Legislature(2011 - 2012)HOUSE FINANCE 519

03/22/2011 01:30 PM House FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 8 FEDERAL REGULATIONS & EXECUTIVE ORDERS TELECONFERENCED
Scheduled But Not Heard
+ HB 10 NONCOMMERCIAL TRAILER REGISTRATION FEE TELECONFERENCED
Scheduled But Not Heard
+ HB 24 EXTEND REGULATORY COMM. OF ALASKA SUNSET TELECONFERENCED
Moved CSHB 24(FIN) Out of Committee
+ HB 64 PERMANENT MOTOR VEHICLE REGISTRATION TELECONFERENCED
Scheduled But Not Heard
+ HB 97 EXTEND INVASIVE PLANTS LAW TELECONFERENCED
Moved Out of Committee
+ HB 105 SOUTHEAST STATE FOREST TELECONFERENCED
Scheduled But Not Heard
+ HB 127 CRIMES INVOLVING MINORS/STALKING/INFO TELECONFERENCED
Heard & Held
*+ HB 140 APPROP: COMMUNITY QUOTA ENTITY LOAN FUND TELECONFERENCED
Scheduled But Not Heard
+ HB 141 LOANS TO COMMUNITY QUOTA ENTITIES/PERMITS TELECONFERENCED
Scheduled But Not Heard
+ HB 147 BOARD OF PUBLIC ACCOUNTANCY SECRETARY TELECONFERENCED
Moved Out of Committee
+ HB 164 INSURANCE: HEALTH CARE & OTHER TELECONFERENCED
Heard & Held
+ HB 175 COURT APPEARANCES; ARSON; INFRACTIONS TELECONFERENCED
Heard & Held
+ SB 76 SUPPLEMENTAL/CAPITAL/OTHER APPROPRIATIONS TELECONFERENCED
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 164                                                                                                            
                                                                                                                                
     "An Act relating to insurance;  relating to health care                                                                    
     insurance,  exemption of  certain insurers,  reporting,                                                                    
     notice, and  record-keeping requirements  for insurers,                                                                    
     biographical   affidavits,   qualifications  of   alien                                                                    
     insurers assuming  ceded insurance,  risk-based capital                                                                    
     for insurers,  insurance holding  companies, licensing,                                                                    
     federal requirements for  nonadmitted insurers, surplus                                                                    
     lines  insurance,   insurance  fraud,   life  insurance                                                                    
     policies and annuity contracts,  rate filings by health                                                                    
     care  insurers,  long-term care  insurance,  automobile                                                                    
     service  corporations,  guaranty  fund  deposits  of  a                                                                    
     title   insurer,   joint  title   plants,   delinquency                                                                    
     proceedings,  fraternal   benefit  societies,  multiple                                                                    
     employer  welfare  arrangements, hospital  and  medical                                                                    
     service    corporations,    and   health    maintenance                                                                    
     organizations; and providing for an effective date."                                                                       
                                                                                                                                
3:15:37 PM                                                                                                                    
                                                                                                                                
KONRAD JACKSON, STAFF,  REPRESENTATIVE KURT OLSON, explained                                                                    
that  the Department  of Commerce,  Community, and  Economic                                                                    
Development (DCCED) was the requestor  of the bill. He added                                                                    
that the  purpose of the bill  was to clean up  language and                                                                    
terminology   related  to   insurance.   In  addition,   the                                                                    
legislation  would deal  with issues  that  would bring  the                                                                    
state into compliance with federal regulations.                                                                                 
                                                                                                                                
LINDA HALL,  DIRECTOR, DIVISION OF INSURANCE,  DEPARTMENT OF                                                                    
COMMERCE,  COMMUNITY,  AND ECONOMIC  DEVELOPMENT,  explained                                                                    
that HB 164  was long; some of the items  were required, and                                                                    
some represented  streamlining activities that  would update                                                                    
consumer protections. She explained  the subject grouping in                                                                    
the bill and her intent to provide an overview by section.                                                                      
                                                                                                                                
