HOUSE BILL NO. 4210

February 19, 2019, Introduced by Reps. Yaroch, Maddock, Webber and Chirkun and referred to the Committee on Insurance.

"The insurance code of 1956,"

by amending sections 134 and 3104 (MCL 500.134 and 500.3104), section 134 as amended by 1990 PA 256 and section 3104 as amended by 2002 PA 662.

the people of the state of michigan enact:

Sec. 134. (1) Every certificate of authority or license in force immediately prior to before January 1, 1957 and existing under any act repealed by this act is valid until its original expiration date, unless earlier terminated in accordance with this act.

(2) Any plan of operation adopted by an association or facility, and any premium or assessment levied against an insurer member of that association or facility, is hereby validated valid retroactively to the date of its original adoption or levy and shall continue continues in force and effect according to the terms of the plan of operation, premium, or assessment until otherwise changed by the commissioner director or the board of directors of the association or facility pursuant to this act.

(3) An association or facility or the board of directors of the association or facility is not a state agency and the money of an association or facility is not state money.

(4) A Except as otherwise provided in section 3104, a record of an association or facility shall be exempted is exempt from disclosure pursuant to under section 13 of the freedom of information act, Act No. 442 of the Public Acts of 1976, being section 15.243 of the Michigan Compiled Laws 1976 PA 442, MCL 15.243.

(5) Any premium or assessment levied by an association or facility, or any premium or assessment of a similar association or facility formed under a law in force outside this state, is not a burden or special burden for purposes of a calculation under section 476a, and any premium or assessment paid to an association or facility shall not be included in determining the aggregate amount a foreign insurer pays to the commissioner department of treasury under section 476a.

(6) As used in this section, "association or facility" means an association of insurers created under this act and any other association or facility formed under this act as a nonprofit organization of insurer members, including, but not limited to, the following:

(a) The Michigan worker's compensation placement facility created under chapter 23.

(b) The Michigan basic property insurance association created under section chapter 29.

(d) The Michigan automobile insurance placement facility created under chapter 33.

(e) The Michigan life and health insurance guaranty association created under chapter 77.

(f) The property and casualty guaranty association created under chapter 79.

(g) The assigned claims facility created under section 3171.

Sec. 3104. (1) An The catastrophic claims association is created as an unincorporated, nonprofit association. to be known as the catastrophic claims association, hereinafter referred to as the association, is created. Each insurer engaged in writing insurance coverages that provide the security required by section 3101(1) within in this state, as a condition of its authority to transact insurance in this state, shall be a member of the association and shall be is bound by the plan of operation of the association. Each An insurer engaged in writing insurance coverages that provide the security required by section 3103(1) within in this state, as a condition of its authority to transact insurance in this state, shall be is considered to be a member of the association, but only for purposes of premiums under subsection (7)(d). Except as expressly provided in this section, the association is not subject to any laws of this state with respect to insurers, but in all other respects the association is subject to the laws of this state to the extent that the association would be if it were an insurer organized and subsisting under chapter 50.

(2) The association shall provide and each member shall accept indemnification for 100% of the amount of ultimate loss sustained under personal protection insurance coverages in excess of the following amounts in each loss occurrence:

(a) For a motor vehicle accident policy issued or renewed before July 1, 2002, $250,000.00.

(b) For a motor vehicle accident policy issued or renewed during the period July 1, 2002 to June 30, 2003, $300,000.00.

(d) For a motor vehicle accident policy issued or renewed during the period July 1, 2004 to June 30, 2005, $350,000.00.

(e) For a motor vehicle accident policy issued or renewed during the period July 1, 2005 to June 30, 2006, $375,000.00.

(f) For a motor vehicle accident policy issued or renewed during the period July 1, 2006 to June 30, 2007, $400,000.00.

(g) For a motor vehicle accident policy issued or renewed during the period July 1, 2007 to June 30, 2008, $420,000.00.

(h) For a motor vehicle accident policy issued or renewed during the period July 1, 2008 to June 30, 2009, $440,000.00.

(i) For a motor vehicle accident policy issued or renewed during the period July 1, 2009 to June 30, 2010, $460,000.00.

