Section 21.27.650. Operating requirements for third-party administrators.

   (a) An insurer may not transact business with a third-party administrator unless
        (1) the insurer holds a certificate of authority in this state if required under this title;
        (2) the third-party administrator is registered under this chapter or the third-party administrator has filed a certification with the director certifying that the third-party administrator is operating only for a foreign insurer other than a self-funded multiple employer welfare arrangement regulated under AS 21.85 and is registered as a third-party administrator by the third-party administrator's resident insurance regulator in a state that the director has determined has enacted provisions substantially similar to those contained in AS 21.27.630 - 21.27.650 and that is accredited by the National Association of Insurance Commissioners;
        (3) the third-party administrator provides the director on January 1, April 1, July 1, and October 1 of each year
             (A) a list of persons who supervise or have responsibility over personnel performing administrative functions, including claims administration and payment, marketing administrative functions, premium accounting, premium billing, coverage verification, underwriting, or certificate issuance upon a subject resident, located, or to be performed in this state;
             (B) a list of current insurers under contract; and
             (C) other information the director may require;
        (4) a written contract is in effect between the parties that establishes the responsibilities of each party, indicates both parties' share of responsibility for a particular function, and specifies the division of responsibilities;
        (5) there is in effect a written contract between the insurer and third-party administrator that contains the following provisions:
             (A) the insurer may terminate the contract for cause upon written notice sent by certified mail to the third-party administrator and may suspend the underwriting authority of the third-party administrator during a dispute regarding the cause for termination; but the insurer must fulfill all lawful obligations with respect to policies affected by the written agreement, regardless of any dispute between the insurer and the third-party administrator;
             (B) the third-party administrator shall render accounts to the insurer detailing all transactions and remit all money due under the contract to the insurer at least monthly;
             (C) all money collected for the account of an insurer shall be held by the third-party administrator as a fiduciary;
             (D) all payments on behalf of the insurer shall be held by the third-party administrator as a fiduciary;
             (E) the third-party administrator may not retain more than three months' estimated claims payments and allocated loss adjustment expenses;
             (F) the third-party administrator shall maintain separate records for each insurer in a form usable by the insurer; the insurer or its authorized representative shall have the right to audit and the right to copy all accounts and records related to the insurer's business; the director, in addition to other authority granted in this title, shall have access to all books, bank accounts, and records of the third-party administrator in a form usable to the director; any trade secrets contained in books and records reviewed by the director, including the identity and addresses of policyholders and certificate holders, shall be kept confidential, except that the director may use the information in a proceeding instituted against the third-party administrator or the insurer;
             (G) the contract may not be assigned in whole or in part by the third-party administrator;
             (H) if the contract permits the third-party administrator to do underwriting, the contract must include the following:
                  (i) the third-party administrator's maximum annual premium volume;
                  (ii) the rating system and basis of the rates to be charged;
                  (iii) the types of risks that may be written;
                  (iv) maximum limits of liability;
                  (v) applicable exclusions;
                  (vi) territorial limitations;
                  (vii) policy cancellation provisions;
                  (viii) the maximum policy term; and
                  (ix) that the insurer shall have the right to cancel or not renew a policy of insurance subject to applicable state law;
             (I) if the contract permits the third-party administrator to administer claims on behalf of the insurer, the contract must include the following:
                  (i) written settlement authority must be provided by the insurer and may be terminated for cause upon the insurer's written notice sent by certified mail to the third-party administrator or upon the termination of the contract, but the insurer may suspend the settlement authority during a dispute regarding the cause of termination;
                  (ii) claims shall be reported to the insurer within 30 days;
                  (iii) a copy of the claim file shall be sent to the insurer upon request or as soon as it becomes known that the claim has the potential to exceed an amount determined by the director or exceeds the limit set by the insurer, whichever is less, involves a coverage dispute, may exceed the third-party administrator's claims settlement authority, is open for more than six months, involves extra contractual allegations, or is closed by payment in excess of an amount set by the director or an amount set by the insurer, whichever is less;
                  (iv) each party to the contract shall comply with unfair claims settlement statutes and regulations;
                  (v) transmission of electronic data must occur at least monthly if electronic claim files are in existence; and
                  (vi) claim files shall be the sole property of the insurer; upon an order of liquidation of the insurer, the third-party administrator shall have reasonable access to and the right to copy the files on a timely basis; and
             (J) the contract may not provide for commissions, fees, or charges contingent upon savings obtained in the adjustment, settlement, and payment of losses covered by the insurer's obligations; but a third-party administrator may receive performance-based compensation for providing hospital or other auditing services or may receive compensation based on premiums or charges collected or the number of claims paid or processed.
   (b) If the insurer is domiciled in this state or the third-party administrator has a place of business in this state, a copy of the contract must be filed with and approved by the director at least 30 days before the third-party administrator transacts business on behalf of the insurer. If the contract is not required to be approved in advance by the director, the insurer shall provide written notification to the director within 30 days of the entry into or termination of a contract with a third-party administrator; the notice must include a statement of duties to be performed by the third-party administrator on behalf of the insurer, the kinds and classes of insurance for which the third-party administrator has authorization to act, and other information required by the director.
