Beginning January 1, 2020, third-party administrators (TPAs) in Hawaii will need to get licensed with the state Insurance Commissioner. This requirement was recently introduced by Senate Bill 1212. The bill specifies the conditions under which administrators can get licensed as well as their responsibilities post-licensure.
To get licensed, among other things, administrators will need to post a third-party administrator bond in an amount of at least $100,000.
See below for an overview of the licensing requirements and other provisions of the bill!
Third-Party Administrator Licensing in Hawaii
SB 1212 defines an administrator as someone who collects payments or adjusts and settles claims for residents of the state on various types of insurance policies.
Anyone who intends to perform such functions will be required to get licensed, beginning in 2020. To get licensed, applicants will need to complete the following requirements:
- Complete an application form as prescribed by the Commissioner
- Provide all basic organizational documents, such as articles of incorporation, tax ID certificates, etc.
- Documents regarding the rules and regulations that govern the internal affairs of TPAs
- Information about individuals who will be responsible for the conduct of the TPA, such as directors, officers, partners, and others
- Submit annual financial statements for the previous two years which prove the TPA has a positive net worth
- Obtain a $100,000 third-party administrator surety bond
- Pay a $150 licensure fee
Once these conditions are satisfied, the Commissioner will issue a license for the administrator. Licenses will be issued biennially, and their renewal date shall be July 16.
Once an administrator is licensed, they will face various obligations and responsibilities which are also specified in the bill. These include, among others:
- Having a written agreement with an insurer that contains all the requirements of the bill that apply to TPAs
- Keeping books and records of all transactions and making these available to the insurer and the Commissioner
- Only advertising the business that an insurer has underwritten and approved in advance
- The responsibility and fiduciary capacity for any charges, claim payments or premiums that the TPA collects on behalf of the insurer, and any return premiums received by the TPA from the insurer
- Providing insureds with a written notice approved by the insurer regarding the relationship between the administrator, the insurer, and insureds
- Filing an annual report with the Commissioner before March 1 that includes the names and addresses of all insurers the administrator has had an agreement with during the previous year
The above are brief descriptions of the obligations of licensed TPAs under SB 1212. For a more detailed description, make sure to see the bill itself.
Hawaii TPA Bond Requirement
TPAs will need to post a surety bond as part of the licensing process. The purpose of this bond is to guarantee their compliance with the provisions of the bill. It is conditioned to provide financial security to individuals who work with the administrator and protect them in instances of fraud and malpractice.
The bond will need to be valid for two years after the licensee has stopped acting as an administrator. The bond may be terminated earlier if the Commissioner determines so.
What’s the cost of this bond?
The minimum amount for this bond must be $100,000 unless the Commissioner determines another sum as more appropriate. The cost of the bond, or bond premium, is equal to a fraction of its full amount, based on the finances of the applicant.
The most important cost factor is the personal credit score of the applicant. The higher an applicant’s score, the lower their premium. Applicants with medium to high credit scores can expect to be offered a rate somewhere between 1% and 5% of the total amount of their bond.
You can request to get a free quote on your bond, without any additional obligations by completing our bond form. Simply click on the banner below, complete the form, and we will contact you shortly!