Ms. Hall began with Section  1, which covered a small change                                                                    
in statute (also  reflected in Section 22)  that would allow                                                                    
insurance  companies selling  group insurance  to be  exempt                                                                    
from the  state's licensing statutes  if they had  less than                                                                    
$50,000  in premiums.  For example,  one company  (the Texas                                                                    
Health  Insurance Policy)  was  headquartered  in Texas  and                                                                    
covered  five  employees in  Alaska;  the  division did  not                                                                    
think it necessary for the  company to go through the entire                                                                    
licensing process  to get a  certificate of authority  to be                                                                    
able to  continue to  write health  insurance for  only five                                                                    
employees.                                                                                                                      
                                                                                                                                
Ms.  Hall  informed  the   committee  that  the  terminology                                                                    
section was  intended to bring various  Alaska statutes into                                                                    
conformity with  each other. The term  "managed care entity"                                                                    
would be taken  out and replaced with  "health care insurer"                                                                    
throughout the following 21 sections.  She detailed that the                                                                    
term "managed  care" was  only found  in AS  21.07; changing                                                                    
the   terminology   would   reduce  confusion   and   create                                                                    
consistency.                                                                                                                    
                                                                                                                                
3:19:38 PM                                                                                                                    
                                                                                                                                
Ms.  Hall  directed  attention   to  pages  15  through  22,                                                                    
containing  a  variety  of   technical  changes  related  to                                                                    
solvency  oversight. She  described the  primary mission  of                                                                    
the  Division  of Insurance  as  solvency  oversight of  the                                                                    
insurance  companies  doing  business   in  the  state.  The                                                                    
division's  general philosophy  was  that if  there was  not                                                                    
money to  pay a claim when  a consumer had one,  the rest of                                                                    
it did not  matter. Other things (such  as measuring capital                                                                    
and risk) followed solvency.                                                                                                    
                                                                                                                                
Ms.  Hall  referred  to  sections   in  which  the  National                                                                    
Association  of  Insurance   Commissioners  model  laws  had                                                                    
changed.  The   current  issue  was   "risk-based  capital";                                                                    
instead of a  formula for determining the  amount of capital                                                                    
and surplus, there  was a different type  of evaluation that                                                                    
dealt  with the  risk taken  by companies.  She referred  to                                                                    
past  investments in  sub-prime  mortgages;  these would  be                                                                    
considered "high-risk," and would not be allowed.                                                                               
                                                                                                                                
Ms. Hall  pointed that  there were  very different  types of                                                                    
risk. For  example, there  were insurance  companies dealing                                                                    
with  earthquake insurance,  and others  dealing with  brick                                                                    
dwellings in the  middle of the country and not  on a fault.                                                                    
Much  of  the  language  in HB  164  dealt  with  risk-based                                                                    
capital  and  changes in  the  way  that was  evaluated.  In                                                                    
addition,  the  bill  would  increase  the  level  at  which                                                                    
regulators took action from 250 percent to 300 percent.                                                                         
                                                                                                                                
Ms.  Hall  noted that  some  of  the sections  required  the                                                                    
reporting of electronic mailing  addresses. She reminded the                                                                    
committee  about a  past discussion  about how  the division                                                                    
communicated  with those  it regulated;  it  was allowed  to                                                                    
collect electronic mailing address so  that it could be more                                                                    
efficient   in   its  communications.   Record   maintenance                                                                    
requirements would also be made more stringent.                                                                                 
                                                                                                                                
Ms.  Hall  pointed  out  that the  division  tried  to  meet                                                                    
national  standards  set  by  the  National  Association  of                                                                    
Insurance Commissioners so  that financial examinations were                                                                    
capable of being used by other states.                                                                                          
                                                                                                                                
