provides when payments may be terminated or suspended immediately by an employer and that an employee can request a hearing to have temporary compensation reinstituted, and provides a penalty for noncompliance of carriers or employers.
Section 19 - Omnibus Insurance Fraud and Reporting Immunity Act - The House version creates an 'Insurance Fraud Division" within the Attorney General's Office to prosecute insurance fraud, to refer matters for investigation to SLED; and to collect fines. The division and the investigative functions of SLED of alleged violations are funded annually by no less than $200,000 from general revenues derived from insurance premium taxes and other fines assessed pursuant to this fraud act., replaces the definition of "insurance fraud" by the definition for "false statement and misrepresentation", provides both a criminal and civil penalty for any person who makes a false statement or misrepresentation in connection with an insurance transaction, or any person knowingly aiding and abetting such action. The civil fining provision is modeled after that of the New Jersey Insurance Fraud Bureau, which has had great success in this area and such ability is considered one of its strengths. It also requires annual reports by the Insurance Fraud Division Director to the General Assembly regarding the status of allegations or reports received, including actions taken.
Section 21 - Repealed Provisions for Consistency within Bill - The House version amends the original bill to adjust for maintaining the "opt out" option so as to only repeal the section allowing an employer to waive his exemption to the workers' compensation act upon the filing of written notice of his desire to be subject to the provision of Title 42.
Section 22 - Effective Date - The bill continues to take effect upon approval of the Governor; however, the House version adds that employers who have opted out prior to this act have six months to comply to its provisions, including those rejecters who have procured another form of insurance.
The House added sections to S.540.
Section 41-1-80 - The Anti-Retaliation Statute extends existing protection to employees who have filed claims under an alternative insurance plan maintained by the employer, and to employees bringing action against the employer opting out with security filed with the Chief Insurance Commission. It also changes "intoxication" which is an existing retaliatory discharge defense available to an employer, to "under the influence of intoxicating alcohol or drugs".
Section 38-55-170 - Corresponding Penalty Changes in Existing False Claim Statute - The House version amends current law which prohibits the filing of a false insurance claim so that the penalties of that statute are the same as those provided by the act in Section 19.
The House version also adds a section which allows an employer applying to self-insure to submit the sworn statement or affidavit of an independent auditor (CPA) verifying his financial condition according to the financial ratios or guidelines established by the Commissioner regulation in lieu of submitting audited financial statements.
Because positions changed as the session progressed, the coalition,which had been responsible for the cohesiveness of the legislation, fell apart. One of the most important sections of the bill, the establishment of an insurance fraud bureau, was lifted from the bill, attached to the budget bill as a proviso, and was passed in that legislation.
It was most disappointing to the many people who had worked so hard for three years on this legislation, to see it go down hill because of lack of consensus on behalf of various parties.
DEFINITION OF "AUTOMOBILE INSURANCE" - S.972, H.4497
This amendment to the code codifies the interpretation placed on the current Statute by the South Carolina Department of Insurance. This codification is needed to remove any remaining ambiguity and to give general notice to the public of this Statute's meaning. The practical impact of the Insurance Department's interpretation, which would be codified in this legislation, is that commercial businesses are not legally required to purchase basic limits uninsured motorist coverage fore their "employers nonownership liability" (ENOL) policies or for their "hired car" policies and that the mandatory offer of underinsured motorist coverage and "excess" uninsured coverage is not applicable to ENOL and hired car policies. If this legislation is enact, "named" nonowner policies" will continue to be subject to the requirement to carry basic uninsured motorist coverage and continue to be subject to the required offer of underinsured and "excess uninsured" coverage.
This legislation unfortunately became the vehicle for any automobile insurance reform which was on the calendar and thus became so controversial that the original bill could not even pass.
COMMITTEE AND STAFF ACTIVITIES:
Over the years, South Carolina has played an active part in the National Conference of Insurance Legislators (NCOIL). South Carolina has two legislators who have served as President of NCOIL. Currently, two committee members, Senator Ed Saleeby and Senator Glenn McConnell, serve on the Executive Committee of this organization.
NCOIL is a national organization of state legislators, working toward a better understanding of insurance, state insurance regulation and legislation, and against federal intervention in to the rights of the states to regulate and legislate insurance matters. It provides its members with education and informational services to stay abreast of trends and to anticipate new developments. NCOIL also helps legislators in understanding the insurance industry, its impact on constituents, and consumer pressures. The importance of NCOIL to its members is underscored by the fact that insurance is one of the largest private industries regulated by the states, and in any typical legislative year some 25,000 insurance-related bills will be introduced in state legislatures.
Besides the activities stated above, the Committee's staff continues to work closely with the Department of Insurance, attending the monthly Insurance Commissions' meetings. The staff also attends the quarterly meetings of the South Carolina Health Insurance Pool, serving as a conduit between the Pool's Board and the Legislature. Staff has made numerous speeches to various organizations and associations on committee and legislative activities. Attendance at the National Association of Insurance Commissioners' meetings has been invaluable because of the opportunity it presents to the staff in order to follow the progress of insurance related legislation on the federal level and in other states, and to pass on to committee members and other legislators, information on the progress of model acts which the NAIC generates, and on which many of South Carolina's insurance laws are based.
Staff is also available and called upon throughout the session and interim to answer any constituent concerns for members of the General Assembly on all insurance related matters.
Mary Lou Price
On motion of Senator SALEEBY, with unanimous consent, ordered printed in the Journal of Friday, January 20, 1995.
At 11:l0 A.M., on motion of Senator LANDER, the Senate adjourned to meet next Tuesday, January 24, 1995, at 12:00 Noon.
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