Legislature(2007 - 2008)CAPITOL 17
02/07/2007 03:00 PM House LABOR & COMMERCE
| Audio | Topic |
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| Start | |
| Overview(s): Division of Insurance | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 77 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 7, 2007
3:04 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Mark Neuman, Vice Chair
Representative Carl Gatto
Representative Gabrielle LeDoux
Representative Jay Ramras
Representative Robert L. "Bob" Buch
Representative Berta Gardner
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERVIEW(S): DIVISION OF INSURANCE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
LINDA HALL, Director
Division of Insurance
Anchorage Office
Department of Commerce, Community, & Economic Development
(DCCED)
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of the Division of
Insurance.
ACTION NARRATIVE
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:04:56 PM. Representatives
Gardner, Gatto, Buch, and Olson were present at the call to
order. Representatives Ramras, Neuman, and LeDoux arrived as
the meeting was in progress.
^OVERVIEW(S): DIVISION OF INSURANCE
CHAIR OLSON announced that the only order of business would be
an overview of the Division of Insurance.
3:05:02 PM
LINDA HALL, Director, Division of Insurance, Anchorage Office,
Department of Commerce, Community, & Economic Development
(DCCED), began by explaining the general background of the
Division of Insurance ("the Division"). Referring to a handout
titled "Overview - House Labor & Commerce, February 7, 2007,
Division of Insurance," she explained that the Division is the
primary regulator of the insurance industry in Alaska. The
federal government defers the aforementioned regulation to each
state. The Division has been accredited by the National
Association of Insurance Commissioners (NAIC), a regulatory
group which provides a forum for interaction with other states,
in order to come up with joint goals and standards. She then
read the Division's mission, as follows [original punctuation
provided]:
The mission of the Division of Insurance is to protect
and educate the consumer, to develop, interpret and
enforce the insurance statutes and regulations, and to
enhance the insurance business environment.
MS. HALL stated that the Division has "very diverse goals,"
which can be a "balancing act" of ensuring consumer protection
and maintaining a competitive marketplace. She then discussed
the Consumer Services Section of the Division. This section
responds to consumer inquiries and investigates consumer
complaints. She relayed examples of the different types of
consumer complaints that the Division has assisted in resolving.
3:09:27 PM
REPRESENTATIVE GATTO inquired as to the procedure used by
insurance companies in order to determine the value of a
vehicle.
MS. HALL replied that the replacement cost is the "actual cash
value" of the vehicle.
REPRESENTATIVE GATTO offered an example of a procedure used by
insurance companies to gather the aforementioned information,
and asked if the Division should be contacted by individuals who
object to this procedure.
MS. HALL replied yes. Continuing with her presentation, she
pointed out that in 2005, the Consumer Services Section obtained
more than $600 thousand in additional payments to Alaskan
consumers.
3:13:26 PM
MS. HALL, moving on to the Licensing Section, explained that
licenses are issued upon determining that the licensing
requirements are met. There are currently over 25,000 licenses
in Alaska, 3,750 of which have been issued to residents. The
remaining licenses issued are non-resident.
3:14:10 PM
REPRESENTATIVE NEUMAN relayed a story and inquired as to how
citizens of Alaska can be sure that insurance companies will
honor the policies sold.
MS. HALL replied that a number of sanctions can be taken,
including termination of the company's "certificate of authority
to do business in the state." She stated that she would be
"hard pressed to think there was a situation [in which] the
Division's hands were tied." She explained that if an insurance
company were fined by the Division and did not pay, this
information would be returned to the NAIC, and would affect the
company's ability to sell insurance in other states. In
response to an additional question from Representative Neuman,
she stated that she does not know of any insurance companies
that have refused to pay the fines.
3:18:27 PM
MS. HALL then discussed the Investigation Section of the
Division. The following types of fraud are investigated:
claimant fraud, license application issues, workers'
compensation fraud, agent fraud, insurance company fraud,
premium fraud, and insurance document fraud. These cases are
presented to the director, and are then referred to the
Assistant Attorney General (AAG) for civil, administrative, and
criminal actions. She noted that the AAG averages 2-4 criminal
convictions per year.