(j) For a motor vehicle accident policy issued or renewed during the period July 1, 2010 to June 30, 2011, $480,000.00.

(k) For a motor vehicle accident policy issued or renewed during the period July 1, 2011 to June 30, 2013, $500,000.00.

(l) For a motor vehicle accident policy issued or renewed during the period July 1, 2013 to June 30, 2015, $530,000.00.

(m) For a motor vehicle accident policy issued or renewed during the period July 1, 2015 to June 30, 2017, $545,000.00.

(n) For a motor vehicle accident policy issued or renewed during the period July 1, 2017 to June 30, 2019, $555,000.00. Beginning July 1, 2013, 2019, this $500,000.00 $555,000.00 amount shall must be increased biennially on July 1 of each odd-numbered year, for policies issued or renewed before July 1 of the following odd-numbered year, by the lesser of 6% or the consumer price index, Consumer Price Index, and rounded to the nearest $5,000.00. This The association shall calculate the biennial adjustment shall be calculated by the association by January 1 of the year of its July 1 effective date.

(3) An insurer may withdraw from the association only upon on ceasing to write insurance that provides the security required by section 3101(1) in this state.

(4) An insurer whose membership in the association has been terminated by withdrawal shall continue continues to be bound by the plan of operation, and upon on withdrawal, all unpaid premiums that have been charged to the withdrawing member are payable as of the effective date of the withdrawal.

(5) An unsatisfied net liability to the association of an insolvent member shall must be assumed by and apportioned among the remaining members of the association as provided in the plan of operation. The association has all rights allowed by law on behalf of the remaining members against the estate or funds of the insolvent member for sums money due the association.

(6) If a member has been merged or consolidated into another insurer or another insurer has reinsured a member's entire business that provides the security required by section 3101(1) in this state, the member and successors in interest of the member remain liable for the member's obligations.

(7) The association shall do all of the following on behalf of the members of the association:

(a) Assume 100% of all liability as provided in subsection (2).

(b) Establish procedures by which members shall must promptly report to the association each claim that, on the basis of the injuries or damages sustained, may reasonably be anticipated to involve the association if the member is ultimately held legally liable for the injuries or damages. Solely for the purpose of reporting claims, the member shall in all instances consider itself legally liable for the injuries or damages. The member shall also advise the association of subsequent developments likely to materially affect the interest of the association in the claim.

(c) Maintain relevant loss and expense data relative to all liabilities of the association and require each member to furnish statistics, in connection with liabilities of the association, at the times and in the form and detail as may be required by the plan of operation.

(d) In a manner provided for in the plan of operation, calculate and charge to members of the association a total premium sufficient to cover the expected losses and expenses of the association that the association will likely incur during the period for which the premium is applicable. The premium shall must include an amount to cover incurred but not reported losses for the period and may be adjusted for any excess or deficient premiums from previous periods. Excesses or deficiencies from previous periods may be fully adjusted in a single period or may be adjusted over several periods in a manner provided for in the plan of operation. Each member shall must be charged an amount equal to that member's total written car years of insurance providing the security required by section 3101(1) or 3103(1), or both, written in this state during the period to which the premium applies, multiplied by the average premium per car. The average premium per car shall be is the total premium calculated divided by the total written car years of insurance providing the security required by section 3101(1) or 3103(1) written in this state of all members during the period to which the premium applies. A member shall must be charged a premium for a historic vehicle that is insured with the member of 20% of the premium charged for a car insured with the member. As used in this subdivision:

(i) "Car" includes a motorcycle but does not include a historic vehicle.

(ii) "Historic vehicle" means a vehicle that is a registered historic vehicle under section 803a or 803p of the Michigan vehicle code, 1949 PA 300, MCL 257.803a and 257.803p.

(e) Require and accept the payment of premiums from members of the association as provided for in the plan of operation. The association shall do either of the following:

(i) Require payment of the premium in full within 45 days after the premium charge.

(ii) Require payment of the premiums to be made periodically to cover the actual cash obligations of the association.

(f) Receive and distribute all sums money required by the operation of the association.

