28 August 2018Analysis

Illinois governor vetoes captive bill

Illinois governor Bruce Rauner has vetoed legislation that would overhaul the Illinois Insurance code and update its captive insurance law to be more attractive to companies that use captives.

Senate Bill 1737 not only aims to amend Illinois' insurance law to make its captive insurance regulation in line with other states, it reforms the state's handling of reinsurers to conform with best practices, and adds flexibility to the process of dividing domestic stock companies.

For captives, the bill would set new minimum captive capital and surplus requirements - a $250,000 minimum for pure captives, $500,000 for industrial insured captives, and $750,000 for group captives.

However, Rauner suggested the bill would impose detrimental limitations on certain types of health coverage upon Illinois consumers

Rauner applauded portions of the legislation as being both necessary and wise, such as the provision that brings Illinois in line with national and international accreditation standards for reinsurers.

"The changes in collateral requirements are based on a tested model and will bring Illinois in equivalence with international regulatory frameworks," said Rauner. "Similarly, the updates to the captive insurance regulatory structure are in line with other states, and will help Illinois overcome its competitive disadvantage in attracting the companies that offer this product to Illinois businesses. It also further increases clarity for domestic stock companies undergoing corporate divisions. However, this legislation imposes concerning additional regulatory barriers to short-term limited-duration health plans (STLDs) and workers' compensation insurance."

Rauner explained that STLDs are used to cover individuals that may experience a gap in longer term coverage options, such as between jobs with employer-sponsored plans. He noted that they are exempt from certain mandates under federal law, and often offer participants lower costs, more flexible coverage, and broader access to providers than traditional individual market plans.

"This legislation would impose numerous restrictions on these plans, including strict maximum time frames and prohibitions on renewal," Rauner continued. "I recognise concerns that certain STLDs have not always been clear in their terms and coverage, but ultimately broad restrictions such as those contained in Senate Bill 1737 will reduce consumer plan choice as well as the availability of STLD options in Illinois. The scope of STLDs has recently been debated at the federal level, and we should look to be consistent with the regulatory structures of other states and the federal government, as further regulation will create barriers to Illinoisans' access to the health care plans that best fit their needs."

Rauner also suggested the bill includes unnecessary new restrictions on rate-setting in the Illinois workers' compensation insurance industry.

"Illinois has one of the country's most competitive markers for workers' compensation insurance, which has a history of modulating rates through market dynamics. This legislation, much like other workers' compensation legislation passed by the General Assembly in recent years, demonstrates a misunderstanding of the true cost drivers in our system and increases regulation to the detriment of Illinois businesses and individuals, to whom additional costs will inevitably be passed on."