Legislature(2015 - 2016)BELTZ 105 (TSBldg)
04/11/2015 11:00 AM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB149 | |
| SB58 | |
| SB107 | |
| SB99 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 149 | TELECONFERENCED | |
| += | SB 58 | TELECONFERENCED | |
| *+ | SB 107 | TELECONFERENCED | |
| += | SB 99 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 107-INSURANCE; RISK MG'T; HOLDING COMPANIES
1:07:04 PM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of SB 107. "An Act relating to insurance; relating
to risk based capital for domestic insurers and fraternal
benefit societies, including provisions related to insurers
subject to risk based capital and action level event
requirements; relating to review by the director of insurance of
an insurer's risk based capital plan; relating to
confidentiality and sharing of certain information submitted to
the director of insurance; relating to evaluating an insurance
holding company and the acquisition of control of or merger with
a domestic insurer; relating to risk based capital, risk
management, and own risk and solvency assessments of insurers;
clarifying provisions related to risk based capital plans;
relating to exemptions by the director of insurance for certain
domestic and casualty insurers from risk based capital
requirements; relating to insurance holding companies, including
filing requirements, divestiture, content of statements,
notifications, and hearings; relating to registration
requirements of insurers; relating to transactions within an
insurance holding company system or transactions involving a
domestic insurer; relating to management and examination of
domestic insurers that are part of an insurance holding company
system; adding provisions relating to participation by the
director of insurance in a supervisory college; relating to
civil and criminal penalties for violations by insurers and
individuals; relating to provisions for risk management and own
risk and solvency assessments by insurers; relating to operating
requirements for controlling insurance producers; relating to
producer-controlled insurers; adding and amending definitions
related to insurers; and providing for an effective date." She
noted that this was the first hearing.
1:07:40 PM
WESTON EILER, Aide to the Senate Labor and Commerce Committee,
introduced SB 107 on behalf of the Labor and Commerce Committee
speaking briefly to the following sponsor statement:
The primary focus of the finance section of the
Division of Insurance is the financial regulation of
domestic and foreign insurers for the benefit and
protection of Alaska policyholders. Requirements for
financial supervision of insurers licensed in Alaska
are imposed by Alaska statutes and regulations. Much
of the statutory framework governing this effort comes
from model laws passed by the National Association of
Insurance Commissioners (NAIC). The financial section
is unique in the Division as it is the only section
that is accredited by the NAIC. The accreditation
program provides a process whereby solvency regulation
of multi-state insurance companies can be enhanced and
adequately monitored with an emphasis on:
· Adequate solvency laws and regulations in each
accredited state to protect consumers and
guarantee funds;
· Effective and efficient financial analysis and
examination processes;
· Appropriate organizational and personnel
practices; and
· Effective and efficient process regarding the
review of organization, licensing and change or
control of domestic insurance.
Being accredited provides a means whereby other states
will accept the examinations of Alaska's multi-state
insurers; and that we can accept the examinations of
non-domestic insurers licensed to sell in Alaska from
other accredited states without having to perform our
own examinations. Alaska has seven domestic insurers
and approximately 1,100 foreign insurers.
Finally, the importance of accreditation cannot be
understated as respects our commitment to state-based
regulation. Title V of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (Dodd-
Frank), provided for the creation of the Federal
Insurance Office (FIO). The FIO's is charged with
monitoring the insurance industry (with the exception
of the health insurance industry) including
identifying activities within a sector that could
potentially contribute to a systemic crisis to the
broader financial system, the extent to which under-
served communities have access to affordable insurance
products and the sector's regulation. The FIO is
authorized to receive and collect data and information
on the insurance industry and can enter into
information sharing agreements with state regulators.
They also have the authority to require an insurer to
submit data to its office.
In 2013, the FIO released a mandated study titled "How
to Modernize and Improve the System of Insurance
Regulation in the United States". The report
acknowledges many of the strengths as well as the
successes of state-based insurance regulation.