3:23:13 PM                                                                                                                    
                                                                                                                                
Ms. Hall  turned to the  section labeled  "Licensing," which                                                                    
would streamline  the way the  state licensed  agents. There                                                                    
would  no  longer be  an  individual  or firm  license;  the                                                                    
license  would   belong  to  the   individual  and   if  the                                                                    
individual  changed employment,  the license  would go  with                                                                    
them.  The  need   to  report  to  the   division  would  be                                                                    
eliminated if the  individual turned in the  license and got                                                                    
a  new  one.  The  process would  save  work  and  eliminate                                                                    
penalties for  not doing  things in  a timely  fashion. Both                                                                    
the  way the  division  licensed and  the  very complex  fee                                                                    
structure would be changed.                                                                                                     
                                                                                                                                
Ms.  Hall  continued  that  the  statute  would  require  an                                                                    
employment  contract so  the individual  agent working  in a                                                                    
firm could  operate under the appointments  by the insurance                                                                    
companies that the firm was  allowed to do business with. In                                                                    
addition, the fiduciary accounts and records could be used.                                                                     
                                                                                                                                
Ms.  Hall highlighted  Section 38,  which  would remove  the                                                                    
requirement that  non-residents be fingerprinted.  She noted                                                                    
that there was a national  standard to no longer fingerprint                                                                    
agents to  be in compliance  with a federal law  (the Gramm-                                                                    
Leach-Bliley Act). The statute  would still require the firm                                                                    
to be responsible for the  individuals working under it, but                                                                    
the  individual  agents  would have  more  flexibility.  The                                                                    
streamlining  of  agent  licensing  would  allow  people  to                                                                    
conduct business in a more efficient manner.                                                                                    
                                                                                                                                
Representative  Wilson asked  for  clarification related  to                                                                    
resident and non-resident fingerprinting.                                                                                       
                                                                                                                                
Ms. Hall  responded that a non-resident  individual would be                                                                    
fingerprinted   in  their   home   state.   The  issue   was                                                                    
reciprocity;   there  was   a  national   standard  of   not                                                                    
fingerprinting.                                                                                                                 
                                                                                                                                
Representative  Wilson  asked  whether there  was  a  reason                                                                    
Alaska required fingerprinting.                                                                                                 
                                                                                                                                
Ms.  Hall replied  that  she  did not  know  the reason  for                                                                    
fingerprinting,  as it  pre-dated  her (she  had been  doing                                                                    
insurance business in  Alaska for over 20  years). She added                                                                    
that  the   general  idea  across   the  country   was  that                                                                    
background  checks included  questions about  convictions of                                                                    
felonies;  one  of  the  standard   criteria  to  become  an                                                                    
insurance agent was trustworthiness.                                                                                            
                                                                                                                                
3:27:12 PM                                                                                                                    
                                                                                                                                
Representative Wilson expressed  concerns about the section.                                                                    
She  did not  want people  to be  fingerprinted in  order to                                                                    
prove trustworthiness. She wanted  to know where the section                                                                    
came from.  She did  not think it  was a  national standard,                                                                    
since only 24 states required fingerprinting.                                                                                   
                                                                                                                                
Representative Guttenberg  pointed out  that the  bill could                                                                    
easily  have  said  that  agents were  not  required  to  be                                                                    
fingerprinted if  they were  fingerprinted in  another state                                                                    
where  their  jurisdiction was,  since  less  than half  the                                                                    
states required fingerprinting. He  thought there were three                                                                    
different  things  going  on in  the  section:  meeting  the                                                                    
national  standard  of  the  insurance  commissioners,  some                                                                    
federal law  issues, and the division's  recommendations for                                                                    
changes  in   statute.  He  wondered  whether   three  bills                                                                    
conforming to three different things would have helped.                                                                         
                                                                                                                                
Representative  Guttenberg asked  that the  three categories                                                                    
be delineated, if the bill was not held over.                                                                                   
                                                                                                                                
Ms.  Hall replied  that  the fingerprinting  was  part of  a                                                                    
national  standard;   all  states  did   background  checks,                                                                    
although  they  might  not  go  so  far  as  doing  them  by                                                                    
fingerprinting. She  maintained that the state  would not be                                                                    
in compliance  with some  of the  national standards  if the                                                                    
fingerprinting provision was changed.                                                                                           
                                                                                                                                
