Full Text of SB0748 95th General Assembly
SB0748 95TH GENERAL ASSEMBLY
|
|
|
95TH GENERAL ASSEMBLY
State of Illinois
2007 and 2008 SB0748
Introduced 2/8/2007, by Sen. William R. Haine SYNOPSIS AS INTRODUCED: |
|
215 ILCS 5/141a |
from Ch. 73, par. 753a |
|
Amends the Illinois Insurance Code. Makes a technical change in a Section concerning managing general agents.
|
| |
|
|
A BILL FOR
|
|
|
|
|
SB0748 |
|
LRB095 10056 KBJ 30270 b |
|
| 1 |
| AN ACT concerning insurance.
| 2 |
| Be it enacted by the People of the State of Illinois,
| 3 |
| represented in the General Assembly:
| 4 |
| Section 5. The Illinois Insurance Code is amended by | 5 |
| changing Section 141a as follows:
| 6 |
| (215 ILCS 5/141a) (from Ch. 73, par. 753a)
| 7 |
| Sec. 141a. Managing general agents and retrospective | 8 |
| compensation
agreements.
| 9 |
| (a) As used in this
this Section, the following terms have | 10 |
| the following
meanings:
| 11 |
| "Actuary" means a person who is a member in good standing | 12 |
| of the American
Academy of Actuaries.
| 13 |
| "Gross direct written premium" means direct premium | 14 |
| including policy and
membership fees, net of returns and | 15 |
| cancellations, and prior to any cessions.
| 16 |
| "Insurer" means any person duly licensed in this State as | 17 |
| an insurance
company pursuant to Articles II, III, III 1/2, IV, | 18 |
| V, VI, and
XVII of this Code.
| 19 |
| "Managing general agent" means any person, firm, | 20 |
| association, or
corporation, either separately or together | 21 |
| with affiliates, that:
| 22 |
| (1) manages all or part of the insurance business of an | 23 |
| insurer
(including the management of a separate division, |
|
|
|
SB0748 |
- 2 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| department, or
underwriting office), and
| 2 |
| (2) acts as an agent for the insurer whether known as a | 3 |
| managing
general agent, manager, or other similar term, and
| 4 |
| (3) with or without the authority produces, directly or | 5 |
| indirectly, and underwrites:
| 6 |
| (A) within any one calendar quarter, an amount of | 7 |
| gross direct
written premium equal to or more than 5% | 8 |
| of the policyholders' surplus as
reported in the | 9 |
| insurer's last annual statement, or
| 10 |
| (B) within any one calendar year, an amount of | 11 |
| gross direct written
premium equal to or more than 8% | 12 |
| of the policyholders' surplus as reported
in the | 13 |
| insurer's last annual statement, and either
| 14 |
| (4) has the authority to bind the company in settlement | 15 |
| of individual claims in amounts in excess of $500, or
| 16 |
| (5) has the authority to negotiate reinsurance on
| 17 |
| behalf of the insurer.
| 18 |
| Notwithstanding the provisions of items (1) through (5), | 19 |
| the following
persons shall not be considered to be managing | 20 |
| general agents for the
purposes of this Code:
| 21 |
| (1) An employee of the insurer;
| 22 |
| (2) A U.S. manager of the United States branch of an | 23 |
| alien insurer;
| 24 |
| (3) An underwriting manager who, pursuant to a contract | 25 |
| meeting the
standards of Section 141.1 manages
all or part | 26 |
| of the insurance operations of the insurer, is
affiliated |
|
|
|
SB0748 |
- 3 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| with the
insurer, subject to Article VIII 1/2, and whose
| 2 |
| compensation is not
based on the volume of premiums | 3 |
| written;
| 4 |
| (4) The attorney or the attorney in fact authorized and | 5 |
| acting for or on
behalf of the subscriber policyholders of | 6 |
| a reciprocal or inter-insurance
exchange, under the terms | 7 |
| of the subscription agreement, power of attorney, or
policy | 8 |
| of insurance or the attorney in fact for any Lloyds | 9 |
| organization
licensed in this State.