(g) Establish procedures for reviewing claims procedures and practices of members of the association. If the claims procedures or practices of a member are considered inadequate to properly service the liabilities of the association, the association may undertake or may contract with another person, including another member, to adjust or assist in the adjustment of claims for the member on claims that create a potential liability to the association and may charge the cost of the adjustment to the member.

(8) In addition to other powers granted to it by this section, the association may do all of the following:

(a) Sue and be sued in the name of the association. A judgment against the association shall does not create any direct liability against the individual members of the association. The association may provide for the indemnification of its members, members of the board of directors of the association, and officers, employees, and other persons lawfully acting on behalf of the association.

(b) Reinsure all or any portion of its potential liability with reinsurers licensed to transact insurance in this state or approved by the commissioner.director of the department.

(c) Provide for appropriate housing, equipment, and personnel as may be necessary to assure the efficient operation of the association.

(d) Pursuant to the plan of operation, adopt reasonable rules for the administration of the association, enforce those rules, and delegate authority, as the board considers necessary to assure the proper administration and operation of the association consistent with the plan of operation.

(e) Contract for goods and services, including independent claims management, actuarial, investment, and legal services, from others within in or without outside of this state to assure the efficient operation of the association.

(f) Hear and determine complaints of a company or other interested party concerning the operation of the association.

(g) Perform other acts not specifically enumerated in this section that are necessary or proper to accomplish the purposes of the association and that are not inconsistent with this section or the plan of operation.

(9) A board of directors is created , hereinafter referred to as the board, which shall be responsible for the operation of and shall operate the association consistent with the plan of operation and this section.

(10) The plan of operation shall must provide for all of the following:

(a) The establishment of necessary facilities.

(b) The management and operation of the association.

(c) Procedures to be utilized in charging premiums, including adjustments from excess or deficient premiums from prior periods.

(d) Procedures governing the actual payment of premiums to the association.

(e) Reimbursement of each member of the board by the association for actual and necessary expenses incurred on association business.

(f) The investment policy of the association.

(g) Any other matters required by or necessary to effectively implement this section.

(11) Each The board shall must include members that would contribute a total of not less than 40% of the total premium calculated pursuant to under subsection (7)(d). Each director shall be is entitled to 1 vote. The initial term of office of a director shall be is 2 years.

(12) As part of the plan of operation, the board shall adopt rules providing for the composition and term of successor boards to the initial board and the terms of board members, consistent with the membership composition requirements in subsections (11) and (13). Terms of the directors shall must be staggered so that the terms of all the directors do not expire at the same time and so that a director does not serve a term of more than 4 years.

(13) The board shall must consist of 5 directors , and the commissioner director of the department, who shall be serve as an ex officio member of the board without vote.

(14) Each director The director of the department shall be appointed by the commissioner and appoint the directors. A director shall serve until that member's his or her successor is selected and qualified. The board shall elect the chairperson of the board. shall be elected by the board. A The director of the department shall fill any vacancy on the board shall be filled by the commissioner consistent with as provided in the plan of operation.

(15) After the board is appointed, the The board shall meet as often as the chairperson, the commissioner, director of the department, or the plan of operation shall require, requires, or at the request of any 3 members of the board. The chairperson shall retain the right to may vote on all issues. Four members of the board constitute a quorum.

(16) An The board shall furnish to each member an annual report of the operations of the association in a form and detail as may be determined by the board. shall be furnished to each member.

(17) Not more than 60 days after the initial organizational meeting of the board, the board shall submit to the commissioner for approval a proposed plan of operation consistent with the objectives and provisions of this section, which shall provide for the economical, fair, and nondiscriminatory administration of the association and for the prompt and efficient provision of indemnity. If a plan is not submitted within this 60-day period, then the commissioner, after consultation with the board, shall formulate and place into effect a plan consistent with this section.

