Illinois Administrative Code
TITLE 50: INSURANCE
SUBCHAPTER hh: WORKERS’ COMPENSATION AND EMPLOYERS’
LIABILITY ACTS
PART 2901: WORKERS’ COMPENSATION SELF INSURANCE
Section
2901.10
2901.20
2901.30
2901.40
2901.50
Authority and Purpose
Definitions
Pool Administration
Provisions Applicable to Members of Group Self-Insurance Pools
Service Companies
AUTHORITY: Implementing Section 4a of the Workers' Compensation Act (Ill. Rev.
Stat. 1991, ch. 48, par. 138.4a) [820 ILCS 305/4a] and Section 187 of the Illinois
Insurance Code (Ill. Rev. Stat. 1991, ch. 73, par. 799) [215 ILCS 5/187] and authorized
by Section 401 of the Illinois Insurance Code (Ill. Rev. Stat. 1991, ch. 73, par. 1013)
[215 ILCS 5/401].
SOURCE: Adopted at 5 Ill. Reg. 6352, effective May 27, 1981; codified 7 Ill. Reg. 3480;
amended at 18 Ill. Reg. 12785, effective August 4, 1994.
2901.10 Authority and Purpose
This rule is promulgated by the Director of Insurance pursuant to Section 4a of the
Workers' Compensation Act (Ill. Rev. Stat. 1981, ch. 48, par. 138.4a), hereinafter
referred to as the Act, which empowers the Director to make reasonable rules and
regulations as may be necessary for the administration of the Act; and is further
authorized by Sections 187 and 401 of the Illinois Insurance Code (Ill. Rev. Stat. 1981,
ch. 73, pars. 799 and 1013). The purpose of this rule is to establish standards for the
establishment, operation and administration of administrators and service companies
authorized by the Act.
2901.20 Definitions
Unless otherwise indicated, the following definitions shall apply to this Rule:
"Assets" shall mean investments as per Section 2901.30(c)(3), cash and
reinsurance recoverable from authorized reinsurers on paid losses and
amounts due from pool participants not more than 60 days past due.
"Authorized insurer" shall mean an insurer licensed in the State of Illinois
to transact Clause (d) of Class 2 of Section 4 of the Illinois Insurance
Code (Ill. Rev. Stat. 1981, ch. 73, par. 616).
"Calendar quarter" shall mean the 3-month periods ending March 31, June
30 and September 30.
"Calendar year" shall mean the period from January 1 to December 31.
"Director" shall mean the Director of the Department of Insurance.
"Engaged actively in business" shall mean a bonafide business concern
having conducted commerce, trade or industry in the State of Illinois for a
specified period of time. Any and all records relating to this requirement
shall be open to inspection by the Director or his designee during normal
business hours.
"Excess of loss insurance" shall mean insurance purchased from a
licensed insurer or reinsurer in which for each claim for each risk, the pool
pays the amount of the claim up to a predetermined amount and the
insurer or reinsurer pays any amount of the claim in excess of the retained
portion. For purpose of this definition, "risk" means the employer members
and not the individual employees employed thereby.
"Gross Annual Payroll" shall mean payroll for the preceding calendar year.
"Independent Actuarial Opinion" shall mean an opinion expressed by a
member of the American Academy of Actuaries or Casualty Actuarial
Society.
"Independent C. P. A." shall mean a Certified Public Accountant or
accounting firm registered to practice in Illinois.
"Pool" shall mean the group self-insurers authorized by Section 4a of the
Worker's Compensation Act, as amended.
2901.30 Pool Administration
a)
Every application for Certificate of Authority to establish a pool must
include the following documentation and information regarding its
Administrator, Pooling Agreement, Plan of Operation and membership:
1)
Administrators must disclose:
A)
B)
C)
D)
E)
2)
Pooling Agreement must contain:
A)
B)
C)
D)
E)
F)
G)
H)
I)
3)
Biographicals of the risk manager on forms prescribed by the
Director.
If a corporation, biographicals of all officers and directors.
Size of staff and other information, such as the kinds of staff
positions, location of administrative offices and the nature of
any electronic data processing equipment, if any, available
for servicing the pool, to demonstrate that the Administrator
has the resources to administer the self-insured program
disclosed pursuant to subsection (a)(3) below.
Most recent financial statement of Administrator. If a publicly
held company, a copy of the last 10-K filed with the
Securities and Exchange Commission.
Compensation of Administrator.
Services to be provided by Administrator.
How costs are to be porportioned among members.
Initial premium deposit.
Assessment provisions.
Termination provisions and minimum term of membership.
The minimum term of membership shall not be less than one
year.
Duration of liability for additional assessments following
termination of membership shall be for a period of not less
than three years.
Deductibles, if any, to be retained by individual members.
Limitations, if any, on risks insured (e.g., employees located
outside state).