3:20:18 PM
REPRESENTATIVE LEDOUX asked where the criminal prosecutions are
focused.
MS. HALL replied that criminal prosecutions are most often agent
fraud and claimant fraud. In response to an additional
question, she stated that the Division would look at any case
which resulted in a verdict of fraudulent activity.
REPRESENTATIVE GATTO inquired as to the ethical requirements
versus legal requirements of insurance companies.
MS. HALL replied that the [unfair trade practices] section of
Title 21 makes certain unethical trade practices a statutory
violation.
3:24:16 PM
REPRESENTATIVE LEDOUX offered her understanding that the unfair
trade practices section only applies to the client of the
insurance company, and would not apply to a third-party claim.
MS. HALL replied that she does not currently have this
information and offered to research this. In response to a
question from Representative Neuman, she explained that claimant
fraud, sales fraud, and broker fraud are most common. Initial
calls are reviewed to determine which section of the Division
should handle the claim. The Division receives many calls
involving unfair treatment. Ms. Hall encouraged members to
refer concerned constituents to the Consumer Services Section.
Inquiries made to this section may then go to the Investigation
Section or to the Market Conduct Examination Section. The
Market Conduct Examination Section, she said, oversees the
practices and behavior of insurance companies, producers,
brokers, and adjusters. She gave examples of market conduct
examination. In response to a question from Representative
Gardner regarding health insurance, she explained that the
Division has oversight of 40 percent of those covered by health
insurance in Alaska. She explained the role of "insurance
administrator," and said "if there's no incentive in the state
to cut the cost of claims, there shouldn't be an incentive to
delay payment."
3:33:11 PM
MS. HALL then moved on to discuss the Financial Examination
Section. This section reviews the solvency of 1,072 admitted
insurers in Alaska, in addition to collecting premium taxes and
fees. The Division is the primary regulator of 9 domestic
insurance companies, and is accredited based on the quality of
its financial examinations.
CHAIR OLSON offered his understanding that a copy of the [state
health care contract] was recently passed out of a budget
subcommittee, adding that it contains delayed response
penalties.
3:37:10 PM
MS. HALL moved on to the Filings Section of the Division. She
explained that this section reviews insurance contracts and
premium rate filing to ensure they are not excessive,
inadequate, or unfairly discriminatory. She then offered
details regarding this section. In response to a question, she
explained that discounts may only be given "across the board."
Finally, she stated that in 2005, the Division received 4,750
rate and form filings.
3:42:09 PM
MS. HALL, in response to a question, stated that the Division
does not have a guide to healthcare insurance. She also agreed
to provide all available insurance guides to the committee
members. Referring to the "Alaska Insurance Consumer Guide,"
she stated that this discusses many types of personal insurance.
She opined that this is a "very valuable guide." Moving on to
Revenues, she explained insurance premium taxes are the second
largest source of revenue to the general fund. In fiscal year
06 (FY 06) premium taxes were "well in excess" of $44 million.
Insurance companies pay premium taxes in lieu of income and
corporate taxes. During the 2005 calendar year, $2.7 billion in
insurance premiums were written in Alaska. In FY 06, the
Division generated $9.6 million in fees. She explained that the
Division is funded by the fees generated, and not through the
general fund.
REPRESENTATIVE RAMRAS inquired as to the satisfaction of the
Division, in regard to the volume of commercial insurance
carriers in Alaska.
MS. HALL replied that the Division is not currently satisfied.
She then discussed regulatory modernization, which is an effort
to "bring markets" into Alaska. There are several obstacles
that must be overcome, although improvements have been noted.
3:48:51 PM
MS. HALL moved on to discuss the issues and challenges of the
Division. She is not satisfied with the current insurance
markets. Referring to a study done by Oregon state, she
explained that in 2005, Alaska had the highest workers'
compensation premiums in the country. She agreed to distribute
the aforementioned study to the committee members. She pointed
out that in January 2007, the average rate decrease was 10
percent.
