HB565 SD1

SECTION 1. The legislature finds that the State currently purchases third-party insurance through its risk management and insurance administration to cover the State's property and casualty risks. Property and casualty insurance provides risk mitigation to minimize the State's loss exposure. The legislature further finds that the State's property and casualty insurance premium costs are significant and subject to further premium increases.

The purpose of this Act is to save the State on the costs of its annual insurance premiums for property and casualty insurance coverage by making it easier for the State to self-insure or utilize a captive insurer for property and casualty risks.

SECTION 2. Chapter 41D, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§41D- State self-insurance against property and casualty risks special fund. (a) There is established in the state treasury the state self-insurance against property and casualty risks special fund to be administered by the comptroller, through the risk manager.

(b) Moneys in the special fund shall be used to provide the State with self-insurance coverage against property and casualty risks pursuant to section 41D-2(a)(1) and (2). The special fund shall pay claims to state agencies for losses to property of the State caused by fire or other casualty, including the cost to:

(1) Repair or replace buildings and other structures;

(2) Replace damaged contents; and

(3) Provide alternate structures while damaged structures are being repaired or replaced.

(c) Moneys in excess of the amounts necessary for meeting the immediate requirements of the special fund may be invested as provided in section 36-21. Interest earned by the special fund shall be credited to the special fund.

(d) To ensure that the special fund is operated on an actuarially sound basis, the governor shall authorize the annual transfer of $ in general funds to the special fund.

(e) The comptroller may establish deductibles for the state agencies for certain perils or classes of property or casualty risks and may:

(1) Assess the agencies for losses incurred in the amount of the deductible; or

(2) Reduce the payment from the special fund to cover the property or casualty loss by the amount of the deductible.

(f) For any year in which the balance in the special fund is insufficient to keep the special fund actuarially sound and pay the claims required under subsection (b), the comptroller shall request that the governor authorize an advance to the special fund of sufficient sums of money from other funds in the state treasury.

(g) The moneys advanced to the special fund pursuant to subsection (f) shall be repaid from the special fund in annual installments, with interest. The amount of each annual installment shall be fixed by the comptroller so that the moneys advanced can be reasonably expected to be repaid in not more than ten years.

(h) To ensure that moneys advanced to the special fund are repaid as specified in subsection (g), the comptroller may further assess the state agencies.

§41D- Establishment of the captive insurance program. (a) The comptroller, through the risk manager, shall establish a captive insurance program pursuant to article 19 of chapter 431, owned and controlled by the State, solely to insure the potential losses, exposures, and risks of state agencies that are subject to insurance and self-insurance pursuant to this chapter, including, but not limited to, executive, legislative, and judicial branch state agencies and state institutions of higher education.

(b) The comptroller, through the risk manager, shall:

(1) Approve the captive insurance program's business plan;

(2) Periodically determine, reevaluate, and revise:

(A) The potential losses, exposures, and risks that will be insured through the captive insurance company;

(B) The nature and scope of insurance coverage or coverages to be provided through the captive insurance company; and

(C) The method by which coverage and coverages are to be extended and contributions are to be paid and collected, including, but not limited to, premiums and assessments;

(3) Establish the amount of the exposure for each line of insurance coverage, as well as the premium amounts for each agency;

(4) Establish a process through which premiums may be collected directly from each agency;

(5) Determine the initial and continuing capital requirements to form and maintain the captive insurance program, including but not limited to the amount and funding source for the initial and continuing capital and the process through which premiums may be collected directly from each agency or from other sources allowable under applicable laws and rules;

(6) Establish an investment policy pursuant to section 41D-5 or establish a policy that is authorized by the director of finance or is otherwise allowable under applicable laws and rules;

(7) Approve regulatory filings by the State on behalf of the captive insurance program in compliance with applicable laws and rules of the department of commerce and consumer affairs;

(8) Be responsible for the day-to-day operations and responsibilities of the captive insurance program, including the implementation of claim procedures;

(9) Perform other duties or actions necessary and provide administrative support for the implementation, operation, and administration of the captive insurance program;

(10) Prepare or assist in the preparation of financial statements and reports of financial condition of and maintain or assist in maintaining accounting for the captive insurance program; and

(11) Facilitate contracts, agreements, and procurements for the captive insurance program to effectuate this section, including but not limited to financial consultants, investment consultants, insurers, reinsurers, actuaries, auditors, accountants, brokers, adjusters, attorneys, third party administrators, and other contractors as necessary to carry out the duties and responsibilities of establishing, implementing, and administering the captive insurance program, which shall be funded through the risk management revolving fund or the assets of the captive insurance program;

(c) Funds received by the captive insurance program shall be used exclusively for the purposes and activities set forth in this section, and shall be invested and reinvested in the name of the captive insurance program by the State in accordance with the purpose of this section.

(d) The captive insurance program described in subsection (a) shall be subject to, and shall comply with, all applicable laws and rules for captive insurance companies."

SECTION 3. There is appropriated out of the general revenues of the State the sum of $ or so much thereof as may be necessary for fiscal year 2023-2024 to be deposited into the state self-insurance against property and casualty risks special fund.

SECTION 4. There is appropriated out of the state self-insurance against property and casualty risks special fund the sum of $ or so much thereof as may be necessary for fiscal year 2023-2024 for the purposes of this Act.

The sum appropriated shall be expended by the department of accounting and general services for the purposes of this Act.

SECTION 5. New statutory material is underscored.

SECTION 6. This Act shall take effect on June 30, 3000.

HOUSE OF REPRESENTATIVES	H.B. NO.	565
THIRTY-SECOND LEGISLATURE, 2023		H.D. 1
STATE OF HAWAII		S.D. 1