Prerequisites for membership.
Plans of Operation must disclose:
A)
B)
C)
D)
E)
F)
G)
H)
Listing of initial members.
Initial annual rate(s) to be charged members and an
explanation of how rate(s) developed.
Anticipated first year premium.
Anticipated first year losses.
Aggregate loss history of initial members for each of the last
three years.
The aggregate premium that would have been received at
the proposed rate for each of the last three years assuming
the losses of subsection (a)(3)(E) above.
Net retention of pool and list of initial insurers.
Names of all entities which will provide services for the pool
and copies of proposed contracts in connection therewith.
I)
J)
b)
4)
Written evidence from a surety company authorized to transact
business in this State that the Administrator has or can secure the
fidelity bond required by this Rule.
5)
Information about initial members on forms prescribed and
completed by each individual member.
Standards for Issuing Certificates of Authority to Pools. Upon receipt of a
complete application the Department of Insurance shall consider the
following in evaluating the financial strength of the Pool:
1)
2)
3)
4)
5)
6)
7)
8)
c)
Safety and loss control programs to be provided or required.
Plans for expansion of pool and anticipated future
membership.
Number of employees covered by the Pool.
Particular industry(ies) participants are engaged in.
Combined net worth of Pool participants.
Any excess insurance purchased from authorized insurers.
All excess insurance policies shall have a term of not less than one
year. No cancellation, termination or alteration of coverage
whether by or at the request of the insured or by the underwriter,
shall take effect prior to the expiration of 90 days after written notice
of such cancellation, termination, or alteration has been filed with
the Director unless an earlier date of such cancellation, termination,
or alteration is approved by the Director as unnecessary for the
protection of the pool or its members.
Combined workers' compensation experience for group for last
three years and any other financial data requested by the Director.
The gross annual payroll members must be at least $10 million
gross annual payroll.
The Pool Administrator must have either contracted with licensed
service companies or have sufficient resources, such as those set
forth in subsection (a)(1)(C) of this Section, to administer the
proposed pool.
General Rules:
1)
2)
Every group self-insurer shall, at all times, maintain reserves which
are sufficient to provide for the payment of all losses and claims
incurred discounted in an amount not to exceed 5% per annum
whether reported or unreported, which are unpaid and for which
such group self-insurer may be liable, and to provide for the
expense of adjustment or settlement of such losses and claims.
Administrator's Bond
A)
All Administrators shall procure and maintain in force surety
bonds on employees, officers or positions in an amount not
less than the amount set forth in the column "Minimum
Amount of Bond," based on the amount of assets held by the
Administrator (as determined from year to year hereafter)
stated in the annual statement of such Administrators as
filed with the Department. All such bonds shall be written
with at least a one year discovery period and if written with
less than a three year discovery period shall contain a
provision that no cancellation or termination of the bond,
whether by or at the request of the insured or by the
underwriter, shall take effect prior to the expiration of 90
days after written notice of such cancellation or termination
has been filed with the Department unless an earlier date of
such cancellation or termination is approved by the
Department.
B)
Such bonds shall include all employees, officers or positions
for the following perils which may be covered under separate
policies:
i)
ii)
iii)
T
O
T
A
L
A
S
S
E
T
S
Dishonesty of employees and officers;
Robbery, burglary, larceny, theft, false pretense, holdup, misplacement, mysterious disappearance, and
damage or destruction while property is in any bank
or any recognized place of safe deposit, or in transit;
Forgery or alteration.
C)
The bond shall be written by an insurer licensed to transact
business in the State of Illinois.
D)
Schedule of Assets in relationship to Amount of Bond
MINIMUM AMOUNT OF BOND
3)
For the purpose of determining compliance with subsection (c)(1)
above and Section 4a(2) of the Workers' Compensation Act (Ill.
Rev. Stat. 1991, ch. 48, par. 138.4a(2)) [820 ILCS 305/4a(2)], only
assets invested in the following manner will be recognized.
A)
Direct obligations of the United States of America for the
payment of money, or obligations for the payment of money
which are guaranteed as to the payment of principal and
interest by the United States of America.
B)
Direct obligations for the payment of money issued by an
agency or instrumentality of the United States of America, or
obligations for the payment of money which are guaranteed
as to payment and principal and interest by an agency or
instrumentality of the United States of America.
C)
Any bonds or securities which are issued by any state of the
United States and which are secured by the full faith and
credit of that state.
D)
Certificates of deposit, time deposits, or demand deposits in
a bank in the State of Illinois which has deposits insured by
the Federal Deposit Insurance Corporation.
E)
Saving certificates issued by any savings and loan
association in the State of Illinois which has deposits insured
by the Federal Savings and Loan Insurance Corporation.