Ms.  Hall noted  that  there were  different  levels in  the                                                                    
bill.  There were  changes in  federal  law that  had to  be                                                                    
complied   with.  There   were   changes  in   accreditation                                                                    
standards. There  were also  things she  would like  to see,                                                                    
such as  the streamlining  of agent licensing.  In addition,                                                                    
there  was the  section  on  long-term-care statutes,  which                                                                    
were  20 years  old  and did  not  reflect the  marketplace.                                                                    
There were consumer items that  were not required by federal                                                                    
law  or accreditation  standards; however,  her goal  as the                                                                    
director  of   the  division  was  protections   for  Alaska                                                                    
consumers.                                                                                                                      
                                                                                                                                
Ms. Hall acknowledged  that all the various  pieces had been                                                                    
gathered  together in  one bill.  She noted  that there  had                                                                    
been significant  discussion about  whether to  separate the                                                                    
issues into  multiple bills. She  said that the  decision to                                                                    
have   one  bill   had  been   made   in  conjunction   with                                                                    
Representative Olson.                                                                                                           
                                                                                                                                
3:31:35 PM                                                                                                                    
                                                                                                                                
Ms. Hall  stated that  she could probably  make HB  164 into                                                                    
four bills on different topics.                                                                                                 
                                                                                                                                
Representative   Wilson   clarified   that   she   supported                                                                    
background   checks,    but   questioned   the    need   for                                                                    
fingerprinting.   She   queried   the  extent   of   federal                                                                    
requirements.                                                                                                                   
                                                                                                                                
Ms.  Hall  replied  that  federal   law  did  not  call  for                                                                    
fingerprinting, but the national  standards had been adopted                                                                    
as  the goal  for how  all states  should do  the background                                                                    
check. House  Bill 164 would not  add fingerprinting; Alaska                                                                    
had been fingerprinting  for at least 24 years.  She did not                                                                    
know why the requirement had started, but it was very old.                                                                      
                                                                                                                                
Representative Wilson  did not think "we've  always done it"                                                                    
was a  good enough reason.  She thought the  requirement for                                                                    
fingerprinting needed  to be  taken out  of the  bill unless                                                                    
there was a good justification for it.                                                                                          
                                                                                                                                
Representative  Doogan   queried  the  state's   reason  for                                                                    
fingerprinting.  He  wanted  to check  his  assumption  that                                                                    
people's identities were checked  because they handled money                                                                    
and Alaska wanted  to know whether they had  been in trouble                                                                    
in some other state.                                                                                                            
                                                                                                                                
Ms. Hall  responded that the  reason for  fingerprinting was                                                                    
indeed related to handling money,  but that was not the only                                                                    
reason for  it. She  referred to the  example of  a licensee                                                                    
who  had  issued  false  insurance  certificates  to  people                                                                    
without  collecting money  (although  that  had happened  as                                                                    
well); there were various types  of crimes of fiduciary lack                                                                    
of responsibility.  She noted that  there was a  federal law                                                                    
requiring any felon  working in any aspect  of the insurance                                                                    
business (even in the mailroom) to apply to the division.                                                                       
                                                                                                                                
3:35:19 PM                                                                                                                    
                                                                                                                                
Ms. Hall  stated that fingerprinting  seemed to  help people                                                                    
remember  that  they  had  a  felony  in  their  background,                                                                    
although  that was  not  common in  Alaska.  She added  that                                                                    
there  was a  national database  with the  information about                                                                    
felons. The state checked license actions in the same way.                                                                      
                                                                                                                                
Vice-chair  Fairclough  pointed to  page  25  and asked  for                                                                    
information  about  the   new  section  allowing  employment                                                                    
contracts.                                                                                                                      
                                                                                                                                