| 10 |
| "Retrospective compensation
agreement" means any | 11 |
| arrangement, agreement, or contract having as its
purpose the | 12 |
| actual or constructive retention by the insurer of a fixed
| 13 |
| proportion of the gross premiums, with the balance of the | 14 |
| premiums,
retained actually or constructively by the agent or | 15 |
| the producer of the
business, who assumes to pay therefrom all | 16 |
| losses, all subordinate
commission, loss adjustment expenses, | 17 |
| and his profit, if any, with other
provisions of the | 18 |
| arrangement, agreement, or contract being auxiliary or
| 19 |
| incidental to that purpose.
| 20 |
| "Underwrite" means to accept or reject risk on behalf of | 21 |
| the insurer.
| 22 |
| (b) Licensure of managing general agents.
| 23 |
| (1) No person, firm, association, or corporation shall | 24 |
| act in the
capacity of a managing general agent with | 25 |
| respect to risks located in this
State for an insurer | 26 |
| licensed in this State unless the person is a licensed
|
|
|
|
SB0748 |
- 4 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| producer or a registered firm in this State under
Article | 2 |
| XXXI of this Code or a licensed third party administrator | 3 |
| in this
State under Article XXXI 1/4 of this Code.
| 4 |
| (2) No person, firm, association, or corporation shall | 5 |
| act in the
capacity of a managing general agent with | 6 |
| respect to risks located outside
this State for an insurer | 7 |
| domiciled in this State unless the person is
a licensed | 8 |
| producer or a registered firm in this State under Article | 9 |
| XXXI of this Code or a
licensed third party administrator | 10 |
| in this State under Article XXXI 1/4 of this
Code.
| 11 |
| (3) The managing general agent must provide a surety | 12 |
| bond for the benefit
of the insurer in an amount equal to | 13 |
| the greater of $100,000 or 5% of the gross
direct written | 14 |
| premium underwritten by the managing general agent on | 15 |
| behalf of
the insurer. The bond shall provide for a | 16 |
| discovery period and prior
notification of cancellation in | 17 |
| accordance with the rules of the Department
unless | 18 |
| otherwise approved in writing by the Director.
| 19 |
| (4) The managing general agent must maintain an errors | 20 |
| and omissions
policy
for the benefit of the insurer with | 21 |
| coverage in an amount equal to the greater
of $1,000,000 or | 22 |
| 5% of the gross direct written premium underwritten by the
| 23 |
| managing general agent on behalf of the insurer.
| 24 |
| (5) Evidence of the existence of the bond and the | 25 |
| errors and omissions
policy must be made available to the | 26 |
| Director upon his request.
|
|
|
|
SB0748 |
- 5 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| (c) No person, firm, association, or corporation acting in | 2 |
| the capacity
of a managing general agent shall place business | 3 |
| with an insurer unless
there is in force a written contract | 4 |
| between the parties that sets forth
the responsibilities of | 5 |
| each party, that, if both parties share
responsibility for a | 6 |
| particular function, specifies the division of
responsibility, | 7 |
| and that contains the following minimum provisions:
| 8 |
| (1) The insurer may terminate the contract for cause | 9 |
| upon written
notice to the managing general agent. The | 10 |
| insurer may suspend the underwriting
authority of the | 11 |
| managing general agent during the pendency of any dispute
| 12 |
| regarding the cause for termination.
| 13 |
| (2) The managing general agent shall render accounts to | 14 |
| the insurer
detailing all transactions and remit all funds | 15 |
| due under the contract to
the insurer on not less than a | 16 |
| monthly basis.
| 17 |
| (3) All funds collected for the account of an insurer | 18 |
| shall be held by
the managing general agent in a fiduciary | 19 |
| capacity in a bank that is a
federally or State chartered | 20 |
| bank and that is a member of the Federal
Deposit Insurance | 21 |
| Corporation. This account shall be used for all payments
on | 22 |
| behalf of the insurer; however, the managing general agent | 23 |
| shall not have
authority to draw on any other accounts of | 24 |
| the insurer. The managing general
agent may retain no more
| 25 |
| than 3 months estimated claims payments and allocated loss | 26 |
| adjustment
expenses.
