Hawaii Introduces a Third Party Administrator Bond Requirement
Third-party administrators for insurance plans in Hawaii face new licensing and bonding requirements.
Senate Bill 1212 adds a new article to Chapter 431 to Hawaii legislation, which defines the rules for obtaining an administrator license. The process entails providing a Hawaii third-party administrator bond.
With the introduction of the new bill, lawmakers in the state expand the regulatory authority of the Insurance Commissioner. The goal is to provide a legal framework for administrators of insurance plans who collect charges and premiums and settle claims on self-insurance, stop-loss, or life insurance coverage, as well as on accident and health or sickness insurance coverage.
For further details about the new legislation, the sections below will inform you about the main changes and how they affect third-party administrators in Hawaii.
The stipulations in Senate Bill 1212
Hawaii Senate Bill 1212 creates a licensing procedure for third-party administrators for insurance plans. The bill was introduced in January 2019 and comes into effect as of January 1st, 2020.
The licensing body is the state Insurance Commissioner who oversees the activities of administrators and imposes the criteria that you have to satisfy to get the right to operate in the state.
The requirements for obtaining a Hawaii third-party administrator license include providing the following:
- Organizational documents
- Internal rules for administration
- Information about responsible individuals
- Annual financial statements for the last two years, showcasing positive net worth
- Written agreement with an insurer
Besides satisfying these criteria, you have to cover a fee of $150 for the license issuance. The licensing period runs for two years. For resident licensees, the renewal deadline is July 16th.
In addition, the process requires that applicants provide a surety bond in a minimum amount of $100,000. The Commissioner may determine a higher bond amount if necessary. The bond can be cancelled only with the Commissioner’s permission. Otherwise, it has to remain active two years after an administrator has ceased operations.
Getting bonded as a third-party administrator
Obtaining a Hawaii third-party administrator bond will now be obligatory for administrators of insurance plans who want to work in the state. Thus, you will need to provide a minimum bond of $100,000 if you want to launch your operations.
The purpose of the bonding requirement is to provide an additional layer of protection for your customers. It guarantees your legal compliance. In cases when you fail to follow applicable Hawaii laws, the bond can serve as a compensatory mechanism. A harmed party can file a claim against you, demanding а reimbursement for suffered damages. The maximum penalty you may have to cover is the full bond amount that you have posted.
The bonding process involves covering a premium, which represents a small fraction of the required amount. It is set on the basis of your personal and company finances, including your credit score, business paperwork, and assets. For applicants with a stable profile, the rates range between 1% and 5%. For a $100,000, this can mean a premium of $1,000 to $5,000.
Have any more questions about the new Hawaii third-party administrator bond requirement?. You can consult our bonding experts by calling us at 877.514.5146.