Ms.  Hall   answered  that  the   state  would   require  an                                                                    
employment  contract.  When the  state  changed  the way  it                                                                    
licensed (no longer  had individuals in a  firm license), it                                                                    
would require that a firm  had a contract with the employees                                                                    
who  would  work  under  the  firm  license  and  under  the                                                                    
appointment  with   the  insurance  company.  Many   of  the                                                                    
agencies   that  did   business   in   Alaska  were   called                                                                    
"independent  agencies"  with   appointments  with  multiple                                                                    
insurance companies.  She referred  to Alaska  National, the                                                                    
largest  insurance  company  headquartered  in  Alaska.  She                                                                    
described  a  possible   situation  involving  an  insurance                                                                    
agency with  an appointment  with insurance company  A (such                                                                    
as  Alaska National).  The individuals  working in  the firm                                                                    
would use  the appointment  to transact business;  they were                                                                    
enabled to write business under  the appointment held by the                                                                    
firm.  She  added  that  the  insurance  companies  did  not                                                                    
normally  appoint individuals  in such  cases. For  example,                                                                    
Marsh  (a   large  brokerage  in  Anchorage)   probably  had                                                                    
appointments  with  45 companies  and  50  to 70  employees;                                                                    
those  employees   could  transact  business  with   the  45                                                                    
companies because  of the  single appointment.  The division                                                                    
wanted  there to  be  a connection  so  that the  individual                                                                    
agent could  work under the  appointment, the  records could                                                                    
be considered theirs, and the  accounting of monies could be                                                                    
shared.                                                                                                                         
                                                                                                                                
3:38:45 PM                                                                                                                    
                                                                                                                                
Vice-chair  Fairclough summarized  that the  appointment was                                                                    
the contract  between an insurance agency  and someone being                                                                    
insured.                                                                                                                        
                                                                                                                                
Ms.  Hall corrected  her; the  appointment  was between  the                                                                    
insurance  company  and the  agency  that  would sell  their                                                                    
product.  The employment  contract  was  between the  agency                                                                    
selling  the product  and the  individual agent  working for                                                                    
the firm.                                                                                                                       
                                                                                                                                
Vice-chair Fairclough  had questions related to  payroll and                                                                    
accounting, but she said she was totally confused.                                                                              
                                                                                                                                
Ms. Hall  explained that the  appointment was  between those                                                                    
offering a product  and the agency selling  the product. The                                                                    
consumer would buy  the product from the  agency selling the                                                                    
product; the consumer did not  buy the product directly from                                                                    
the insurance company offering the product.                                                                                     
                                                                                                                                
Vice-chair   Fairclough   questioned  how   the   employment                                                                    
contracts  were handled  related  to  payroll. She  wondered                                                                    
whether an employment contract could  shelter an agency from                                                                    
a wrongdoing by  the employee, whether they  were handled as                                                                    
employees or contracts.                                                                                                         
                                                                                                                                
Ms.  Hall replied  they  were handled  as  an employee;  the                                                                    
contract  was  not  intended to  make  them  an  independent                                                                    
contractor.                                                                                                                     
                                                                                                                                
Vice-chair  Fairclough  asked  whether  the  contract  would                                                                    
provide protection from liability  because of an independent                                                                    
employment contract  with the person selling  the product to                                                                    
the consumer.                                                                                                                   
                                                                                                                                
Ms. Hall  replied in  the negative. She  pointed to  page 25                                                                    
(d), which stated  that a firm would be  responsible for the                                                                    
actions and  the individual transacting insurance  under the                                                                    
firm's  employment;  the  intent  was that  the  firm  would                                                                    
continue  to be  responsible for  the actions  of the  agent                                                                    
working  under   the  contract.  She  emphasized   that  the                                                                    
contract   was    not   a   shelter   from    liability   or                                                                    
responsibility.                                                                                                                 
                                                                                                                                
Ms. Hall continued  her review of the  legislation with what                                                                    
she felt  was the most important  section of the bill.   She                                                                    
relayed that in  June 2010, a federal law  was passed called                                                                    
the Non-admitted  and Reinsurance Reform Act.  The law dealt                                                                    
with  the  premium  tax  of  non-admitted  or  surplus-lines                                                                    
insurance.  She  detailed  that there  were  two  ways  that                                                                    
insurance companies  wrote business. The  first, traditional                                                                    
way  (pertaining to  90 percent  of  Alaskan insurance)  was                                                                    
selling  as  an  admitted  insurer  with  a  certificate  of                                                                    
authority to operate in the state; premium tax was paid.                                                                        
                                                                                                                                