3:50:48 PM
MS. HALL, in response to a question from Representative Neuman,
replied that a decrease in workers' compensation rates may have
been a result of legislation that was passed. There has been a
decrease in the frequency of claims, which has resulted in a
reduction of rates. However, the average cost of a claim
remains significantly higher than the national average. In
addition, companies are seeking a change in environment, and are
recognizing Alaska as a place to do business.
3:55:04 PM
REPRESENTATIVE RAMRAS shared his experience as a member of the
Cabaret Hotel Restaurant & Retailer's Association group workers'
compensation program. In regard to the work done by the
Division, he said "great kudos to your department, for being
proactive and fixing people's lives, and saving jobs."
MS. HALL, in response to a question from Representative Ramras
regarding the current workers' compensation system, expressed
her opinion that the state does not "take the best care" of its
injured workers, adding that there is "a long way to go." She
opined that having the highest premiums does not necessarily
mean the state has "the very best system."
4:00:07 PM
CHAIR OLSON requested that the most recent report of the
National Council on Compensation Insurance (NCCI) be distributed
to the committee.
4:00:47 PM
MS. HALL, in response to a question from Representative LeDoux,
stated that she has not heard any negative feedback on the
[Workers' Compensation Appeals Commission (Commission)]. Only
two of the [Commissions] decisions have been appealed. In
regard to the aforementioned 10 percent average rate decrease,
she explained that depending on the category, certain rates went
up, while others went down. She gave a brief breakdown of the
most significant decreases and increases. In response to
questions, she offered the rate increases for previous years.
She explained that homebuilders have a variety of
classifications, and offered to provide this information to the
committee. Workers' compensation is a residual market, and
offers coverage in a "high-risk pool." She gave a brief history
of the aforementioned high-risk pool, and surmised that 85
percent of these policies are under $10,000 in premium.
4:04:27 PM
MS. HALL, in response to an additional question, opined that
some employers will continue to require that workers become
independent contractors as long as workers' compensation rates
remain high. However, the rates remain the same, regardless of
who is paying.
4:07:37 PM
MS. HALL went on to discuss health insurance. New companies are
writing business in Alaska, although cost remains an issue. In
response to a question from Representative Gatto regarding
workers' compensation, she explained that general contractors
[are responsible for ensuring that the employees of
subcontractors are covered].
REPRESENTATIVE RAMRAS offered a scenario involving a
construction worker who is injured while working under his or
her fifth employer and years later caused to retire [due to the
aforementioned injury]. He inquired as to who must take on the
responsibility of the injured worker.
MS. HALL replied that she is unable to answer this question, as
it is "fact-specific" case. Returning to health insurance in
Alaska, she explained that the Division has primary oversight of
40 percent of those insured. The remaining 60 percent are not
required to follow mandates set by the Division. She then
discussed homeowner and earthquake coverage. In response to a
question, she offered her understanding that "earthquake zones"
may affect coverage rates.
4:13:49 PM
MS. HALL, in response to a question from Representative Buch,
offered her understanding that insurance companies follow
different guidelines, and therefore some may be unwilling to
write insurance for more remote areas, or may have structural
prohibitions.
CHAIR OLSON commented that bush fires are often "total losses,"
[which may deter insurance companies from covering those who
live in remote areas].
4:15:11 PM
MS. HALL then discussed solvency. She opined that this is the
primary function of the Division. Referring to a 2003 workers'
compensation insolvency, she explained how the Division
recovered from a failure of the guarantee fund.
4:19:41 PM
MS. HALL went on to say that the guarantee fund is "adequate,"
although may not cover the maximum liability. The surcharge was
increased from two to four percent, which is a burden when
combined with the cost of premiums.
4:23:17 PM
MS. HALL, in response to a question from Representative Neuman
regarding the claims process for workers' compensation, stated
that she does not oversee the Division of Workers' Compensation.
She offered her understanding that first, the injured employee
notifies his or her employer. The employer then notifies the
insurance company, as well as the Department of Labor &
Workforce Development (DLWD). The insurance company then
investigates and takes over for the employer. There are time
limits for payment of lost wages and medical bills. If there is
a dispute, this is turned in to the Workers' Compensation Board.