Nonetheless, the framework has been set for federal
regulation if state-based regulation were to fail. It
is not thought that federal oversight of Alaska, or
any other states, will be in the best interest of the
states. However, the states are continually monitored
for adoption of and compliance of statutes regarding
financial solvency and other regulations promoting a
sound insurance industry that protects consumers. An
accredited state meets the criteria set by the NAIC
and accepted by the FIO.
MR. EILER deferred further introduction and explanation to Lori
Wing-Heier.
1:09:16 PM
At ease
1:11:06 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community and Economic Development (DCCED), stated she
would go through a PowerPoint presentation to frame the issue
addressed in SB 107. She said the issue of the bill relates to
the mission of the Division of Insurance, which is to regulate
the insurance industry to protect Alaskan consumers. The intent
of the bill is to ensure that the insurance companies doing
business in Alaska are solvent and whole and Alaskan consumers
are protected.
1:12:33 PM
MS. WING-HEIER spoke to the following points regarding state-
based regulation:
Unlike any other major industry, the individual state
governments are the primary regulators of the business
of insurance and are responsible for the safety and
soundness of the U.S. insurance system.
· In 1945, Congress passed the McCarran-Ferguson
Act (15 U.S.C. 1011 - 1015) which exempted: the
business of insurance from most federal
regulation. The Act provided that "[n]o Act of
Congress shall be construed to invalidate,
impair, or supersede any law by any State for
the purpose of regulating the business of
insurance, or which imposes a fee or tax upon
such business, unless such Act specifically
relates to the business of insurance."
· In the Act, Congress made clear its intent
stating that "the continued regulation and
taxation by the several States of the business
of insurance is in the public interest, and
silence on the part of Congress shall not be
construed to impose any barrier to the
regulation or taxation of such business by the
several States."
· Through the years, Congress has enacted
legislation specifically related to insurance
including flood insurance, crop insurance,
terrorism protection insurance, producer
licensing uniformity and reciprocity, uniform
standards for surplus lines eligibility and the
creation of the Federal Insurance Office (FIO)
which is, for the most part, a non-regulatory
agency.
· One of the reasons why the state-based system of
insurance regulation continues is that it has
worked.
· For example, during the 2007 - 2009 financial
crisis which hit hard the financial services
industry of which insurance is a part, the
United States Government Accountability Office,
in a 2013 report to Congress, noted "[t]he
effects of the financial crisis on insurers and
policyholders were generally limited, with a few
exceptions."
· The Independent Insurance Agents &
Brokers of America (IIABA) agreed stating in
a 2011 letter to the FIO: "Even during the
most tumultuous of times, state insurance
regulators ensure that insurers are solvent,
that claims are paid, and that consumers are
protected. IIABA remains dedicated to
preserving state insurance regulation."
MS. WING-HEIER said the McCarran-Ferguson Act put the
transaction of insurance under the states, taking it away from
federal regulation. State-based regulation holds today because
it works. An important fundamental of state-based regulation is
accreditation, which is looking for reciprocity in the solvency
standards amongst insurance companies that are domiciled in
Alaska and doing business outside Alaska or insurance companies
domiciled outside and doing business in Alaska. They are all
judged by the same standard. What this model legislation seeks
to ensure is that there is reciprocity among the statutes in the
other 55 jurisdictions - the states, territories, and the
District of Columbia.
1:15:49 PM
SENATOR ELLIS joined the committee.
SENATOR STEVENS asked if the division ensures that claims are
paid.
MS. WING-HEIER answered yes; insurance companies report in their
financials what they expect to pay and what they have paid.
She discussed the following points related to the National
Association of Insurance Commissioners:
· The National Association of Insurance
Commissioners (NAIC) is the U.S. standard-
setting and regulatory support organization
created and governed by the chief insurance
regulators from the 50 states, the District of
Columbia and five U.S. territories.
· Through the NAIC, state insurance regulators
establish standards and best practices, conduct
peer review, and coordinate their regulatory
oversight. NAIC members, together with the
central resources of the NAIC, form the national
system of state-based insurance regulation in
the U.S.