|
|
|
|
SB0748 |
- 6 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| (4) Separate records of business written by the | 2 |
| managing general agent
will be maintained. The insurer | 3 |
| shall have access to and the right to copy all
accounts and | 4 |
| records related to its business in a form usable by the | 5 |
| insurer,
and the Director shall have access to all books, | 6 |
| bank accounts, and records of
the managing general agent in | 7 |
| a form usable to the Director.
| 8 |
| (5) The contract may not be assigned in whole or part | 9 |
| by the
managing general agent.
| 10 |
| (6) The managing general agent shall provide to the | 11 |
| company audited
financial statements required under | 12 |
| paragraph (1) of subsection (d).
| 13 |
| (7) That appropriate underwriting guidelines be | 14 |
| followed,
which guidelines shall stipulate the following:
| 15 |
| (A) the maximum annual premium volume;
| 16 |
| (B) the basis of the rates to be charged;
| 17 |
| (C) the types of risks that may be written;
| 18 |
| (D) maximum limits of liability;
| 19 |
| (E) applicable exclusions;
| 20 |
| (F) territorial limitations;
| 21 |
| (G) policy cancellation provisions; and
| 22 |
| (H) the maximum policy period.
| 23 |
| (8) The insurer shall have the right to: (i) cancel or | 24 |
| nonrenew any
policy of insurance subject to applicable laws | 25 |
| and regulations concerning
those actions; and (ii) require | 26 |
| cancellation of any subproducer's contract
after |
|
|
|
SB0748 |
- 7 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| appropriate notice.
| 2 |
| (9) If the contract permits the managing general agent | 3 |
| to
settle claims on behalf of the insurer:
| 4 |
| (A) all claims must be reported to the company in a | 5 |
| timely manner.
| 6 |
| (B) a copy of the claim file must be sent to the | 7 |
| insurer at its
request or as soon as it becomes known | 8 |
| that the claim:
| 9 |
| (i) has the potential to exceed an amount | 10 |
| determined by the company;
| 11 |
| (ii) involves a coverage dispute;
| 12 |
| (iii) may exceed the managing general agent's | 13 |
| claims
settlement authority;
| 14 |
| (iv) is open for more than 6 months; or
| 15 |
| (v) is closed by payment of an amount set by | 16 |
| the company.
| 17 |
| (C) all claim files will be the joint
property of | 18 |
| the insurer and the managing general agent. However, | 19 |
| upon an
order of liquidation of the insurer, the files | 20 |
| shall become the sole
property of the insurer or its | 21 |
| estate; the managing general agent shall
have | 22 |
| reasonable access to and the right to copy the files on | 23 |
| a timely basis.
| 24 |
| (D) any settlement authority granted to the | 25 |
| managing general agent
may be terminated for cause upon | 26 |
| the insurer's written notice to the
managing general |
|
|
|
SB0748 |
- 8 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| agent or upon the termination of the contract. The
| 2 |
| insurer may suspend the settlement authority during | 3 |
| the pendency of any
dispute regarding the cause for | 4 |
| termination.
| 5 |
| (10) Where electronic claims files are in existence, | 6 |
| the
contract must
address the timely transmission of the | 7 |
| data.
| 8 |
| (11) If the contract provides for a sharing of interim
| 9 |
| profits by the
managing general agent and the managing | 10 |
| general agent has the authority to
determine the amount of | 11 |
| the interim profits by establishing loss reserves,
| 12 |
| controlling claim payments, or by any other manner, interim | 13 |
| profits will
not be paid to the managing general agent | 14 |
| until one year after they are
earned for property insurance | 15 |
| business and until 5 years after they are
earned on | 16 |
| casualty business and in either case, not until the profits | 17 |
| have been
verified.
| 18 |
| (12) The managing general agent shall not:
| 19 |
| (A) Bind reinsurance or retrocessions on behalf of | 20 |
| the insurer,
except that the managing general agent may | 21 |
| bind facultative reinsurance
contracts under
| 22 |
| obligatory facultative agreements if the contract with | 23 |
| the insurer contains
reinsurance underwriting | 24 |
| guidelines including, for both reinsurance assumed
and | 25 |
| ceded, a list of reinsurers with which automatic | 26 |
| agreements are in
effect, the coverages and amounts or |
|
|
|
SB0748 |
- 9 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| percentages that may be reinsured, and
commission | 2 |
| schedules.
