Nat Shapo appointed Insurance Director
HIPAA-CHIP right decision for Illinois
Flood insurance seminars scheduled
Mutual holding company bill signed
Department rules review
New federal law impacts insurance
Producer regulatory action
Hearings
Company action
Exam reports filed
The January 11th inauguration of Governor George H. Ryan marked the beginning of a new administration ready to lead Illinois into the next millennium. Among the new leaders in Illinois government is Nathaniel S. (Nat) Shapo, 31, who began his term as Director of Insurance on January 19.
Director Shapo is well-versed in the inner workings of state government, having worked as a research and program development coordinator for George Ryan since graduating from the University of Chicago in 1990. During Governor Ryan's tenure as Illinois Secretary of State, Shapo performed various duties, including policy work on literacy and traffic safety issues. He helped coordinate legislative strategy for Secretary Ryan's successful efforts to implement his Graduated Drivers Licensing program and to lower the legal blood alcohol limit to .08 percent.
Most recently, Shapo served as Research Director for Ryan's 1998 gubernatorial campaign and as co-counsel to the Ryan/Wood transition team.
In addition to his undergraduate degree (B.A. with honors in Political Science), Director Shapo received a J.D. (with honors) from the University of Chicago School of Law in 1998. He is a member of the Illinois Bar, and lives on Chicago's north side with his wife, Elizabeth.
While he doesn't anticipate major changes in the Department's organization, he is looking forward to steering the agency in new directions.
"Insurance is facing a period of unprecedented change, posing new challenges for the industry, the consumer, and the regulator alike. My task is to adapt the Department to the new world of financial services while maintaining its high standards and its position as a national leader.
"It is not my style to make arbitrary changes, but as I get more comfortable with the job, I will search for alternatives that can benefit our employees, our agency, and our state.
"Illinois' rich tradition of insurance leadership is built on a relentless desire to be the best," Shapo says. " I am eager to work closely with my accomplished staff to ensure that Illinois remains on the cutting edge, not only at the state level but nationally through the NAIC."
In related news, Governor Ryan re-appointed Madelynne Brown on January 29, as the agency's Assistant Director. She has held the post since April 1992. "I'm very pleased that Madelynne has decided to stay. Her work on the Senior Health Insurance Program and many other projects has bolstered the agency's standing in the community," Shapo said.
The use of the Illinois Comprehensive Health Insurance Plan (CHIP) to comply with the individual requirements of the Health Insurance Portability and Accountability Act (HIPAA) clearly has been the right decision for Illinois. By using a broad-based assessment, it has been possible to spread the cost of insurance for those high risk individuals across the entire health insurance industry. As a result, the Illinois individual health insurance market, which is very price sensitive and amounts to approximately $800 million in annual premiums, has not been forced to fully absorb and subsidize the costs.
According to Richard W. Carlson, Executive Director of CHIP, "This has allowed the individual health insurance market in Illinois to remain stable and not experience the significant increases in premiums that have occurred in many of the 'federal fall-back' states that chose to implement the guarantee issue requirements in HIPAA."
For the first two years, fiscal 1998 and 1999, assessments for the HIPAA-CHIP (Section 15) pool have been $7.5 million and $6.7 million respectively. These assessments have been levied against the nearly $10 billion in premiums collected by all of the health insurers and health maintenance organizations doing business in Illinois, and have amounted to less than 8/100th of 1% of total direct Illinois premiums.
In addition, the HIPAA-CHIP program has had a beneficial effect on the traditional CHIP (Section 7) pool. The total number of applications received for both pools combined in fiscal year 1998 was up nearly 50% over the total which CHIP had received during the previous twelve months in fiscal year 1997. Nearly 1,600 of these applications were for the new HIPAA-CHIP program.
Even with the overall increased demand for CHIP coverage, there has not been a concern about exceeding the enrollment cap that technically still exists for the original or state-subsidized pool. Total applications for that pool were down from 2,141 in FY 97 to 1,543 in FY 98. Active enrollment for this traditional or Section 7 pool is currently about 5,000 (about 90% of the 5,500 enrollment cap). This limitation on enrollment applies only to the Section 7 pool and is a function of the amount of the state appropriation that the CHIP Board receives each year to cover the claims losses. There is no limitation on enrollment in the HIPAA-CHIP or Section 15 pool.
Separate applications for each program and/or additional information can be obtained by calling or writing to: Office of the Board of Directors, Illinois Comprehensive Health Insurance Plan, 400 W. Monroe St., Suite 202, Springfield, IL 62704, (217) 782-6333; or Blue Cross Blue Shield of Illinois, Administrator, (800) 367-6410. Brochures are available on-line at http://www.ins.state.il.us/chipform1.htm.