(18) The plan of operation, unless approved sooner in writing, shall be considered to meet the requirements of this section if it is not disapproved by written order of the commissioner within 30 days after the date of its submission. Before disapproval of all or any part of the proposed plan of operation, the commissioner shall notify the board in what respect the plan of operation fails to meet the requirements and objectives of this section. If the board fails to submit a revised plan of operation that meets the requirements and objectives of this section within the 30-day period, the commissioner shall enter an order accordingly and shall immediately formulate and place into effect a plan consistent with the requirements and objectives of this section.

(17) (19) The proposed plan of operation or Any amendments to the plan of operation of the association are subject to majority approval by the board, ratified ratification by a majority of the membership having a vote, with voting rights being apportioned according to the premiums charged in subsection (7)(d), and are subject to approval by the commissioner.director of the department.

(18) (20) Upon approval by the commissioner and ratification by the members of the plan submitted, or upon the promulgation of a plan by the commissioner, each An insurer authorized to write insurance providing the security required by section 3101(1) in this state, as provided in this section, is bound by and shall formally subscribe to and participate in the plan approved of operation as a condition of maintaining its authority to transact insurance in this state.

(19) (21) The association is subject to all the reporting, loss reserve, and investment requirements of the commissioner director of the department to the same extent as would a member are the members of the association.

(20) (22) Premiums charged members by the association shall must be recognized in the rate-making procedures for insurance rates in the same manner that expenses and premium taxes are recognized.

(21) (23) The commissioner director of the department or an authorized representative of the commissioner director of the department may visit the association at any time and examine any and all of the association's affairs.

(22) (24) The association does not have liability for losses occurring before July 1, 1978.

(23) A writing prepared, owned, used, in the possession of, or retained by the board in the performance of an official function is subject to disclosure under the freedom of information act, 1976 PA 442, MCL 15.231 to 15.246, as if the board were a public body subject to that act.

(24) Annually, within 15 days after the association charges members the total premium under subsection (7)(d), the association shall disclose to the public on its website all data used in computing the premium and expected losses and expenses, including the amount that covers incurred but not reported losses for the period and any adjustment for any excess or deficient premiums from previous periods and the actuarial computation used in making these determinations, including estimates and assumptions. The disclosure must include, but not be limited to, all of the following:

(a) The actuarial computation used in making determinations of unpaid losses and loss adjustment expenses.

(b) All documents used in establishing the following:

(i) The calculation of the present value of disbursements expected to be made in the ultimate settlement of the claims reported.

(ii) The actuarial tables used to reflect the probabilities of each claimant surviving to incur the costs projected.

(iii) The calculation of incurred but not reported losses.

(iv) The actuarial assumptions and calculations used in producing the short-term discount rate and the long-term discount rate.

(v) The forecasts producing the economic assumptions for claim cost inflation and investment returns used.

(vi) The current economic data and historical long-term Consumer Price Index data for any cost component categories used in producing inflation assumptions.

(vii) The loss development analysis undertaken in connection with the provision for unpaid losses and loss adjustment expenses.

(viii) The trend analysis for both frequency and severity undertaken in connection with the provision for unpaid losses and loss adjustment expenses.

(d) The annual assessment reports of members used in establishing the premium.

(e) The annuity model used by the opining actuary in his or her actuarial opinion projecting future payment streams at the claimant level and the mortality adjustment applied.

(f) Any explanatory memorandum explaining the various components of the premium and the judgments made to produce the premium.

(25) As used in this section:

(a) "Association" means the catastrophic claims association created in subsection (1).

(b) "Board" means the board of directors of the association created in subsection (9).

(c) (a) "Consumer price index" Price Index" means the percentage of change in the consumer price index Consumer Price Index for all urban consumers in the United States city average for all items for the 24 months prior to before October 1 of the year prior to before the July 1 effective date of the biennial adjustment under subsection (2)(k) (2)(n) as reported by the United States department of labor, bureau of labor statistics, Department of Labor, Bureau of Labor Statistics, and as certified by the commissioner.director of the department.

(d) (b) "Motor vehicle accident policy" means a policy providing the coverages required under section 3101(1).

(e) (c) "Ultimate loss" means the actual loss amounts that a member is obligated to pay and that are paid or payable by the member, and do not include claim expenses. An ultimate loss is incurred by the association on the date that the loss occurs.