3:42:50 PM                                                                                                                    
                                                                                                                                
Ms.  Hall  continued  that the  state  collected  about  $50                                                                    
million in  premium tax  and about $47  million of  that tax                                                                    
was from the  admitted insurance market. The  second way was                                                                    
called   non-admitted  or   surplus-lines  insurance;   this                                                                    
pertained to  insurers who  decided they  did not  do enough                                                                    
business  in Alaska  to go  through the  rigors of  becoming                                                                    
licensed  and having  forms and  rates approved.  The second                                                                    
group  of   insurers  did   business  through   a  brokerage                                                                    
arrangement;  the brokerage  paid the  premium tax  for $3.5                                                                    
million worth of  business. The federal law  referred to the                                                                    
second type of  business, surplus lines. The  second type of                                                                    
business was  regulated differently, was not  covered by the                                                                    
guarantee fund disclaimers, and was sold differently.                                                                           
                                                                                                                                
Ms. Hall  detailed that  the federal law  passed in  June of                                                                    
2010 pre-empted  the states  to the  extent of  changing the                                                                    
way  the state  could collect  the premium  tax. Instead  of                                                                    
being collected  only for the  portion of  the (multi-state)                                                                    
risk in  Alaska, each  state needed  to pass  legislation to                                                                    
collect 100 percent  of the premium tax for  a company whose                                                                    
home state was Alaska.                                                                                                          
                                                                                                                                
Ms. Hall  gave the  example of  a cruise-ship  business that                                                                    
was headquartered in California but  had risk in the form of                                                                    
lodges  and docks  in  Alaska. A  portion  of the  company's                                                                    
insurance risk  was in Alaska. Alaska  would collect premium                                                                    
tax on  the pieces of  property or liability risk  that were                                                                    
in  Alaska.  Under the  new  federal  law, California  would                                                                    
collect  100  percent of  the  premium  tax. Therefore,  the                                                                    
federal law encouraged  the states to either  join a compact                                                                    
or to find some other  procedure of collecting the taxes and                                                                    
re-allocating them back  to the states. The  taxing rate was                                                                    
not changed and  a company would pay the same  amount of tax                                                                    
if  its home  state was  Alaska, but  would pay  all of  the                                                                    
taxes to Alaska.                                                                                                                
                                                                                                                                
Ms.  Hall  emphasized that  the  federal  law intended  each                                                                    
state to  adopt uniform  forms and procedures  for reporting                                                                    
the collection and allocation of the premium tax.                                                                               
                                                                                                                                
3:46:20 PM                                                                                                                    
                                                                                                                                
Ms.  Hall informed  the committee  that the  section of  the                                                                    
bill from  pages 27 to 37  would change how the  state would                                                                    
collect  tax and  would  authorize the  director  to join  a                                                                    
clearinghouse. She  referred to significant  national debate                                                                    
on the  best way  to implement  the federal  law. Regulators                                                                    
formed an implementation taskforce  and studied various ways                                                                    
to  implement the  law,  including  asking legislatures  for                                                                    
authority to join a compact,  keeping whatever the state was                                                                    
entitled  to  keep,  or  asking  for  authority  to  join  a                                                                    
clearinghouse.                                                                                                                  
                                                                                                                                
Ms. Hall pointed out that  there were perimeters in the bill                                                                    
that  would protect  the revenue  stream,  which was  fairly                                                                    
small for Alaska; of the  roughly $50 million of premium tax                                                                    
collected  in  the  state,  the  number  was  probably  $0.5                                                                    
million.                                                                                                                        
                                                                                                                                
Ms. Hall noted  that the section on surplus  lines needed to                                                                    
be changed  to achieve compliance  with the federal  law; it                                                                    
also needed  an adoption of  the definition of  "home state"                                                                    
so that Alaska  could collect 100 percent of the  tax of any                                                                    
company that happened to be  a multi-state company domiciled                                                                    
in  Alaska. The  bill  would then  allow  the allocation  of                                                                    
taxes  and authorize  the division  to join  a clearinghouse                                                                    
operation (a  streamlined way  of collecting  and disbursing                                                                    
the taxes).                                                                                                                     
                                                                                                                                