The Professional Independent Insurance Agents of Illinois (PIIAI) will sponsor a series of flood insurance seminars around the state during the month of March. These National Flood Insurance Program seminars are designed to educate insurance producers about flood insurance products and how to maximize their policyholders' flood protection; explain NFIP terms, rules, and forms; and provide instructions for ordering maps, policy supplies, and brochures.
Participants can earn four hours of continuing education requirements, and need not be members of PIIAI to attend.
Seminar dates and locations are as follows: March 23, 1999 -- Carbondale, IL; March 24, 1999 -- Springfield, IL; and March 25, 1999 -- Moline, IL. To register, contact Angie Heavener at PIIAI -- (217) 793-6660.
In one of his last official acts, Governor Jim Edgar signed the Mutual Holding Company bill into law on January 6. Sponsored by Senator Robert Madigan (R-Lincoln), Senate Bill 1901 (P.A. 90-810) authorizes a mutual insurance company to reorganize its corporate structure to form a mutual holding company system. Upon conversion, the former mutual insurance company would become a stock insurance company subsidiary of the mutual holding company (MHC). Policyholders' interests in the mutual company would be split: their policy related interests would remain as contractual obligations of the converted stock insurance company, while their membership interests would become membership interests in the MHC. The legislation establishes a statutory framework for MHC conversion and for the Director's and policyholders' approval.
Staff of the Department of Insurance worked with the drafters of the law to ensure that policyholders would be treated fairly in the event of a mutual insurance company conversion to a mutual holding company (MHC) system. Staff studied the relevant issues extensively in conjunction with the National Association of Insurance Commissioners Mutual Holding Company Working Group and sought the inclusion of extra regulatory protections in the Illinois MHC legislation. As a result, the Illinois law has several provisions which provide protections that are not available under the MHC laws of other states. Following is a summary of the strengths of the Illinois statute.
MHC Regulated as an Insurer - All provisions of the Illinois Insurance Code, including corporate law, investment law, reporting requirements, and regulatory authority, apply to the MHC just as to any mutual insurance company. Many other states apply only specified provisions of their insurance laws to the MHC, which results in an incomplete regulatory framework.
Trust Provisions and Bankruptcy Protection - Illinois is the first state to require that the MHC hold its assets in trust for the benefit of policyholder members. This provision should ensure that the Director's ability to reach MHC assets for protection of policyholders cannot be preempted by federal bankruptcy law. It will also require officers and directors to act with a higher standard of care for the protection of policyholders' interests. With this heightened fiduciary responsibility the board of directors for the MHC will have to take precautions to eliminate any opportunities for conflicts of interest.
Authority for Conditional Approval - The Illinois legislation grants broad authority for the Director to grant conditional approval of the MHC Plan of Reorganization. This will allow the Department to respond to specific concerns that may arise with each particular reorganization. The conditional authority allows the Director to require reporting and oversight as appropriate to the situation, considering the strengths and weaknesses of the mutual insurer and the particular Plan of Reorganization. The Director may utilize this regulatory authority to effectively amend the Plan of Reorganization to assure the fair treatment of policyholders. Other states that do not have this broad authority to effect the provisions of the Plan may face a "take it or leave it" decision regarding approval of a MHC reorganization.
Additional policyholder protections - The Illinois MHC law adopts the strong policyholder protections that are present in various degrees in other states' MHC laws. Two thirds of the Board of Directors of the mutual insurer must approve the plan of conversion. The Director must hold a hearing and find the plan fair and equitable to policyholders. Policyholder notification is required, and the content of the notice must be approved by the Director. Two thirds of the policyholders voting, under the company's regular quorum requirements, must approve the plan. No director, officer, employee or other person may receive any fee, commission, or other valuable consideration for promoting the plan of conversion, except as set forth in the plan.
The MHC structure, as set forth in the Illinois legislation, was carefully crafted to assure that all of the mutual policyholder's interests in the mutual company are protected and preserved after the MHC conversion. The member/policyholder's contractual rights for insurance coverage are continued in the converted insurance company while the rights to participate in governance, profits, and liquidation proceeds are retained through the membership interests in the mutual holding company.
Of course, the Department acknowledges that any organizational structure is subject to abuse if those in positions of power act without integrity and honesty. However, the MHC structure, as developed in the Illinois legislation, is not inherently vulnerable to abuse. The law provides for adequate oversight and disclosure to assure that policyholders will be treated fairly and equitably.