· While much of the business of insurance is local
in nature due to differences of risk and other
factors particular to a local area, the elected
or appointed state government officials who
oversee the regulation of insurance companies
and producers in their respective jurisdiction
(the members of the NAIC), recognize there often
is a need for national standards and/or
uniformity.
· The NAIC promotes national standards,
uniformity, reciprocity, and consistency at the
national level through the development of model
laws and regulations.
MS. WING-HEIER said the only time a state is required to adopt a
model is for an accreditation.
1:17:43 PM
CHAIR COSTELLO asked when the state last went through the
accreditation process.
MS. WING-HEIER replied it was in 2012 and the next accreditation
will be in 2017. A report is due in June, 2015 as to
accreditation status on the adoption of model laws.
She discussed the following points on the NAIC Model Law
Program:
· Much of the work of the NAIC is conducted through
its committees, task forces, working groups, or
subgroups and it is here where discussion most
likely begins in the consideration of a new model
law. However, these entities may not devote
resources to the actual development or drafting
of a model law unless it is determined that the
subject of the model law necessitates a minimum
national standard and/or requires uniformity
amongst all states.
· It also must be determined that the NAIC members
are committed to devoting significant regulator
and association resources to educate, communicate
and support a model that has been adopted by the
membership.
· Only model laws mandated by federal law are
exempt from these determinations.
· The model law development and drafting procedure
entails a rigorous process providing notice and
opportunity for consumer groups and industry to
comment.
· Both the parent committee with oversight for the
subject area of a model law and the entire
membership of the NAIC must adopt any proposed
model law by a two-thirds majority vote.
· The process of creating a national standard,
however, does not stop there. The decision to
implement each standard remains with the
individual states.
· Adoption of certain model laws are required if a
state insurance regulatory agency is to be
accredited under the NAIC financial regulation
standards & accreditation program.
MS. WING-HEIER relayed that Alaska sits on the Property and
Casualty Committee and the Market Regulation and Consumer
Affairs Committee. It also sits on 14 task forces, 3 liaison
committees and numerous working groups. She also vice-chairs the
American Indian and Alaska Native Liaison Committee. It's in
these committees that discussions come forward about what is
best for regulation. Once the laws come forward they have been
well vetted by all jurisdictions. They are brought out for both
industry and public comment.
1:19:03 PM
CHAIR COSTELLO asked how much time the division dedicates to the
efforts related to the NAIC.
MS. WING-HEIER replied the division tries to attend three
meetings a year. Additionally there are a lot of conference
committee calls and on occasion she'll send staff to the Kansas
City office if a new subject is coming out.
CHAIR COSTELLO asked how many other states have gone through the
process that Alaska is currently undertaking.
MS. WING-HEIER answered that all states have gone through the
process.
1:20:18 PM
MS. WING-HEIER explained that the mission of the NAIC financial
regulation standards and accreditation program is to establish
and maintain state regulator standards to promote sound
insurance company financial solvency regulation. This is a
critical function for consumer protection because an insurance
company that isn't financially solvent, cannot meet its
contractual policy obligations to pay claims in the event of a
loss.
She said the regulation and accreditations standards are
important because Alaska has about 1,100 insurance companies
that do business in the state. She continued to review the
following points:
· The accreditation program provides a process
whereby solvency regulations of multi-state
insurance companies can be enhanced and
adequately monitored.
· This is important, particularly for a small state
such as Alaska, because if another state meets
the accreditation standards of the NAIC, then
Alaska can have the confidence that insurance
companies operating here but domiciled in another
state are being adequately regulated for
financial solvency by the domiciliary state.
· Similarly, if Alaska is not accredited, other
states can no longer rely on examinations
performed by the division on insurers domiciled
here. Those insurers would become subject to
examinations by all states in which they do
business which would be a significant financial
burden.
