Risk Sharing Arrangements, issued August 13, 1981, § 38.2-1314 (formerly § 38.1-173)

JAMES W. NEWMAN, JR.

COMMISSIONER OF INSURANCE

W, G. FLOURNOY

FIRST DEPUTY COMMISSIONER

BOX 1157

RICHMOND, VA. 232

TELEPHONE (804) 786 -

STATE CORPORATION COMMISSION

BUREAU OF INSURANCE

August 13, 1981

ADMINISTRATIVE LETTER

1981-10

TO:

All Insurance Companies Writing Group

Accident and Sickness Insurance in

the Commonwealth of Virginia

RE:

Risk Sharing Arrangements

(Replacement for Administrative Letter 1980-7)

It has come to my attention that some insurance companies are having

difficulty interpreting Administrative Letter 1980-7 and the Bureau's position as

expressed therein. In view of this, I am issuing this administrative letter to replace

Administrative Letter 1980-7 and to restate the Bureau's position with respect to risk

sharing arrangements issued in conjunction with self-funded plans; including minimum

premium, excess loss, stop loss, aggregate excess risk, and other arrangements of

similar nature by whatever name called.

Administrative services only agreements not involving risk assumption by

an insurance company are not subject to this letter.

Whenever there is any risk

assumption by the insurance company, the risk sharing arrangement becomes subject

to the rules contained in this letter.

The following rules should be used by insurance companies entering into

insurance agreements with self-funded plans of accident and sickness benefits:

1.

The insurance policy or contract should be filed with and

accepted by the Virginia Bureau of Insurance as is presently

required for all group accident and sickness insurance forms.

2.

Any arrangement where the benefits are paid to the employer

may not be provided by a rider to a conventional group

insurance policy.

3.

The insurance policy should clearly indicate the extent and

duration of the liability assumed by the insurer once the

policyholder's liability has been exceeded.

4

of Insurance as is presently

required for all group accident and sickness insurance forms.

2.

Any arrangement where the benefits are paid to the employer

may not be provided by a rider to a conventional group

insurance policy.

3.

The insurance policy should clearly indicate the extent and

duration of the liability assumed by the insurer once the

policyholder's liability has been exceeded.

4.

Any employee or member covered under a plan in which the

policyholder assumes liability for providing a portion of the

benefit should be furnished a brief description of such

arrangement.

5.

The insurer should maintain reserves in accordance with Section

38.1-173*of the Virginia Insurance Code for the liability it

assumes under such insurance agreement.

6.

The insurer should be responsible for claims for which it is

liable but were not reported before the end of a plan year

before the insurance agreement was terminated.

The requirements of this letter shall apply to all policies or contracts

delivered, issued for delivery, reissued, or extended, or at any time when any term of

the policy or contract is changed or any premium adjustment is made. The effective

date for implementation of rules contained in this letter will be 90 days after the date

of issue of this administrative letter.

Should any clarification be required as to the intent of this letter or the

requirements of the Virginia Bureau of Insurance with regard to risk sharing

arrangements as described in this letter, please contact Robert L. Wright, Supervisor

of Forms and Rates, Life and Health Division, at the Virginia Bureau of Insurance.

Sincerely,

V). (%■t

(Jn (

James W. Newman, Jr.

Commissioner of Insurance

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*

Effective Ju ly 1, 1986, Section 38.2-1314