Ms.  Hall  added  that  the   division  already  had  taxing                                                                    
authority  and  collected  premium  tax;  it  was  not  done                                                                    
through the  Department of Revenue. Therefore,  the taxation                                                                    
issue was not  new authority. She noted  that the perimeters                                                                    
of the clearinghouse were very small.                                                                                           
                                                                                                                                
3:49:10 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:51:58 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Vice-chair Fairclough OPENED public testimony.                                                                                  
                                                                                                                                
STEVE  STEPHAN, DIRECTOR  OF GOVERNMENT  RELATIONS, NATIONAL                                                                    
ASSOCIATION   PROFESSIONAL   SURPLUS   LINES   OFFICE   (via                                                                    
teleconference),  testified  both  in   support  of  and  in                                                                    
opposition  to  HB  164.  He  explained  that  the  National                                                                    
Association  Professional  Surplus   Lines  Office  (NAPSLO)                                                                    
supported the proposed  provision to tax 100  percent of the                                                                    
in-state risk. The association opposed  the part of the bill                                                                    
that would  delegate authority to the  commissioner to enter                                                                    
into an  interstate compact or  agreement. He felt  that the                                                                    
agreement that had been drafted  was too burdensome a method                                                                    
of  collecting   taxes  and  would  require   numerous  data                                                                    
elements and  the construction of  a bureaucracy  to collect                                                                    
the  taxes.  He  emphasized  that there  would  be  30  data                                                                    
elements for  each policy,  which would  need to  be entered                                                                    
before inputting data to allocate taxes.                                                                                        
                                                                                                                                
Mr. Stephan  continued that  NAPSLO was  not opposed  to the                                                                    
states trying  to share taxes  with each other, but  he felt                                                                    
the  burden would  fall on  the broker.  He stated  that the                                                                    
association  would support  a method  of sharing  taxes that                                                                    
did not burden the broker.                                                                                                      
                                                                                                                                
Mr. Stephan reported  that part of the concern  was that the                                                                    
computation  of casualty  risks  would be  required for  the                                                                    
first time,  which added a  whole new burden on  the broker.                                                                    
Currently,  brokers did  not  typically  divide things  like                                                                    
director  officer's insurance,  umbrella, and  excess; those                                                                    
types  of risks  were usually  considered home-state  risks.                                                                    
The  agreement   known  as  the   non-admitted,  multi-state                                                                    
agreement would  require the  broker to  input all  the data                                                                    
for the first time for the purpose of trying to pay taxes.                                                                      
                                                                                                                                
Mr.   Stephan  added   that  there   was  a   concern  about                                                                    
legislative  transparency;  NAPSLO  believed  the  agreement                                                                    
would  change  the   tax  laws  of  the   state.  An  Alaska                                                                    
corporation  with sales  in Florida  would be  taxed at  the                                                                    
higher  Florida  rate  (in  excess of  10  percent);  a  tax                                                                    
increase would  have to  be levied  on some  policy holders.                                                                    
The details of the agreement would  also have to do with the                                                                    
amount of  Alaska tax  revenue that would  be sent  to other                                                                    
states. The  association believed those things  should be in                                                                    
a  statute   so  that  brokers,  policy   holders,  and  the                                                                    
brokerage insurance community could  see and understand what                                                                    
the arrangement was.                                                                                                            
                                                                                                                                
3:56:19 PM                                                                                                                    
                                                                                                                                
Mr.  Stephan  continued that  the  admitted  side (where  89                                                                    
percent  of  the business  was  written)  generally did  not                                                                    
attempt to allocate things like  health care; the allocation                                                                    
effort was  focused on  the small  segment of  the insurance                                                                    
community.                                                                                                                      
                                                                                                                                