| 3 |
| (B) Appoint any producer without assuring that the | 4 |
| producer is
lawfully licensed to transact the type of | 5 |
| insurance for which he is appointed.
| 6 |
| (C) Without prior approval of the insurer, pay or | 7 |
| commit the insurer
to pay a claim over a specified | 8 |
| amount, net of reinsurance, that shall not
exceed 1% of | 9 |
| the insurer's policyholders' surplus as of December 31 | 10 |
| of the
last completed calendar year.
| 11 |
| (D) Collect any payment from a reinsurer or commit | 12 |
| the insurer to
any claim settlement with a reinsurer | 13 |
| without prior approval of the
insurer. If prior | 14 |
| approval is given, a report must be promptly forwarded | 15 |
| to
the insurer.
| 16 |
| (E) Permit its subproducer to serve on its board of | 17 |
| directors.
| 18 |
| (F) Employ an individual who is also employed by | 19 |
| the insurer.
| 20 |
| (13) The contract may not be written for a term of | 21 |
| greater than 5
years.
| 22 |
| (d) Insurers shall have the following duties:
| 23 |
| (1) The insurer shall have on file the managing general | 24 |
| agent's
audited financial
statements as of the end of the | 25 |
| most recent fiscal year prepared in
accordance with | 26 |
| Generally Accepted Accounting Principles. The insurer |
|
|
|
SB0748 |
- 10 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| shall
notify the Director if the auditor's opinion on those | 2 |
| statements is other than
an unqualified opinion. That | 3 |
| notice shall be given to the Director within 10
days of | 4 |
| receiving the audited financial statements or becoming | 5 |
| aware that such
opinion has been given.
| 6 |
| (2) If a managing general agent establishes loss | 7 |
| reserves, the insurer
shall annually obtain the opinion of | 8 |
| an actuary attesting to the adequacy
of loss reserves | 9 |
| established for losses incurred and outstanding on
| 10 |
| business produced by the managing general agent, in | 11 |
| addition to any other
required loss reserve certification.
| 12 |
| (3) The insurer shall periodically (at least | 13 |
| semiannually) conduct an
on-site review of the | 14 |
| underwriting and claims processing operations of the
| 15 |
| managing general agent.
| 16 |
| (4) Binding authority for all reinsurance contracts or | 17 |
| participation
in insurance or reinsurance syndicates shall | 18 |
| rest with an officer of the
insurer, who shall not be | 19 |
| affiliated with the managing general agent.
| 20 |
| (5) Within 30 days of entering into or terminating a | 21 |
| contract with a
managing general agent, the insurer shall | 22 |
| provide written notification of
the appointment or | 23 |
| termination to the Director. Notices of appointment of
a | 24 |
| managing general agent shall include a statement of duties | 25 |
| that the
applicant is expected to perform on behalf of the | 26 |
| insurer, the lines of
insurance for which the applicant is |
|
|
|
SB0748 |
- 11 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| to be authorized to act, and any other
information the | 2 |
| Director may request.
| 3 |
| (6) An insurer shall review its books and records each | 4 |
| quarter to
determine if any producer has become a managing | 5 |
| general agent. If the
insurer determines that a producer | 6 |
| has become a managing general agent, the
insurer shall | 7 |
| promptly notify the producer and the Director of that
| 8 |
| determination, and the insurer and producer must fully | 9 |
| comply with the
provisions of this Section within 30 days | 10 |
| of the notification.
| 11 |
| (7) The insurer shall file any managing general agent | 12 |
| contract for the
Director's approval within 45 days after | 13 |
| the contract becomes subject to this
Section. Failure of | 14 |
| the Director to disapprove the contract within 45 days
| 15 |
| shall constitute approval thereof. Upon expiration of the | 16 |
| contract, the
insurer shall submit the replacement | 17 |
| contract for approval. Contracts filed
under this Section | 18 |
| shall be exempt from filing under Sections 141, 141.1 and
| 19 |
| 131.20a.
| 20 |
| (8) An insurer shall not appoint to its board of | 21 |
| directors an
officer,
director, employee, or controlling | 22 |
| shareholder of its managing general
agents. This provision | 23 |
| shall not apply to relationships governed by Article
VIII | 24 |
| 1/2 of this Code.
| 25 |
| (e) The acts of a managing general agent are considered to | 26 |
| be the acts
of the insurer on whose behalf it is acting. A |
|
|
|
SB0748 |
- 12 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| managing general agent may
be examined in the same manner as an | 2 |
| insurer.
| 3 |
| (f) Retrospective compensation agreements for business | 4 |
| written under
Section 4 of this Code in Illinois and outside of | 5 |
| Illinois by an insurer
domiciled in this State must be filed | 6 |
| for approval.