In addition to the mutual holding company provisions, SB 1901 increases from 25% to 75% the maximum advance payment of a life insurance policy's face amount of benefits when the insured has been diagnosed with a serious medical or disability condition as defined by statute.
The full text of Department rules is printed in the Illinois Register published weekly by the Illinois Secretary of State's Index Department, 111 E. Monroe St., Springfield, IL 62756. Subscriptions are available from that source for an annual fee of $290. Issue numbers and a Department contact person are listed below after each rule summary.
Copies of rules are also available upon written request to the Department of Insurance at a $1 per page charge. Adopted rules are codified in Title 50 of the Illinois Administrative Code.
Rule 1406 (Individual and Group Life Insurance Policy Illustrations) was amended November 7, 1998, to correct technical errors. (Vol. 22, #47; Betty Jo Teer)
The following new rules were adopted on December 21, 1998, to implement statutory changes brought about by Senate Bill 659 (PA 90-583, effective 5/29/98) which reestablishes a premium tax on insurers and HMOs to replace the statute found unconstitutional by the Illinois Supreme Court [215 ILCS 5/409]. All of the rules are published in Vol. 23, Issue #1 of the Illinois Register. The Department contact for questions is Chuck Feinen, Legal Division.
Rule 2500 (General Provisions) defines terms, establishes mathematical calculations, provides acceptable form of payment of fees, charges and taxes owed, establishes procedures to compute the time periods when a filing will be considered "filed" by the Department, and sets forth the process by which a company may request a hearing and how the hearing is to be conducted.
Rule 2505 (Fees and Charges) sets forth the fees and charges collected pursuant to Section 408 of the Illinois Insurance Code and establishes certain processes for the calculation of those fees and charges.
Rule 2510 (Annual Privilege Tax) describes how the re-enacted privilege tax is to be calculated, specifies applicability, establishes the annual privilege tax return filing requirements, sets forth the payment schedule for the privilege tax, and explains penalties for failure to pay the privilege tax or to make timely payments. The rule contains four illustrations that show: how to calculate the annual privilege tax; how a unitary group allocates its state corporate and replacement income taxes to deduct them from an individual company's privilege tax liability; a tax return and quarterly tax statements; and direct business in the State of Illinois.
Rule 2515 (Annual Retaliatory Tax) explains the calculation of the retaliatory tax, sets forth the payment informational requirements and schedule, and includes three illustrations that describe filing requirements for the annual retaliatory tax return, a quarterly installment and a supplemental tax return when filing the privilege tax under protest.
Rule 2520 (Annual Fire Marshal Tax) sets forth procedural requirements for calculation and payment of the fire marshal tax and includes an illustration which demonstrates the calculation and provides informational requirements.
Rule 2525 (Overpayments, Refunds, Amendments and Penalties) sets forth procedures for the use and transfer of a tax overpayment, filing an amended return, and possible penalties for failure to make timely payment of fees, charges or taxes. The rule includes one illustration which shows the informational requirements for the transfer of a tax overpayment.
Risk management and negligent hiring
New federal law impacts insurance
Editor's note: The National Foundation to Prevent Child Sexual Abuse has requested the Department to publish the following information in an effort to encourage insurance industry compliance with the Volunteers for Children Act (Public Law 105-251) signed into law by President Clinton on October 9, 1998. The new act amends the National Child Protection Act of 1993 (42 USC Sec. 5199).
With the enactment of the above cited law, an organization may be held liable under the legal theory of negligent hiring if a volunteer or employee sexually molests a child in his or her care and
it can be shown that the volunteer or employee had been previously convicted somewhere in the United States of a relevant crime.
Under the law, a "Qualified Entity" now has the ability to request through the FBI, fingerprint-based national criminal history background checks of volunteers and employees. A "qualified entity" is defined as any public, private, for-profit, not-for-profit or voluntary business or organization that provides care, treatment, education, training, instruction, supervision or recreation to children, the elderly, or individuals with disabilities. By availing itself of the FBI program, an affected organization can prevent previously convicted offenders from being placed in a position where he or she may easily victimize someone again.
According to Jody A. Gorran, Programs Director for the National Foundation to Prevent Child Sexual Abuse, courts are increasingly holding employers liable for the violent acts of an employee on grounds of negligent hiring. In making such a finding, a court must conclude that the employer violated its duty of care to the injured party in the hiring of said employee or volunteer. Because "qualified entities" provide care to the most vulnerable groups in our society, their duty of care is quite high.