F)
Direct, unconditional obligations of a solvent business
corporation for the payment of money on the following
conditions:
i)
ii)
iii)
iv)
The corporation shall be incorporated under the laws
of the United States of America or any state of the
United States of America;
The corporation shall have a tangible net worth of not
less than $500,000 and the obligations must be
awarded a "1" or "2" rating by the Securities Valuation
Office of the National Association of Insurance
Commissioners;
The corporation may not be affiliated with any
member of the Pool;
No such obligation of the corporation has been in
default as to principal or interest during the five years
preceding the date of investment, but the corporation
v)
vi)
G)
Obligations of any political subdivision of any state of the
United States of America for the payment of money, on the
following conditions:
i)
ii)
iii)
iv)
v)
H)
need not have had obligations outstanding during that
period and need not have been in existence for that
period, and obligations acquired under this Section
may be newly issued;
A Pool shall not invest more than 33 1/3% of its
assets under this Section; and
A Pool shall not invest under this Section more than
5% of its assets in the obligations of any one such
corporation.
The obligations are payable from ad valorem taxes;
Such political subdivision is not in default in the
payment of principal or interest on any of its direct,
general obligations;
No investment shall be made under this Section in
obligations which are secured only by special
assessments for local improvements;
A Pool shall not invest under this Section more than
4% of its assets in direct, general obligations issued
by any one such political subdivision; and
The Pool shall not invest more than 50% of its assets
under this Section.
Mutual Funds
i)
ii)
Government money market mutual funds that meet
the conditions of paragraphs (c)(2), (c)(3) and (c)(4) of
17 C.F.R. 270.2a-7, revised as of April 1, 1992, that
have been rated in one of the two highest rating
categories by an independent rating agency
recognized by the National Association of Insurance
Commissioners and that invests in obligations issued,
guaranteed or insured by the United States or
Canada or any agency or instrumentality of the United
States or Canada.
Fixed income bond mutual funds that meet the
conditions of paragraphs (c)(2), (c)(3) and (c)(4) of 17
C.F.R. 270.2a-7 revised as of April 1, 1992, and that
have been rated in one of the two highest rating
categories by an independent rating agency
recognized by the National Association of Insurance
Commissioners. A pool shall not invest in fixed
income bond mutual funds more than the greater of
$100,000 or 10% of its total assets in any one fund.
4)
Amounts recoverable from authorized reinsurers on unpaid losses
may be deducted from the reserves required by subsection (b)(1) of
this Section and Section 4 of the Workers' Compensation Act (Ill.
Rev. Stat. 1991, ch. 48, par. 138.4) [820 ILCS 305/4].
5)
All securities eligible for registration shall be registered in the name
of the Pool and all securities shall be maintained in a State or
National Bank having trust powers and located within this State.
6)
Each Pool shall, by April 1 of each year, file with the Director a
financial statement on a form to be prescribed by him setting forth
the Pool's assets, liabilities and surplus funds for preceding
calendar year. Furthermore, the Director may require quarterly
supplementary summary statements to be filed not less than 60
days following the end of each calendar quarter.
7)
Each Pool shall, on or before June 1 of each year,
A)
file with the Director an audited financial statement reporting
the financial condition of the Pool as of the end of the most
recent calendar year and changes in the surplus funds for
the year then ending.
B)
The annual audited financial report shall include the
following:
i)
ii)
iii)
iv)
v)
vi)
Report of an independent certified public accountant.
Balance sheet reporting assets as defined by this
Part, liabilities and surplus funds.
Statement of gain or loss from operations.
Statement of changes in financial position.
Statement of changes in surplus funds.
Notes to financial statements.
8)
The Director may require a Pool to file an independent actuarial
opinion as to the sufficiency of the loss and loss adjustment
expense reserves established pursuant to this Part.
9)
The Pool shall purchase excess of loss insurance of an amount not
greater than 20% of the projected annual premiums to be received
from members at the then current rate. The maximum required
limit of excess of loss insurance shall be determined by the
Director. In making this determination, the Director shall consider
all aspects of the Pool and its insureds including, but not limited to,
concentration of insured employees, Pool retention, Pool size, and
surplus funds. Additionally, the Pool may purchase annual
aggregate excess insurance providing coverage of not less than
90% excess of not more than 110% of the projected annual
premiums to be received by the Pool at the then current rate with a
minimum limit of $2 million excess of the Pool's retention. In
considering the adequacy of the annual aggregate excess
insurance cover, the Director shall consider all aspects of the Pool
and its insureds including, but not limited to, concentration of
insured employees, Pool retention, Pool size, and surplus funds.
10)
d)
e)
Pool Administrators and books and records relating to the
operations of the Pool shall be located within the State of Illinois
and shall be available for inspection by the Director or his designee
during normal business hours.
