Legislature(2003 - 2004)
2004-01-28 House Journal
Full Journal pdf2004-01-28 House Journal Page 2415 HB 403 HOUSE BILL NO. 403 by the House Rules Committee by request of the Governor, entitled: "An Act relating to the Alaska Insurance Guaranty Association; relating to joint insurance arrangements and assessments to the association; relating to the powers of the Alaska Industrial Development and Export Authority concerning the association; and providing for an effective date." was read the first time and referred to the Labor & Commerce, Judiciary, and Finance Committees. The following fiscal note(s) apply: 1. Zero, Dept. of Labor & Workforce Development 2. Zero, Dept. of Community & Economic Development 3. Zero, Dept. of Community & Economic Development 4. Zero, Dept. of Community & Economic Development 5. Fiscal, Dept. of Administration The Governor's transmittal letter dated January 22, 2004, follows: "Dear Speaker Kott: Under the authority of article III, section 18, of the Alaska Constitution, I am transmitting a bill aimed at a crisis in the Alaska Workers' Compensation insurance industry. Resolving this issue is vitally important to Alaska's employers and employees. Specifically, this bill deals with the after-effects of Fremont Insurance Company's insolvency (Fremont). Fremont was a California based workers compensation insurer. It was writing about 27 percent of the workers' compensation insurance policies in Alaska by the year 2000. Fremont was heavily involved in California's workers' compensation price wars. These price wars occurred after California deregulated its insurance market in 1995. Insurers like Fremont cut prices and scrambled for market share. The result was that 41 workers' compensation carriers in California went insolvent or quit doing business in the state to avoid insolvency. Fremont joined the group of 2004-01-28 House Journal Page 2416 failed insurers when it was declared insolvent in July, 2003. Fremont left Alaska employers and employees "holding the bag" with liability for claims worth approximately $60 million. The Alaska Insurance Guaranty Association Fund (Fund) is set up to pay uncovered claims. The Fund pays claims in situations where insurance is unavailable to pay claims. The goal is to minimize losses to employers and employees. Association members are insurers that are authorized to write property and casualty insurance Alaska. An assessment is made based on the amount of premiums the member writes in this state. Current statutes cap the assessment at two percent of premiums written each year. The Fremont insolvency and the amount of claims left over is so large, the Fund cannot cover the claims. If the difference is not made up, Alaska employers and employees alike will suffer. Employers will be held liable for claims they paid Fremont to cover. Some businesses will simply not be able to afford to pay the claims and will have to go out of business. Many other claims will be delayed or settled for less than their full value as employers and employees litigate or dispute liability and the value of a claim. Statutory changes are necessary to address the Fund's substantial cash deficits and to provide for greater equity in times of crisis among all persons covering an employer's liability for workers' compensation, whether through insurance, self-insurance, or a pooling arrangement. A brief description of these changes follows. Under the bill, the insurance code (AS 21) would be amended to raise the cap on member assessments by the association from two percent to four percent of written premiums and to provide for excess assessments on member insurers if there is a shortage of money in an association account. The bill would also authorize the association to assess employers that are self-insured for workers' compensation and assess joint insurance arrangements that insure an employer's workers' compensation liability. This assessment applies only when insurer assessments are insufficient in any one year to cover workers' compensation claims payments by the association and is limited to a maximum of two percent of all payments reported to the Alaska Workers' Compensation Board under the Alaska Workers' Compensation Act (AS 23.30). 2004-01-28 House Journal Page 2417 The bill also includes a provision to authorize the Alaska Industrial Development and Export Authority (AIDEA) to guarantee loans to the association that are needed to make the association financially able to meet cash flow needs. While current law allows the association to borrow money, the association is not a viable prospect for traditional commercial loans. Loan guarantees from AIDEA would permit the association to obtain loans on favorable terms. The bill, however, would limit AIDEA guarantees for association loans to a maximum outstanding principal balance at any time on all loans of $30,000,000. The bill provides for an immediate effective date. I urge your prompt and favorable action on this measure. Sincerely yours, /s/ Frank H. Murkowski Governor"