The Foundation strongly urges the insurance industry to request or require their insureds to perform the fingerprint-based national criminal history background checks as a prudent risk management technique and a prerequisite for receiving appropriate insurance coverage. Says Gorran, "It really is a win-win situation for the vulnerable populations of children, the elderly and disabled, the insurance companies themselves, and the insured organization."
Information on negligent hiring, risk management, and implementing the background
checks program is available from the Foundation's web site at http://www.childsexualabuse.org.
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Revocation of Licensing Authority
Arthur M. Corrigan
41 West 260 Prairie View Lane
Elburn, IL
Effective 9/23/98 (9)
Dale Allen Fietsam
1014 Shadow Ridge Crossing
O'Fallon, IL
Effective 12/17/98 (6)
First National Insurance Group, Inc.
10940 S. Western Avenue
Chicago, IL
Effective 12/11/98 (14)
Lynnwood Rudolph Flowers
1332 W 97 Place
Chicago, IL
Effective 11/27/98 (2)
Melvin K. Johnson
7349 S. Kenwood
Chicago, IL
Effective 12/11/98 (14)
Patrick T. McRaith
1822 Robincrest
Glenview, IL
Effective 11/27/98 (2)
Voluntary Revocation
Lawrence G. Luker
2032 Arrowood Court
Qunicy, IL
Effective 11/16/98
Order of Suspension
Jane E. Apelian
3105 Springbrook
Crystal Lake, IL
Effective 12/14/98 (2)
Patricia K. Ferstein
1578 Colorado Lane
Elk Grove Village, IL
Effective 12/10/98 (2)
Paul K. Ferstein
1578 Colorado Lane
Elk Grove Village, IL
Effective 12/10/98 (2)
Abdule R. Finner
3411 Adams Street
Bellwood, IL
Effective 12/10/98 (2)
Gary Gandy
4034 Indian Hill Drive
Country Club Hills, IL
Effective 12/10/98 (2)
Michael T. Gedzun
2830 E. Chayes Park Drive
Homewood, IL
Effective 11/16/98 (2)
Stipulation and Consent Order - Civil Forfeiture Paid
American Auto Insurance Agency, Inc.
7142 West Belmont Ave.
Chicago, IL
Effective 11/6/98 (4)
Michael R. Brown
22 Gloucester Circle
Bloomington, IL
Effective 11/17/98 (3)
Armand G. Deblouwe
1722 Ear Colorado Avenue, Apt. 204
Urbana, IL
Effective 11/5/98 (4)
Illinois Vehicle Insurance Agency, Inc.
5559 N. Elston Avenue
Chicago, IL
Effective 11/2/98 (3)
Darryl A. Johnson
16845 School Street
South Holland, IL
Effective 9/10/98 (3)
Frederica Johnson
16845 School Street
South Holland, IL
Effective 9/10/98 (3)
Joseph M. Kariotis
1560 N. Sandburg Terrace #3812
Chicago, IL
Effective 11/6/98 (4)
Jeffrey D. Lamm
649 Charlemagne
Northbrook, IL
Effective 10/20/98 (4)
Nancy Tidwell
6832 Didrikson Lane
Woodridge, IL
Effective 11/2/98 (3)
Mitchell S. Wolf
15896 Pope Blvd.
Prairie View, IL
Effective 11/2/98 (3)
Stipulation & Consent Order - No Civil Forfeiture
Jerome Coquillard
355 Wood Creek Road, Apt. 113
Wheeling, IL
Effective 11/12/98 (3)
Denial of Request for License
Michael J. Perrone
1235 N. Marion
Oak Park, IL
Effective 12/16/98 (3)
Scheduled Hearings:
Michael J. Pavlick
1/13/99 Hearing No. 3699A
Revocation of licensing authority
Duxler Libertyville Tire, Inc.
National Council on Compensation Insurance
1/14/99 Hearing No. 3696
Rate Classification
Patricia Barlow
State Farm Fire & Casualty Company
1/19/99 Hearing No. 3700
Cancellation
Aastro Construction Company
State Farm Mutual Automobile Insurance Company
1/21/99 Hearing No. 3698
Cancellation
James Hillock
American Service Insurance Company
1/26/99 Hearing No. 3701
Cancellation
Ronald W. South
1/28/99 Hearing No. 3697
Denial of license application
Tri-Star Automation, Inc.
