Bill 413

                    Current Status

Bill Number:               413
Ratification Number:       200
Act Number:                133
Introducing Body:          Senate
Subject:                        Insurance administrators of
                           insurance benefit plans

(A133, R200, S413)

AN ACT TO REQUIRE INSURANCE ADMINISTRATORS OF INSURANCE BENEFIT PLANS TO BE LICENSED AND REGULATED BY THE CHIEF INSURANCE COMMISSIONER, TO PROVIDE FOR EXAMINATION OF RECORDS, AND TO PROVIDE PENALTIES.

Be it enacted by the General Assembly of the State of South Carolina:

Definitions

SECTION 1. As used in this act:

(A) "Administrator" means any person who collects charges or premiums from, or who adjusts or settles claims on, residents of this State in connection with life or health insurance coverage or annuities other than (1) an employer on behalf of its employees or the employees of one or more subsidiaries or affiliated corporations of an employer, (2) a union on behalf of its members, (3) an insurance company which is either licensed in this State or acting as an insurance company with respect to a policy lawfully issued and delivered by it pursuant to the laws of a state in which the insurance company was authorized to do insurance business, or a health maintenance organization licensed in this State, (4) a life or health agent or broker licensed in this State whose activities are limited exclusively to the sale of insurance, (5) a creditor on behalf of its debtors with respect to insurance covering a debt between the creditor and its debtors, (6) a trust, its trustees, agents, and employees acting thereunder, established in conformity with 29 U.S.C. 186, (7) a trust exempt from taxation under Section 501(a) of the Internal Revenue Code, its trustees, and employees acting thereunder, or a custodian, its agents and employees acting pursuant to a custodian account which meets the requirements of Section 40l(f) of the Internal Revenue Code, (8) a bank, credit union, or other financial institution which is subject to supervision or examination by federal or state banking authorities, (9) a credit card issuing company which advances for and collects premiums or charges from its credit card holders who have authorized it to do so if the company does not adjust or settle claims, or (10) a person who adjusts or settles claims in the normal course of his practice or employment as an attorney at law and who does not collect charges or premiums in connection with life or health insurance coverage or annuities.

(B) "Person" means a corporation, partnership, association, individual, or any other entity, organization, or aggregation of individuals.

(C) "Commissioner" means the Chief Insurance Commissioner.

Written agreement required

SECTION 2. No administrator shall act as such without a written agreement between the administrator and the insurer and the written agreement is retained as part of the official records of both the insurer and the administrator for the duration of the agreement and five years thereafter. The written agreement shall contain provisions which include the requirements of Sections 4 through 9 of this act, except insofar as those requirements do not apply to the functions performed by the administrator.

Where a policy is issued to a trustee, a copy of the trust agreement and any amendments thereto must be furnished to the insurer by the administrator and must be retained as part of the official records of both the insurer and the administrator for the duration of the policy and five years thereafter.

Payment of premiums

SECTION 3. Whenever an insurer utilizes the services of an administrator under the terms of a written contract as required in Section 2, the payment to the administrator of any premiums or charges for insurance by or on behalf of the insured is considered to have been received by the insurer and the payment of return premiums or claims by the insurer to the administrator is not considered payment to the insured or claimant until the payments are received by the insured or claimant. Nothing herein limits any right of the insurer against the administrator resulting from his failure to make payments to the insurer, insureds, or claimants.

Adequate books and records required

SECTION 4. Every administrator shall maintain at its principal administrative office for the duration of the written agreement referred to in Section 2 and five years thereafter adequate books and records of all transactions among the administrator, insurers, and insured persons. The books and records must be maintained in accordance with prudent standards of insurance record keeping. The commission shall have access to the books and records for the purpose of examination, audit, and inspection and information from the records must be furnished to the commissioner on demand. Any trade secrets contained therein including, but not limited to, the identity and addresses of policyholders and certificate holders are confidential, except the commissioner may use the information in any proceedings instituted against the administrator. The insurer shall retain the right to continuing access to the books and records of the administrator sufficient to permit the insurer to fulfill all of its contractual obligations to insured persons, subject to any restrictions in the written agreement between the insurer and administrator on the proprietary rights of the parties in such books and records.

Advertising

SECTION 5. An administrator may use only the advertising pertaining to the business underwritten by an insurer as has been approved by the insurer in advance of its use.

Underwriting

SECTION 6. The agreement shall make provision with respect to the underwriting or other standards pertaining to the business underwritten by the insurer.