The standards for approval shall be as set forth | 7 |
| under Section 141
of this Code.
| 8 |
| (g) Unless specifically required by the Director, the | 9 |
| provisions of this
Section shall not apply to arrangements | 10 |
| between a managing general agent not
underwriting any risks | 11 |
| located in Illinois and a foreign insurer domiciled in
an NAIC | 12 |
| accredited state that has adopted legislation substantially | 13 |
| similar to
the NAIC Managing General Agents Model Act. "NAIC | 14 |
| accredited state" means a
state or territory of the United | 15 |
| States having an insurance regulatory agency
that maintains an | 16 |
| accredited status granted by the National Association of
| 17 |
| Insurance Commissioners.
| 18 |
| (h) If the Director determines that a managing general | 19 |
| agent
has not materially complied with this Section or any | 20 |
| regulation or
order promulgated hereunder, after notice and | 21 |
| opportunity to be heard, the
Director may order a penalty in an | 22 |
| amount not exceeding $100,000 for each
separate violation and | 23 |
| may order the revocation or suspension of the producer's
| 24 |
| license. If it is found that because of the material | 25 |
| noncompliance the
insurer
has suffered any loss or damage, the | 26 |
| Director may maintain a civil action
brought by or on behalf of |
|
|
|
SB0748 |
- 13 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| the insurer and its policyholders and creditors for
recovery of | 2 |
| compensatory damages for the benefit of the insurer and its
| 3 |
| policyholders
and creditors or other appropriate relief. This | 4 |
| subsection (h) shall not be
construed to prevent any other | 5 |
| person from taking civil action against a
managing general | 6 |
| agent.
| 7 |
| (i) If an Order of Rehabilitation or Liquidation is entered
| 8 |
| under Article XIII and
the receiver appointed under that Order | 9 |
| determines that the managing general
agent or any other person | 10 |
| has not materially complied with this Section or any
regulation | 11 |
| or Order promulgated hereunder and the insurer suffered any | 12 |
| loss
or damage therefrom, the receiver may maintain a civil | 13 |
| action for recovery of
damages or other appropriate sanctions | 14 |
| for the benefit of the insurer.
| 15 |
| Any decision, determination, or order of the Director under | 16 |
| this
subsection shall be subject to judicial review under the | 17 |
| Administrative
Review Law.
| 18 |
| Nothing contained in this subsection shall affect the right | 19 |
| of the
Director to impose any other penalties provided for in | 20 |
| this Code.
| 21 |
| Nothing contained in this subsection is intended to or | 22 |
| shall in any
manner limit or restrict the rights of | 23 |
| policyholders, claimants, and auditors.
| 24 |
| (j) A domestic company shall not during any calendar year | 25 |
| write,
through a managing general agent or managing general | 26 |
| agents, premiums in an
amount equal to or greater than its |
|
|
|
SB0748 |
- 14 - |
LRB095 10056 KBJ 30270 b |
|
| 1 |
| capital and surplus as of the preceding
December 31st unless | 2 |
| the domestic company requests in writing the Director's
| 3 |
| permission to do so and the Director has either approved the | 4 |
| request or has
not disapproved the request within 45 days after | 5 |
| the Director received the
request.
| 6 |
| No domestic company with less than $5,000,000 of capital | 7 |
| and surplus may
write any business through a managing general | 8 |
| agent unless the domestic company
requests in writing the | 9 |
| Director's permission to do so and the Director has
either | 10 |
| approved the request or has not disapproved the request within | 11 |
| 45 days
after the Director received the request.
| 12 |
| (Source: P.A. 93-32, eff. 7-1-03.)
|
|