Criminal Investigation Unit (CIU) separate account
The Criminal Investigation Unit (CIU) was created by the Office of the Insurance Commissioner (OIC) in 2006 to investigate criminal insurance fraud in Washington state and keep insurance costs low for all lines of business.
CIU’s mission is to identify, investigate and bring to prosecution criminal organizations and individuals perpetrating fraud against insurance companies. Between Jan. 1, 2015 and Dec. 31, 2016, CIU's investigations and prosecutions saved $3,626,303 in immediate and projected insurance claim payouts and $857,353 in restitution back to companies. There has been an increase in referrals to CIU, which they have been unable to pursue due to staffing levels. This means that more fraud is continuing without investigation or prosecution.
The OIC will introduce legislation in the 2020 session to enhance CIU's capacity to investigate and prosecute by expanding staff and protecting the funding for CIU by creating a separate account. The separate account will have its own surcharge cap of 1/100th of a percent. This will provide secure funding for CIU and allow the program to investigate more fraud, saving insurance companies and their consumers more money.
Revision to the Insurance Holding Company System Regulatory Act
The Washington state legislature last amended the Holding Company Act in 2014. Some of the revisions proposed by the National Association of Insurance Commissioners (NAIC) only applied to states who act as the group-wide supervisor for an internationally active insurance group (IAIG). Since Washington state did not act in that capacity, those sections of the act were not adopted.
NAIC now requires that all of the provisions from 2014 should be adopted by all of the states, because acquisitions or other changes in a state’s domestic industry can occur quickly and change the role of that state in overseeing a domestic insurer or their role within the holding company. In addition, this standard will now be applied for risk retention groups (RRGs) in a holding company that meets the definition of an IAIG.
The OIC will introduce legislation in the 2020 session to adopt these additional components of the Holding Company Act and must do so to remain in good standing for NAIC accreditation.
Long-term care (LTC) guaranty fund: NAIC model act
Washington state’s long-term care (LTC) guaranty fund is currently supported financially by only life and disability (L&D) insurers. There is a growing concern that the revenue that can be generated by the assessments on L&D insurers will not be enough if there are further insolvencies among LTC insurance companies. The purpose of the LTC guaranty fund is to protect consumers by providing funding for the claims consumers enrolled in even if an insolvent insurer can no longer pay.
The NAIC created a model act for LTC guaranty funds that included not only L&D insurers, but also included health care service corporations (HCSCs) and health maintenance organizations (HMOs). Twenty-four states have already adopted the NAIC LTC Guaranty Fund Model Act and have both HCSCs and HMOs in their fund. Another five states are running legislation in 2020.
The OIC will introduce legislation in the 2020 session that will add HCSCs and HMOs to the guaranty fund to have sufficient assessments to support the LTC guaranty fund.
A “captive insurer” is defined as an insurance company that is wholly owned and controlled by its insureds. Its primary purpose is to insure the risks of its owners, and its insured benefits from the captive insurer’s underwriting profits.
Washington state law currently provides no statutory framework to allow the formation of captive insurance companies. During the past year, the OIC began investigating Washington state-based companies who had formed their own captive insurance companies. The companies have been cooperating in the investigations by the OIC and are working with the OIC on legislation for 2020.
The OIC will introduce legislation in the 2020 session that will create a statutory framework for how captive insurance companies can be formed by Washington state companies, who can form them and what taxes will be paid by them to Washington state.
Inducements and performance standards in insurance contracts
Implementation credits are a payment by an insurer to offset document expenses incurred by a group policyholder in changing coverage from one insurer to another. There has been nothing in state law that would allow an insurance company to provide implementation credits. House Bill (HB) 1075 was introduced and passed during the 2019 legislative session with an implementation date of July 1, 2020 and a goal to allow the use of implementation credits in insurance contracts.
Performance standards or guarantees are contractual terms in insurance contracts for state purchased health care that establish a specific standard of performance needed to receive full reimbursement set in the contract. For example, a performance standard could be to reduce the use of emergency rooms by 20% during the contract year to receive 100% payment. There are typically fiscal penalties to the insurance company if they do not meet the performance standards listed in their contract.
The OIC will introduce legislation in the 2020 session that would provide more explicit criteria for the use of implementation credits and provide the legal framework for the use of performance standards in insurance contracts.