Assessment Provisions
1)
Whenever the Director determines by means of audit, annual
certified financial statement, actuarial opinion, or otherwise, that the
assets possessed by a Pool are less than the reserves required by
this Part together with any other unpaid liabilities, he shall then
order the Pool Administrator to assess the individual Pool
participants in an amount not less than necessary to correct the
deficiency. This subsection is not intended to restrict or preclude
the Administrator from time to time levying assessments or
increasing premium deposits in accordance with the pooling
agreement.
2)
In the event of the inability of individual Pool participants, by reason
of insolvency or otherwise, to pay assessments required by
subsection(d)(1) above, the Director shall levy upon and collect
from all group self-insurers an assessment to assure prompt
payment of such unpaid compensation and medical services.
3)
Liability for assessments will be joint and several.
Dissolution
Liquidation, conservation and dissolution of self-insurance Pools will be
conducted pursuant to Article XIII of the Illinois Insurance Code (Ill. Rev.
Stat. 1991, ch. 73, par. 799 et seq.) [215 ILCS 5/Art. XIII].
(Source: Amended at 18 Ill. Reg. 12785, effective August 4, 1994)
2901.40 Provisions Applicable to Members of Group Self-Insurance Pools
a)
All members of a self-insurance Pool must have similar risk
characteristics.
b)
In determining whether members exhibit similar risk characteristics, the
Director shall consider any or all of the following factors:
1)
2)
3)
4)
5)
c)
Within five days after an employer becomes a member of an existing pool,
the pool administrator shall notify the Director and provide the following
information:
1)
2)
3)
4)
5)
d)
Name.
Address.
Number of employees.
Gross annual payroll.
Nature of employers business.
Eligibility as a pool participant shall be based upon having a minimum of:
1)
2)
3)
e)
Loss frequency inherent in the occupational framework of group
members.
Loss severity inherent in the occupational framework of group
members.
Occupational disease potential inherent in the occupational
framework of group members.
Occupational tasks of member employees.
Any other relevant fact the group members present to the Director
that has reference to the classification of similar risks.
20 employees and $250,000 gross annual payroll; or
Ten employees and $125,000 gross annual payroll for participants
who have engaged actively in business for a minimum period of
three years in Illinois; or
Five employees and $62,500 gross annual payroll for participants
who have engaged actively in business for a minimum period of five
years in Illinois.
Exceptions to the minimum eligibility requirements of Section 2901.40(d)
of this rule may be allowed by any pool whenever the following conditions
are met:
1)
The participant has been actively engaged in business for a
minimum period of five consecutive years in Illinois; and
2)
3)
The participant agrees to make all its financial records available to
the Director of Insurance for reasonable inspection during the
period of his membership; and
The Pool Administrator certifies to the Director that he examined
the financial records of the pool participant prior to the participant's
admission to the pool and found the participant to be solvent and
financially stable.
2901.50 Service Companies
a)
Any person or entity desiring to be licensed as a service company shall
apply to the Director on forms available from the Director. The license
shall designate areas of administrative services which the service
company shall be authorized to perform. Any license granted shall be
effective for two years unless revoked or suspended by order of the
Director on the grounds that the licensee does not have the organization,
or financial integrity necessary to supply the service for which the license
was issued.
b)
In support of the application, a service company shall submit:
1)
2)
3)
4)
Summary information concerning its organization and staff.
Detailed resumes of all employees, or employees of any
subcontractor, with administrative or professional capacity. Such
resumes shall indicate the areas of administration in which each
employee shall work and the qualifications and experience of the
employee relating to that area.
A description of the administrative services intended to be provided.
The identity of the owners of the service company, including but not
limited to, all members of a partnership and all officers of a
corporation.
c)
If the service company intends to provide claims adjusting, the service
company shall have supervisory personnel who possess at least three
years' experience adjusting workers' compensation claims in Illinois.
d)
The service company shall have within the State of Illinois an employee
who is able to act as a resident agent, authorized to act in all matters
concerning the service company.
e)
Any records of a service company relating to any of the services offered or
provided to any self-insurer shall be open to inspection by the Director or
designee during normal business hours.
f)
Whenever the Director finds that a licensed service company has
committed:
A)
B)
C)
D)
2)
g)
Improper claims handling techniques;
Violation of any of the foregoing rules or insurance laws of
this State;
Violation of any provision of the Workers' Compensation Act;
An unfair or deceptive act or practice as defined in Section
154.6 of the Illinois Insurance Code.
He shall issue an Order of revocation or suspension to the service
company in question effective 30 days from the date of service. If
the service company requests a hearing the Order shall be stayed
pending a resolution of the matter by hearing conducted pursuant
to Administrative Hearing Procedures (50 Ill. Adm. Code 2402) and
Sections 402 and 403 of the Illinois Insurance Code.
Each service company shall report to the Director the termination of any
service contract entered into with a self-insurer within ten (10) days of
such termination.