· Alaskan consumers could be negatively impacted as
companies may decide not to operate in Alaska due
to the duplicative examination costs incurred by
operating in a non-accredited state.
1:21:22 PM
MS. WING-HEIER explained that accreditation process is for a
five-year period and the division's next full accreditation
review will be in 2017. A key component of the financial
solvency regulation accreditation review is a determination by
the NAIC accreditation review team that the state has the
necessary solvency laws and regulations to protect consumers and
guarantee funds.
She stated that the first part of the bill is about risk-based
capital (RBC), which is a method of measuring the minimum amount
of capital that is appropriate to support an insurer's overall
business operations. This surplus capital provides a cushion to
an insurer against insolvency. It is also referred to as the
insurance company's elastic measure. RBC limits the amount of
risk a company can take so a company with a higher amount of
risk has to hold a higher amount of capital.
Risk-based capital has two main components: 1) it is a formula
with an established hypothetical minimum capital level that is
compared to an insurance company's actual capital level; and 2)
the model law grants automatic authority to the state insurance
regulator to take specific actions based on the level of
impairment. The model addresses insurer reporting requirements,
the hearing process, and confidentiality concerns. It includes
provisions for exemptions, foreign insurers and immunity. The
division is updating the risk-based capital and the new
standards are effective January 1, 2016. These changes appear in
the first eight pages of the bill and amend chapter 14 in AS 21.
1:23:20 PM
MS. WING-HEIER said the second part of the bill updates the
insurance holding company chapter in AS 21 to reflect the status
or organizational structure of holding companies, and looking at
what a holding company may have besides an insurance company. If
there is more than one insurance company within that holding
company, it would be possible to see the finances of each
company to see that each can stand on its own and is not
subsidized by another company. She displayed and briefly
reviewed the following points:
· Prior to the 2010 model revisions, the model law focused on
protecting the solvency of insurers within an insurance
holding company system, by monitoring transactions between
insurers and their affiliates, dividends declared by
insurers and acquisitions of insurers.
· The model pertains to subsidiaries of insurers, acquisition
of control or merger with domestic insurers, acquisitions
involving insurers not otherwise covered, registration of
insurers, and standards and management of an insurer within
a holding company system.
· The model revisions are aimed at assessing the "enterprise
risk" within the entire insurance holding company system
(including the risk caused by non-insurer affiliates) and
determining the impact of such risk upon the solvency of
insurers within the insurance group.
· To accomplish this goal, the revisions enhance a chief
insurance regulator's ability to supervise the insurance
group by mandating reporting of information regarding the
solvency and risk of an insurer's non-insurer affiliates
and allowing examination of such entities.
· This portion of the bill incorporates changes made to Model
Law 440, Model Insurance Holding Company System Regulatory
Act.
CHAIR COSTELLO asked if the information about companies within a
holding company is sent to the division in hard copy or
available online.
MS. WING-HEIER replied there are some aspects that have to be
reported to the division. With the amendments, insurers will now
have to report to the division through a risk management
framework called an own risk solvency. The division also does
physical financial examinations of its insurers each year.
1:24:44 PM
MS. WING-HEIER discussed risk management and owner risk solvency
assessment outlined in the new chapter AS 21.23. She explained
that it puts the onus on the insurance companies to report to
the division on confidential matters involving their enterprise
risk management. She reviewed the following points:
· This new model requires insurers to maintain a risk
management framework and complete an ORSA Summary Report to
be filed with the chief insurance regulator of the
domiciliary state, unless exempt.
· The confidential filing summarizes the insurer's or group's
risk management framework, assessment of risk exposures,
group risk capital and prospective solvency assessment.
· These reports represent a proactive approach by providing
chief insurance regulators with an additional tool to
evaluate the prospective solvency of an insurer.
· This portion of the bill adopts Model Law 505, Risk
Management And Own Risk And Solvency Assessment Model Act.
CHAIR COSTELLO asked if she and the division staff sign
confidentiality agreements.
MS. WING-HEIER answered that confidentiality is built into the
insurance statutes in AS 21.06.060. The bill references the
current standards.
