3 December 2018Analysis

Illinois overrides veto of captive reform bill

The Illinois General Assembly has voted to override the governor’s amendatory veto of SB 1737, a bill that would overhaul the state’s captive insurance laws.

Illinois’ House gained a 3/5s majority vote to overturn the veto on November 27, following the Senate’s 3/5s majority vote on November 14, and the bill is now scheduled to take effect on February 1, 2019, with some provisions.

SB 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.

The bill also drops the premium tax rate of self-procured insurance from 3.5 to 0.5 percent of gross premium.

On August 26, Illinois governor Bruce Rauner had vetoed the bill, suggesting it would impose detrimental limitations on certain types of health coverage upon Illinois consumers.

Rauner had applauded parts of the bill as being both “necessary and wise”, such as the provision that brings Illinois in line with national and international accreditation standards for reinsurers. He said that it should help Illinois overcome its competitive disadvantage in attracting the companies that offer this product to Illinois businesses.

However, he suggested the legislation imposes concerning additional regulatory barriers to short-term limited-duration health plans (STLDs) and workers' compensation insurance. 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.

Rauner also suggested the bill includes unnecessary 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."