SB 186
Department of Legislative Services
Maryland General Assembly
2020 Session
FISCAL AND POLICY NOTE
Third Reader - Revised
Senate Bill 186 (Senator Kelley)
Finance Health and Government Operations
Life and Health Insurance Guaranty Corporation Act - Revisions
This bill revises various provisions of the Life and Health Insurance Guaranty Corporation
Act, including adding health maintenance organizations (HMOs) as assessable member
insurers and establishing a mechanism to more fairly assess for receiverships involving
long-term care insurers.
Fiscal Summary
State Effect: The bill does not substantively change State operations or finances.
Local Effect: The bill does not substantively change local government operations or
finances.
Small Business Effect: None.
Analysis
Bill Summary/Current Law:
Purpose and Definitions
Current Law: The Life and Health Insurance Guaranty Corporation was established in
1970 to provide limited protection to State residents holding insurance policies or annuities
issued by the corporation’s member insurers in the event that such an insurer becomes
insolvent. The corporation operates under the supervision of the Maryland Insurance
Commissioner and consists of all insurers licensed to sell life insurance, accident insurance,
health insurance, and individual annuities in the State. The corporation is governed by a
board of directors elected by and from its member insurers.
Definitions: The bill expands the definition of “member insurer” to include an HMO that
is licensed or holds a certificate of authority to transact in the State or an HMO business.
The bill specifies that “individual” means a natural person covered under an individual
policy or contract or covered as a member or an enrollee under a group policy or contract
and makes conforming changes throughout the Act. The bill defines “owner” as the owner
or holder of a policy or contract who is (1) identified as the legal owner under the terms of
the policy or contract or who is otherwise vested with legal title to the policy or contract
through a valid assignment and (2) properly recorded as the owner of the policy or contract
on the books of the member insurer. “Owner” does not include a person who has only a
beneficial interest in a policy or contract. The bill also specifies that “person” includes an
individual, a corporation, a limited liability company, a partnership, an association, a
governmental body or entity, or a voluntary organization. The bill also adds a definition
for “health benefit plan.”
Purpose: The purpose of the Act is expanded to include protection of persons who are
enrollees and to include persons covered under supplemental policies and plans.
Scope of the Act
Under current law, coverage must be provided, for specified policies or contracts, to an
individual who is a resident of the State and, in special circumstances, to a nonresident. For
specified policies or contracts other than structured settlement annuities, coverage must be
provided to a person that is a resident and an owner of (or certificate holder under) the
policy or contract. Similarly, coverage must be provided for specified policies or contracts
(other than structured settlement annuities) to a person that is a nonresident and an owner
of (or certificate holder under) the policy or contract. The bill expands this coverage to
include HMO enrollees.
Under current law, coverage must be provided to a nonresident if (1) the insurer that issued
the policy or contract is domiciled in the State; (2) the state in which the nonresident resides
has an insurance guaranty corporation or its equivalent; and (3) the nonresident is not
eligible for coverage by the insurance guaranty corporation or its equivalent in the state in
which the nonresident resides because the insurer was not licensed in that state under that
state’s guaranty corporation law. The bill specifies that the member insurer must be
domiciled in the State and permits a nonresident to be eligible if the nonresident is not
eligible for coverage in his or her own state because the HMO was not licensed in that state.
Under current law, coverage must be provided for specified policies or contracts to a
beneficiary, assignee, or payee of a covered person regardless of the person’s residence.
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Under the bill, this is expanded to include a health care provider rendering services
covered under health care policies or certificates.
Current law specifies that the corporation does not provide coverage to a person who is a
payee or beneficiary of a contract owner who is a resident of Maryland if the payee or
beneficiary is provided any coverage by the association of another state. The bill specifies
that coverage is not provided to a person who acquires the right to receive payments
through a structured settlement factoring transaction regardless of whether the transaction
occurred before or after the effective date of specified federal law.
Current law further specifies the types of policies and contracts for which coverage may not
be provided. This includes any part of a policy or contract to the extent that the rate of
interest on which it is based or the interest rate, crediting rate, or similar factor determined
by use of an index or other external reference stated in the policy or contract employed in
calculating returns or changes in value, as specified. The bill modifies this prohibition
against coverage by specifying that it applies except for a part of a policy or contract,
including a rider, which provides long-term care or any other health insurance benefits.
The bill also specifies that coverage may not be provided for Medicaid, the Maryland
Children’s Health Program, or a structured settlement annuity benefit to which a payee (or
the beneficiary of a payee if the payee is deceased) has transferred the rights in a structured
settlement factoring transaction regardless of whether the transaction occurred before or
after the effective date of specified federal law.
Board of Directors and Powers of Corporation
The bill increases the size of the board of directors of the corporation from at least 5 but
not more than 9 members to at least 7 but not more than 11 members.
Under current law, for a member insurer that is an impaired insurer or an insolvent insurer,
the corporation may guarantee or reinsure, or cause to be guaranteed, assumed, or
reinsured, any or all of the policies or contracts of the insurer. The bill expands these
powers to include assume, reissue, or cause to be reissued any of the covered policies or
contracts of the insurer.