CHAIR COSTELLO asked how that applies to individual state
employees.
MS. WING-HEIER replied it would apply to all employees within
the division and all division contractors.
She reviewed the updates in chapter 27 relating to the operating
requirements for controlling insurance producers. She explained
that it sets out the parameters for the owner of an insurance
company who is also selling the insurance of the insurance
company. The amendments dictate when to draw the line between
the owner and agent of an insurance company. She displayed the
following points:
· There are situations in which a producer soliciting,
negotiating or procuring the making of an insurance
contract on behalf of an insured also controls directly or
indirectly the insurance company.
· In such situations, additional guidelines for business
between controlled insurers and controlling producers are
necessary for fiduciary and oversight reasons.
· This model requires specific contract provisions to be
contained in controlling producer/controlled insurer
contracts.
· This portion of the bill incorporates amendments to Model
Law 325, Business Transacted With Producer Controlled
Property/Casualty Insurer Act.
SENATOR STEVENS asked if she can deny insurance companies from
doing business in Alaska.
MS. WING-HEIER answered yes.
SENATOR STEVENS referenced her duty to protect the consumer and
asked if she looks at more than just solvency in determining
whether or not an insurance company can do business in Alaska.
MS. WING-HEIER explained that for a company to receive a
certificate of authority to conduct business within the state,
it has to meet certain financial solvency requirements. After it
is allowed to do business, it is monitored by best practices to
ensure that consumers are treated fairly.
CHAIR COSTELLO asked for the rationale for including the NAIC
model Risk Management and Own Risk and Solvency Assessment Act
in a new chapter. She asked if it was uncommon to add a new
chapter and questioned whether it was needed.
MS. WING-HEIER explained that the NAIC model law provides an
opportunity for the division as financial examiners to be
proactive looking forward 3-5 years at what an insurance company
may be planning regarding acquisitions, corporate governance and
potential growth. Under the current procedure the financial
examination is looking back, which only allows an opportunity to
be reactive. She acknowledged that while it's rare to add a new
chapter, it's not unheard of.
CHAIR COSTELLO asked if a particular situation precipitated the
change.
MS. WING-HEIER answered no and added that the new chapter was
created because it didn't particularly fit within any of the
existing chapters.
1:31:49 PM
SENATOR ELLIS asked her position on rate review authority by the
Division of Insurance.
MS. WING-HEIER replied the division has rate review authority
over most insurance products that come into the state and they
take this seriously. They have a consulting actuary and an
actuary on staff. The reviews are done very carefully and
according to a standard to ensure that the consumer isn't paying
too much or too little. "[The rate] has to come through so many
days in advance, we respond, they cannot be inadequate, they
cannot be excessive and they cannot be unfairly discriminatory."
Some people think these terms are ambiguous because it depends
on perspective, but when she looks at a rate she follows the
statute and is looking at whether it makes the company solvent
without being excessive.
SENATOR ELLIS discussed the sentiment among some legislators in
years past that previous directors of insurance did just cursory
reviews of the filings and requests from insurance companies,
particularly with regard to health insurance. He related that
several years ago he was confounded when then insurance director
Linda Hall turned down federal funds to allow states to figure
out why consumers were being charged certain rates for health
insurance. He said she may have been acting at the direction of
the governor, but it was almost willful ignorance to turn down
the ability to dig into the facts and come up with an answer for
consumers. He encouraged Ms. Wing-Heier take advantage of any
opportunity to learn the facts about why health insurance costs
in Alaska are so high.
MS. WING-HEIER said the point is well taken.
1:37:36 PM
SENATOR MEYER asked if the insurance market in Alaska is
competitive.
MS. WING-HEIER replied it is competitive in some lines of
business such as auto and homeowner, but not others. The market
in health care is limited and it is not competitive.
SENATOR MEYER asked if she gives approval when one company
transfers its customers to another because of bankruptcy, or if
it happens automatically.
