by Webmaster on April 25, 2010
Many states have laws which closely follow the recommendations of the National Association of Insurance Commissioners. These laws specify certain requirements such as the size and purpose of the group, how the insurance is to be financed, and the type or amount of benefits offered.
Eligibility.
The foremost requirement for policies issued to an employer is that the insurance be provided for employees and for the benefit of persons other than the employer. However, the definition of employees is rather broad and includes retired employees, employees of one or more subsidiary corporations, and individual proprietors and partners.
Eligible groups other than employer groups are labor unions in which the union is the policyholder and the members are considered employees, creditor groups under which debtors are insured, multiple employer groups in which members of a trade association or union are provided insurance by the several employers and in which a trustee is the policyholder, and numerous other groups such as associations of professionals, employees of governmental units, and alumni associations.
Size and financing
Generally employer-employee groups are required to have at least 2 employees. Some states require ten employees as the minimum number. Plans provided by multiple employer groups usually must have
100 covered employees at the time of policy issue. The minimum number of covered employees must equal a certain portion of the total group for which insurance is being made available. In the case of plans under which employees contribute a portion of the cost,
75 percent of the eligible employees must elect the coverage. If the employer pays the entire cost of the plan, all eligible employees must be covered. In life insurance plans the employer must contribute a portion of the cost.
Since World War II there has been a trend toward noncontributory plans in which the employer bears the entire cost of insurance. These plans grew in popularity during the war years because wages were frozen. This made fringe benefits such as group insurance the focal point for union bargaining. Naturally, the union would bargain for noncontributory plans. However, noncontributory plans are advantageous to the employer because contributions are tax deductible, and the employer maintains control over the plan.
Single contract
The insurer issues a master contract to the organization administering the plan such as the employer. The insured or employee receives only a certificate which summarizes the provisions of the master contract.
Regulation
While most of the provisions of group contracts are very much like those of individually issued contracts, a different set of statutes is used to regulate group contracts. These statutes stipulate certain required, permitted, and prohibited contract provisions.
by Webmaster on April 25, 2010
State regulation is conducted by essentially three bodies: legislatures, insurance commissioners or boards, and the courts.
Legislatures draft new statutes or revise existing statutes, the insurance commissioner interprets and carries out the intent of the statutes, and the courts act as arbitrators when the statutes or the actions of the commissioner are questioned. Another body, the National Association of Insurance Commissioners, also participates in the regulatory process. The Association, composed of the commissioners of all states, drafts model legislation and carries on other advisory activities which are intended to improve state regulation. The NAIC has been an effective force in shaping regulatory codes across the nation.
As the central regulatory figure, the insurance commissioner or board bears the greatest responsibility for the conduct of the insurance business. The overwhelming majority of states have an appointed commissioner who with his staff oversees the insurance activities within the state.
Typically, the commissioner is charged with a very broad range of responsibilities and duties. The following is a list of some of the commissioner’s more important functions.
1. Insurer formation and organization: to enforce the laws relating to the formation of new insurers with respect to factors such as minimum amounts of capital and surplus and the integrity of those persons organizing the company.
2. Licensing of outside insurers: to license foreign insurers, i.e., those organized in other states or foreign countries which do business within the state. An insurer may not do business in the state without the permission of the commissioner.
3. Insurer examination: to examine the records and operations of insurance companies doing business within the state. These are exhaustive examinations and probe into factors such as accounting methods, investment values, and the adequacy of various reserves. Examinations are conducted about once every three years.
4. Licensing and relicensing of insurance agents: to license and examine insurance agents. An insurance agent must be licensed to sell insurance. Commissioners are also empowered to revoke licenses when insurance agents act in an unlawful manner.
5. Policy form approval: to examine and approve almost all types of insurance contracts. This activity is especially important in the regulation of life, health, and accident insurers, as it represents one of the few ways an insurer’s activities may be directly controlled.
6. Rates or premiums: to examine, approve, and, in Texas, to make rates for the various lines of insurance. The power of the commissioner varies as to the extent rates are controlled. In states such as Texas, most rates are promulgated by the board, while in states such as California rates are relatively uncontrolled. However, in all states the rates for life, health, and accident coverages are quite free from control. Rate regulation in these lines takes the form of regulating the method used to calculate reserves and specific provisions in the insurance contract. To a significant extent competition between insurers determines the rates in the life and health lines.
7. Complaints: to investigate complaints by consumers against insurers and insurance agents. The commissioner is also required to investigate complaints between insurers and between insurance agents.
8. Liquidation of insurers: to supervise the liquidation of insolvent insurers. This can involve the valuation of assets, setting the priority of claims against the insurer, and pressing actions against those persons found guilty of unlawful acts.
9. Taxation: to assess and collect various premium taxes and fees levied against both insurers and insurance agents.