Under current law, the corporation has standing to appear or intervene before any court or
agency with jurisdiction over an impaired insurer or an insolvent insurer. The standing
extends to all matters germane to the powers and duties of the corporation, including
proposals for reinsuring or guaranteeing the covered policies of an impaired insurer or an
insolvent insurer. The bill expands these powers to include reissuing and modifying the
covered policies.
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The bill expands the authority of the corporation to include, in accordance with the terms
and conditions of the policy or contract, filing for an actuarially justified rate or premium
increase for any policy or contract for which the corporation provides coverage.
Orders of Liquidation
The bill specifies that premiums due for coverage after entry of an order of liquidation of
an insolvent insurer belong to and are payable at the direction of the corporation. If the
liquidator of an insolvent insurer requests, the corporation must provide a report regarding
premium collection by the corporation. The corporation is liable for unearned premiums
due to policy or contract owners arising after the entry of the order.
Long-term Care Riders
The bill specifies that benefits provided by a long-term care rider to a life insurance policy
or annuity contract must be considered the same type of benefits as the base life insurance
policy or annuity contract to which the rider relates.
Assessments
Under current law, to provide the funds necessary to carry out the powers and duties of the
corporation, the board of directors must assess member insurers, separately for each
account, at the times and amounts that the board finds necessary. There are two classes of
assessments: Class A assessments to meet administrative costs and other general expenses
and Class B assessments to carry out powers and duties with respect to an impaired insurer
or an insolvent insurer. The board may make a Class A assessment on a pro rata or
nonpro rata basis. A nonpro rata assessment may not exceed the amount provided in the
corporation’s plan of operation per member insurer in one calendar year.
The bill repeals this limitation on a nonpro rata assessment and specifies that, except for
assessments relating to long-term care insurance, the amount of a Class B assessment must
be allocated according to a specified formula. The bill provides that the amount of a Class B
assessment for long-term care insurance written by the impaired insurer or insolvent insurer
must be allocated according to a methodology included in the plan of operation and
approved by the Commissioner. The methodology must allocate 50% of the assessment to
accident and health member insurers and 50% to life and annuity member insurers.
Corporation Plan of Operation
Under current law, the corporation must submit to the Commissioner a plan of operation
to ensure the fair, reasonable, and equitable administration of the corporation. The plan of
operation and any amendments take effect when approved in writing by the Commissioner.
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The bill specifies that, unless disapproved by the Commissioner within 30 days after
submission, a plan of operation and any amendments to the plan are deemed approved on
the 31st day after the date on which the plan was submitted.
Background: According to the National Association of Insurance Commissioners
(NAIC), all 50 states, Puerto Rico, the U.S. Virgin Islands (property/casualty only), and
the District of Columbia have a guaranty mechanism in place for the payment of covered
claims arising from the insolvency of insurers licensed in their state. Before the creation of
guaranty associations, a typical claimant could have waited years for payment of a claim
and then still received only a fraction of what was due under the terms of the policy or
contract. Guaranty associations, subject to statutory limitations, were created to alleviate
these problems and ensure the stability of the insurance market. Specifically, in the event
of a life/health insurer liquidation, the guaranty mechanism provides for the continuation
of eligible contracts that would otherwise terminate.
According to The League of Life and Health Insurers of Maryland, the bill reflects
NAIC model legislation that has been adopted in more than 25 states as of December 2019.
Additional Information
Prior Introductions: None.
Designated Cross File: HB 141 (Delegate Cullison, et al.) - Health and Government
Operations.
Information Source(s): National Association of Insurance Commissioners; The League
of Life and Health Insurers of Maryland; Judiciary (Administrative Office of the Courts);
Maryland Insurance Administration; Department of Legislative Services
Fiscal Note History: First Reader - February 10, 2020
rh/ljm Third Reader - March 14, 2020
Revised - Amendment(s) - March 14, 2020
Analysis by: Jennifer B. Chasse Direct Inquiries to:
(410) 946-5510
(301) 970-5510
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Statutes affected:
Text - First - Life and Health Insurance Guaranty Corporation Act - Revisions: 1-101 Insurance, 9-401 Insurance, 9-402 Insurance, 9-403 Insurance, 9-405 Insurance, 9-405 Insurance, 9-406 Insurance, 9-406 Insurance, 9-407 Insurance, 15-1301 Insurance, 9-407.1 Insurance, 9-408 Insurance, 9-409 Insurance, 9-410 Insurance, 9-411 Insurance, 9-412 Insurance, 9-414 Insurance, 9-407 Insurance, 9-407 Insurance
Text - Third - Life and Health Insurance Guaranty Corporation Act - Revisions: 19-706 Insurance, 1-101 Insurance, 9-401 Insurance, 9-402 Insurance, 9-403 Insurance, 9-405 Insurance, 9-405 Insurance, 9-406 Insurance, 9-406 Insurance, 9-407 Insurance, 15-1301 Insurance, 9-407.1 Insurance, 9-408 Insurance, 9-409 Insurance, 9-410 Insurance, 9-411 Insurance, 9-412 Insurance, 9-414 Insurance, 9-407 Insurance, 9-407 Insurance