4:29:03 PM
REPRESENTATIVE RAMRAS, in regard to the aforementioned guarantee
fund failure, said "the fact that remains, is that you and your
stewardship at the Division of Insurance saved our [workers'
compensation] system from going off the cliff. ... You should
get a great deal of credit for that. It was a job well done."
4:30:16 PM
MS. HALL said "I very much appreciate the comments. It was a
legislative effort by a number of people. ... I certainly can't
take credit for that by myself."
REPRESENTATIVE BUCH expressed concern regarding the current
system. He opined that recent changes are "worthy of careful
consideration."
MS. HALL replied that these concerns are well-founded. She said
"I would like to think there are some things that are changing,
but I think it's too soon to tell that."
4:32:38 PM
REPRESENTATIVE GATTO pointed out that both private enterprise
and government suffered from the failure of the guarantee fund.
He questioned how much evaluation can be done in order to avoid
this in the future.
MS. HALL opined that all parties involved are carefully
considering these concerns. In response to further questions,
she explained that if the Division suspects that a company is
under-funded, it may prevent the company from operating in the
state. The Division may also perform a "targeted market conduct
examination," in order to determine whether ratings and filings
are appropriate.
CHAIR OLSON requested a comparison between the insolvency of an
insurance company that is domiciled in Alaska and a company that
is not, specifically related to workers' compensation.
4:35:39 PM
MS. HALL replied that the Division oversees those companies
domiciled in Alaska and provides "sufficient oversight."
However, it does not regulate those headquartered out-of-state,
relying on the local regulatory agency to oversee these
companies. She said "we have more control over a company that
[is domiciled in Alaska]."
CHAIR OLSON, in regard to the company involved in the
aforementioned workers' compensation insolvency, pointed out
that the company in question was domiciled in California.
MS. HALL commented that the as a result of the insolvency, the
state of California loaned the guarantee fund $5 million, which
has since been repaid.
4:37:45 PM
REPRESENTATIVE LEDOUX asked if the Division has the authority to
require insurance companies to post a bond ensuring solvency.
MS. HALL replied no.
REPRESENTATIVE LEDOUX inquired as to whether the Division would
require this, if given the authority.
MS. HALL replied that this would need further consideration. In
response to an additional question, she stated that she is not
aware of any states that require this type of bond. Moving on
to Regulatory Modernization, she explained several changes have
been made in an effort to "make [Alaska] an easier place to do
business." She explained the "interstate compact," which allows
life insurance companies to make filings in a centralized
location. The Division has created "file and use" forms, in
addition to an internal information technology (IT) project, to
streamline the process of business with the Division. Finally,
the Division offers electronic licensing.
MS. HALL went on to discuss regulatory issues. Recent
legislation limited the surrender charges on annuities sold to
seniors, as well as suitability regulations. The disciplinary
concerns include unlicensed activity. She added that the
Division may revoke licenses for statutory violations, and
relayed a story of a recent revocation. License revocations are
reported to a national database. Finally, the state is involved
in several multi-state investigations and consent orders.
4:43:26 PM
MS. HALL, in regard to credit scoring, stated that she does not
have an update. She opined that Alaska has "one of the more
stringent credit scoring statutes in the country." The state is
currently before the Supreme Court regarding a credit score
interpretation done by the Division, and will not have an update
until the decision is known. In response to questions, she
explained that a correlation has been shown between an
individual's credit score and the number of insurance claims.
Individuals with lower credit scores are more likely to have an
insurance claim, she said. Consequently, an individual with a
higher credit score and a poor driving record will still have a
better insurance premium.
Chair Olson commented that the reason for this correlation is
not known, and this has raised discrimination concerns.
MS. HALL, in response to additional questions, stated that
credit scoring does work, although the reason is unknown. While
credit scoring is allowed, concerns have been raised, and
certain limitations apply. This is not a new practice, she
said. She explained that several variables are taken into
consideration when underwriting insurance, such as age,
location, and type of car; however, this is not "credit
scoring." The formula used for home loans is not the same as
that used for insurance purposes.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:48:02 PM.
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