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Committee hears bill to require separate fiduciary accounts, bankruptcy notice from third-party administrators
Summary
Senate Bill 21 would require third‑party administrators to keep separate fiduciary accounts for each payer and immediately notify the Kansas Insurance Commissioner of bankruptcy petitions under chapter 9 or 11; supporters said the change responds to a recent TPA bankruptcy in which client funds were commingled.
Senate Bill 21 would require third‑party administrators that handle premiums and claims to maintain a separate fiduciary account for each payer and to immediately disclose any bankruptcy petition filed by or on behalf of the administrator under chapter 9 or chapter 11 of the bankruptcy code to the Kansas Insurance Commissioner.
The measure was explained to the Senate Committee on Financial Institutions and Insurance by Eileen, Revisor of Statutes, and supported in testimony by Eric Turek of the Kansas Department of Insurance. Turek told the committee the department licenses about 400 third‑party administrators (TPAs) doing business in Kansas and that most are based out of state. He said the bill responds to a bankruptcy last year involving a TPA whose parent holding company also went bankrupt and whose funds were “completely commingled.” The department learned of the filing only after another state insurance department notified it, by which time employees had been dismissed and records and equipment were unavailable, Turek said.
“The funds were completely commingled and because of our delay in…we really weren't able to ascertain which funds belong to which clients,” Turek said.
Committee members asked whether earlier notice from the bankruptcy court would have reached the department and whether immediate notice to the department would meaningfully improve recovery for individual clients. Turek said he was not aware the department received formal notice before the process began and that earlier notification would likely have allowed the department to help ensure clients’ funds were returned more quickly. He noted the bankruptcy litigation has concluded.
Senators also raised a drafting question about the bill’s requirement that an administrator “immediately disclose” a bankruptcy filing, with Senator Warren asking whether the statute should define a specific deadline (for example, three or seven days). Turek said the department is open to working with the reviser and the committee to clarify a reasonable period for compliance.
Eileen told the committee the bill amends KSA 40‑38 7 (pertaining to collection of premiums and payment of claims by administrators) and KSA 40‑38 09 (pertaining to notices and disclosures required of administrators). The committee did not take a vote on the bill during the hearing. No opponents testified.
The committee closed the hearing on Senate Bill 21 with no further action recorded; supporters said the bill is intended to prevent recurrence of the recent commingling issue by requiring per‑payer fiduciary accounts and earlier notice of insolvency filings.
Senate Bill 21 may return for further drafting on the timing language for the bankruptcy disclosure requirement.