   (c) If the contract provides for the third-party administrator to receive or collect premiums, payment by or on behalf of the insured of premiums for insurance to the third-party administrator shall be presumed to have been received by the insurer; payment of return premiums or claim payments forwarded by the insurer to the third-party administrator may not be presumed to have been received by the person entitled to the money until the payments are received by the insured or claimant. Nothing in this subsection limits the rights that the insurer may have against the third-party administrator resulting from the failure of the third-party administrator to make payments to persons entitled to money.
   (d) Policies, certificates, booklets, termination notices or other written communications delivered by the insurer to the third-party administrator for delivery to the insured or covered individuals shall be delivered by the third-party administrator within 10 days after receipt of instructions from the insurer to deliver them.
   (e) When the services of a third-party administrator are utilized, the third-party administrator shall provide a written notice, approved in writing by the insurer, to a covered person advising the person of the identity of the insurer and the relationship between the third-party administrator, the policyholder, and the insurer.
   (f) The third-party administrator may not
        (1) bind reinsurance or retrocessions on behalf of the insurer;
        (2) commit the insurer to participate in insurance or reinsurance syndicates;
        (3) pay or commit the insurer to pay a claim, net of reinsurance, the amount of which exceeds one percent of the insurer's policyholder's surplus as of December 31 of the last completed calendar year without prior written approval of the insurer for the settlement; the approval of an insurer must be received after the insurer has been notified in writing that the claim settlement will exceed one percent of the insurer's policyholder's surplus as of December 31 of the last completed calendar year;
        (4) collect a payment from a reinsurer or commit the insurer to a claim settlement with a reinsurer without prior written approval of the insurer, but if prior written approval is given, a complete report must be forwarded to the insurer within 30 days;
        (5) serve on the insurer's board of directors;
        (6) jointly employ an individual who is employed by the insurer;
        (7) delegate third-party administrator authority to another person;
        (8) solicit applications for insurance or renewals of insurance directly through employees or by appointments of insurance producers as its subagents unless its employees or the insurance producers appointed under the procedures set out in AS 21.27.100 and 21.27.110 are licensed for the kinds or classes of insurance and the solicitation or renewals are within the scope of authority granted by the insurer contracting with the third-party administrator; or
        (9) advertise the business underwritten by an insurer unless the advertising has been approved in writing by the insurer in advance of its use.
   (g) In a form acceptable to the director, a third-party administrator shall annually provide to the insurer and an insurer shall annually obtain a copy of certified financial statements prepared by an independent certified public accountant of each third-party administrator with which the insurer has done business.
   (h) In addition to any other required loss reserve certification, if a third-party administrator establishes loss reserves, the insurer shall annually obtain the opinion of an independent qualified actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the third-party administrator. The insurer retains an independent responsibility to determine the adequacy of its loss reserves, including those established by its third-party administrators.
   (i) If a third-party administrator provides services for more than 100 certificate holders on behalf of an insurer, the insurer shall at least semiannually conduct a review of the operations of the third-party administrator. At least one review required under this subsection must be an on-site review.
   (j) A third-party administrator shall maintain records as described in AS 21.27.350.
   (k) An insurer may not appoint to its board of directors an officer, director, employee, subagent, insurance producer, or controlling shareholder of its third-party administrator.
   (l) An actual or apparently authorized act of the third-party administrator is considered to be the act of the insurer upon whose behalf the third-party administrator is acting.
   (m) A third-party administrator may be examined by the director under AS 21.06.120 as if it were the insurer.
   (n) If the director determines after a hearing under AS 21.06.170 - 21.06.240 that a third-party administrator caused loss arising out of a violation of AS 21.27.630 - 21.27.650 to an insurer, the director may order the third-party administrator to reimburse the insurer, the rehabilitator, or the liquidator of the insurer for the loss. Reimbursement ordered under this subsection is in addition to any other liability of the third-party administrator and does not affect the rights of a policyholder, claimant, creditor, or third-party.
   (o) In addition to any other penalty provided by law, a person who violates this section is subject to the penalties provided under AS 21.27.440 and an insurer's certificate of authority may be suspended or revoked.
   (p)  [Repealed, Sec. 34 ch 1 FSSLA 2005].  
   (q) The director may, without advance notice or hearing, immediately suspend by order the registration of a third-party administrator if the director finds that one or more of the following circumstances exist:
        (1) the third-party administrator is insolvent or impaired;
        (2) a proceeding for bankruptcy, receivership, conservatorship, or rehabilitation, or another delinquency proceeding regarding the third-party administrator has been commenced in any state or by a governmental agency of another jurisdiction;
        (3) the third-party administrator is in an unsound condition, or is in a condition or using methods or practices that render its further transaction of insurance injurious to policy holders or the public.
   (r) An insurer shall review its books and records quarterly to determine whether a person or insurance producer has acted as the insurer's third-party administrator. If an insurer determines that a person or insurance producer has acted as the insurer's third-party administrator, the insurer shall promptly notify the person or insurance producer and the director of this determination. The insurer and the person or insurance producer must fully comply with the provisions of this chapter not later than 30 days after notification.

Authorities

21.27.630

Notes

Recent Bills that will modify this

HB 372 OMNIBUS INSURANCE

References

AS 21.27.630 Registration required.

History

(Sec. 94 ch 67 SLA 1992; am Sec. 112 ch 62 SLA 1995; am Sec. 54, 55 ch 81 SLA 2001; am Sec. 14, 15, 34 ch 1 FSSLA 2005; am Sec. 30 ch 80 SLA 2006; am Sec. 24 ch 41 SLA 2016)