Charges and premiums

SECTION 7. All insurance charges or premiums collected by an administrator on behalf of or for an insurer and return premiums received from the insurer must be held by the administrator in a fiduciary capacity. The funds must be immediately remitted to the person entitled thereto or deposited promptly in a fiduciary bank account established and maintained by the administrator. If charges or premiums so deposited are collected on behalf of or for more than one insurer, the administrator shall cause the bank in which the fiduciary account is maintained to keep records clearly recording the deposits in and withdrawals from the account on behalf of or for each insurer. The administrator shall promptly obtain and keep copies of all records and, upon request of an insurer, furnish the insurer with copies of the records pertaining to deposits and withdrawals on behalf of or for the insurer. The administrator shall not pay any claim by withdrawals from the fiduciary account. Withdrawals from the account may be made, as provided in the written agreement between the administrator and the insurer, for (1) remittance to an insurer entitled thereto; (2) deposit in an account maintained in the name of the insurer; (3) transfer to and deposit in a claims paying account with claims to be paid as provided in Section 8; (4) payment to a group policyholder for remittance to the insurer entitled thereto; (5) payment to the administrator of its commission, fees, or charges; or (6) remittance of return premiums to the person entitled thereto.

Claims

SECTION 8. All claims paid by the administrator from funds collected on behalf of the insurer are paid only on drafts of and as authorized by the insurer.

Compensation to administrator

SECTION 9. With respect to any policies where an administrator adjusts or settles claims, the compensation to the administrator with regard to these policies shall in no way be contingent on claim experience. This section does not prevent the compensation of an administrator from being based on premiums or charges collected or number of claims paid or processed.

Notice

SECTION 10. Where the services of an administrator are utilized, the administrator shall provide a written notice approved by the insurer to insured individuals, advising them of the identity of and relationship among the administrator, the policyholder, and the insurer.

Fidelity bond required

SECTION 11. Every administrator shall file and maintain with the commissioner a fidelity bond in favor of the State executed by a surety company authorized to transact business in this State. The amount of the bond filed with the commissioner must not be less than ten percent of the amount of total funds handled or fifty thousand dollars, whichever is greater, but the amount of the bond shall not exceed five hundred thousand dollars. For purposes of fixing the amount of the bond, the amount of total funds handled is determined by the total funds handled by the administrator during the preceding calendar year as shown on a sworn statement which is filed by the administrator with the commissioner on or before March first of each year on such forms as the commissioner may prescribe. If no funds were handled during the preceding year, the amount of the bond is fifty thousand dollars. The bond must be on a form approved by the commissioner and must be conditioned to pay any person who sustains a loss as a result of (a) the administrator's violation of or failure to comply with any requirement of this act; (b) the administrator's failure to properly transmit any payment received by it for transmission to an insurer or other person; (c) the administrator's misapplication or misappropriation of funds received by it; or (d) any act or fraud or dishonesty committed by the administrator in the administration of an insurance benefit plan. Any aggrieved person may institute an action in the county of his residence against the administrator or his surety, or both, to recover on the bond. Nothing in this section may be construed to prohibit agreements between administrators and insurers providing for additional bonds.

Administrator to be licensed

SECTION 12. No person shall act as an administrator in this State without first being licensed by the commissioner. Any person who acts as an administrator without a license is guilty of a misdemeanor and upon conviction must be fined not more than ten thousand dollars or imprisoned for not more than two years, or both, and is subject to revocation of any insurance licenses issued by the commissioner.

Application for a license must be upon forms prescribed by the commissioner and must be accompanied by an initial license fee of one hundred dollars. Thereafter, the administrator shall pay to the commissioner a license renewal fee of one hundred dollars on or before March first of each year.

Before granting any license, the commissioner must be satisfied that the administrator is competent, trustworthy, financially responsible, has a good personal and business reputation, has not had an insurance license revoked, suspended, or denied in any jurisdiction within the preceding five years, and has not been convicted of a crime involving fraud, dishonesty, or moral turpitude in any jurisdiction. For purposes of this section, "convicted" includes a plea of guilty or a plea of nolo contendere.

The commissioner may revoke or suspend any license issued to an administrator when he finds that any condition exists which would have prohibited issuance of the original license, that the administrator has violated any provision of this act, or that the administrator has deceived or dealt unjustly with the citizens of this State. In lieu of revocation or suspension of license, the commissioner may impose an administrative monetary penalty not to exceed one thousand dollars for each offense.

Time effective

SECTION 13. This act shall take effect ninety days after approval by the Governor.