National Council on Compensation Insurance
1/29/99 Hearing No. 3702
Rate Classification
Roy A. Alford
2/4/99 Hearing No. 3703
Suspension of licensing authority
John S. Wrona
Allstate Insurance Company
2/23/99 Hearing No. 3704
Cancellation
Kenneth C. Waters
2/25/99 Hearing No. 3690
Revocation of licensing authority
Gloria R. Waters
2/25/99 Hearing No. 3689
Denial of licensing authority
Matters Settled without Hearing:
Morris D. Hunt
Hearing No. 3686
Hearing dismissed;
Order of Suspension vacated 12/31/98
Keith Ray Grodeon
Hearing No. 3695
Licensing authority rescinded 12/18/98
Completed Hearings:
Families United for Life Ins. Co., Ltd.
Hearing No. 3543
Cease and Desist made permanent 12/4/98
Homefirst Health Plan; Homefirst PPO Group Health Ins. Plan;
Homefirst News; Homefirst Independent Physician Assoc., Inc.;
Homefirst Health Services; Homefirst Medical Group; Lifefirst Inc.;
Homefirst Ins. Agency, Inc.; Mayer Eisenstein; Marshall Kolodenko;
Jeremy B. Eisenstein
Hearing No. 3542
Cease and Desist made permanent 12/4/98
New Admissions
Bar Plan Mutual Insurance Company, MO, 11/20/98
IDS Property Casualty Insurance Company, WI, 12/01/98
StarNet Casualty Company, DE, 12/3/98
TIAA-CREF Life Insurance Company, NY, 12/11/98
Employers Security Insurance Company, IN, 12/18/98
Sable Insurance Company, CA, 12/18/98
Alamance Reinsurance Company, IL, 12/28/98
First Marine Insurance Company, MO, 12/28/98
Guilford Insurance Compete, IL, 12/28/98
Zurich American Insurance Company, NY, 12/28/98
Atlantic Specialty Insurance Company, NY, 12/31/98
Companion Commercial Insurance Company, SC, 12/31/98
Companion Property & Casualty Insurance Company, SC, 12/31/98
Charter Indemnity Company, TX, 12/31/98
Diamond State Insurance Company, IN, 12/31/98
Hanover Fire and Casualty Insurance Company, PA, 12/31/98
Michigan Hospital Association Insurance Company, MI, 12/31/98
Conservation
Alpine Insurance Company, IL, was placed under an Agreed Order of Conservation 1/08/99.
Terminations
Classic Fire and Marine Insurance Company, IN; Order of Liquidation in IN 12/18/98; Certificate of Authority revoked in IL 2/3/99
American Financial Security Life Insurance Company, MO, Order of Revocation 1/15/99
Fines
The following entities were issued Stipulation and Consent Orders and fined for Insurance Code violations and/or improper claims practices cited in their Illinois market conduct examinations:
General Accident Group (Camden Fire Insurance Association; General Accident
Insurance Company of America; Pennsylvania General Insurance Company; and Potomac
Insurance Company of Illinois), PA, 11/23/98, $20,0000
United Security Life Insurance Company, IL, 11/22/98, $10,000
Financial
Stephenson County Burial Association -- 11/18/98
Masonicare -- 12/01/98
American Service Insurance Company -- 12/11/98
Cigna Healthcare of Illinois, Inc. --12/11/98
Farmers Pioneer Mutual Insurance Company -- 12/11/98
Gallant Insurance Company --12/11/98
OSF Health Plans, Inc. -- 12/11/98
Pekin Life Insurance Company -- 12/11/98
Pioneer Mutual Insurance Company -- 12/11/98
Pontiac Mutual Insurance Company --12/11/98
Sidney Hillman Health Centre of the Chicago and Central States Joint Board,
Amalgamated Clothing and Textile Workers Union, AFL-CIO-- 12/11/98
Travelers Casualty and Surety Company of Illinois -- 12/11/98
Travelers Property Casualty Company of Illinois --12/11/98
Universal Insurance Company --12/11/98
Valor Insurance Company -- 12/11/98
National Dental Care, Inc. -- 12/18/98
Hamlet Mutual Insurance Company --12/21/98
Illinois Insurance Company -- 12/21/98
Lutheran Mutual Fire Insurance Company --12/01/98
U M L Mutual Insurance Company --12/01/98
Market Conduct
CIGNA HealthCare of Illinois --11/13/98
United Security Life Insurance Company -- 11/22/98
Camden Fire Insurance Association -- 11/23/98
General Accident Insurance Company of America -- 11/23/98
Pennsylvania General Insurance Company -- 11/23/98
Potomac Insurance Company of Illinois -- 11/23/98
Allstate Insurance Company -- 12/04/98
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