MS. WING-HEIER replied the matter goes through the division but
they don't approve it. The claims go through either the
guarantee association for life and health or the guarantee
association for property and casualty. The insurance companies
and the consumers end up paying the claims of the insolvent
insurers. These provisions are in the insurance statutes.
1:39:38 PM
SENATOR GIESSEL asked her thoughts as to whether it would lower
health insurance costs if Alaskans were able to buy their health
insurance across state lines or if insurance rates are set based
on cost.
MS. WING-HEIER said she has been involved in several meetings
with the Department of Health and Social Services (DHSS),
Department of Labor and Workforce Development (DOLWD), and the
Department of Administration to look at the issue in a more
global way because it is an issue that the state faces as a
whole. It is not a silo. The cost of health care in Alaska is
very high and someone is paying for it through one program or
another.
1:41:57 PM
SENATOR ELLIS requested the committee keep track of this issue
and have an ongoing dialog with the director because this has
been a topic of concern for many years. He asked Ms. Wing-Heier
if it is her view that health insurers do not want to write
business in Alaska because it is a very small market and the
cost of health care is so high it is out of line with the rest
of the country.
MS. WING-HEIER agreed that Alaska is a small market and the
costs of health care are very high.
SENATOR ELLIS reiterated his request that the committee work
with the director to examine the reasons for the exorbitant and
escalating health care costs in Alaska that are driving both the
private market and public budgets.
CHAIR COSTELLO said she took note of the request and would
follow up.
SENATOR GIESSEL asked Ms. Wing-Heier if she was also partnering
with the health care commission, which has done studies on the
topic of health care in Alaska.
MS. WING-HEIER answered yes through the Department of Health and
Social Services.
1:44:18 PM
CHAIR COSTELLO asked if transparency can be legislated so that
consumers will know the cost of health care services when they
are shopping.
MS. WING-HEIER replied the Affordable Care Act has provisions
where the costs have to be public now. By statute rates in
Alaska have to be public the day they are effective.
1:46:47 PM
CHAIR COSTELLO related her experience calling different doctors
in Fairbanks and Anchorage to find out what it would cost to
treat a broken arm. The estimates ranged widely. She voiced
frustration on behalf of Alaskans who have no idea what the
final cost will be for a procedure and they keep getting bills
from people they didn't know had a role in the process.
MS. WING-HEIER said she'd take that under advisement.
CHAIR COSTELLO asked if she would provide a color coded
sectional showing the new chapter, the sections needed for
accreditation, the model legislation, and a combination of the
three.
MS. WING-HEIER agreed.
1:47:50 PM
CHAIR COSTELLO found no public testimony and closed it.
1:48:07 PM
CHAIR COSTELLO announced that she would hold SB 107 in committee
for further consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| CSSB 58 - Version N.pdf |
SL&C 4/11/2015 11:00:00 AM |
SB 58 |
| CSSB 58 Version N sponsor statement.pdf |
SL&C 4/11/2015 11:00:00 AM |
SB 58 |
| CSSB 58 Version N sectional.pdf |
SL&C 4/11/2015 11:00:00 AM |
SB 58 |
| SB 107.PDF |
SL&C 4/11/2015 11:00:00 AM |
SB 107 |
| SB 107 - Sponsor Statement.pdf |
SL&C 4/11/2015 11:00:00 AM |
SB 107 |
| SB 107 - Sectional Analysis.pdf |
SL&C 4/11/2015 11:00:00 AM |
SB 107 |
| SB 107 - Presentation.pdf |
SL&C 4/11/2015 11:00:00 AM |
SB 107 |
| SB 107 - Accreditation Brief.PDF |
SL&C 4/11/2015 11:00:00 AM |
SB 107 |
| SB 107 - NAIMC Support.PDF |
SL&C 4/11/2015 11:00:00 AM |
SB 107 |
| SB 107 - Financial Regulation Standards & Accreditation Program.pdf |
SL&C 4/11/2015 11:00:00 AM |
SB 107 |