Mr. Stephan pointed  out that in general,  the vast majority                                                                    
of policies  in a  normal state were  single-state policies;                                                                    
most of the policies would  be taxed by Alaska currently and                                                                    
would be taxed  by Alaska following the  introduction of the                                                                    
legislation. In  a normal state,  the amount might be  90 to                                                                    
95 percent;  Alaska would  be different  because it  did not                                                                    
border other  states. Multi-state  risks would  be difficult                                                                    
because contractors  and others  could not easily  move from                                                                    
state to  state. He guessed  that the amount  of multi-state                                                                    
risk written in Alaska would be very small.                                                                                     
                                                                                                                                
Mr.  Stephan concluded  with  concerns  about the  long-term                                                                    
viability of  an agreement between  the states to  share tax                                                                    
revenue, because  a state would  normally object  to putting                                                                    
more money  into a system  than it  got back out,  and would                                                                    
drop  back  out. The  concern  was  that the  difficult  and                                                                    
burdensome system  for the  broker would  be built  and then                                                                    
fall  apart shortly  afterwards because  any state  that put                                                                    
more money  in than it got  back out would drop  back out of                                                                    
the system.                                                                                                                     
                                                                                                                                
Vice-chair Fairclough  asked Mr. Stephan for  a written copy                                                                    
of his comments.                                                                                                                
                                                                                                                                
Mr.  Stephan   agreed  to   supply  written   testimony  the                                                                    
following day.                                                                                                                  
                                                                                                                                
Ms. Hall  commented that the  goal of the national  group of                                                                    
insurance regulators was not to  create an additional burden                                                                    
on  the brokers.  She referred  to  the National  Interstate                                                                    
Fuel   Tax  Agreement   (NIFTA),   which  the   Non-admitted                                                                    
Insurance  Multi-State Agreement  (NIMA) was  modeled after;                                                                    
it was  a simplified  way of  allocating collected  tax. She                                                                    
stated that there would be no change in the tax rate.                                                                           
                                                                                                                                
Ms.  Hall  added  that  she   strongly  disagreed  with  Mr.                                                                    
Stephan's  statement that  Alaskans  would be  taxed at  the                                                                    
Florida tax rate.  She said that everyone would  be taxed at                                                                    
the individual  state tax rate  that they currently  had. An                                                                    
Alaskan company  headquartered in  Alaska with a  $5 million                                                                    
building  in Tampa  (Florida) would  currently  be taxed  at                                                                    
Florida rates on  the building and taxed at  Alaska rates on                                                                    
the rest of the account; that  would not change with HB 164.                                                                    
She  emphasized that  the  legislation  clearly spelled  out                                                                    
that the  tax rates of  each state  would be applied  to the                                                                    
portion  of  the risk  in  that  state. She  disagreed  that                                                                    
Alaska  did  not allocate  casualty;  she  had checked  with                                                                    
commercial brokers,  who told her that  they allocated their                                                                    
casualty account when doing multi-state accounts.                                                                               
                                                                                                                                
Vice-chair Fairclough  requested that the  written testimony                                                                    
submitted by  Mr. Stephan include specific  page and section                                                                    
numbers in the legislation so that Ms. Hall could respond.                                                                      
                                                                                                                                
4:00:21 PM                                                                                                                    
                                                                                                                                
Representative  Gara  asked  how   many  other  states  were                                                                    
dealing  with the  provision  in the  manner  Mrs. Hall  had                                                                    
recommended it be dealt with.                                                                                                   
                                                                                                                                
Ms. Hall responded that at  last count, there were 17 states                                                                    
that had  introduced the type of  legislation represented in                                                                    
HB   164;   another   14   were   contemplating   the   same                                                                    
clearinghouse arrangement.  There were about 10  states that                                                                    
had introduced a compact-type of  legislation, 5 states that                                                                    
had  both,  and 11  states  were  still thinking  about  the                                                                    
issue. She  emphasized that a  far greater number  of states                                                                    
were considering the simplified  structure represented in HB
164.                                                                                                                            
                                                                                                                                
Representative   Gara  did   not   think  many   legislators                                                                    
understood the bill.                                                                                                            
                                                                                                                                
4:02:14 PM                                                                                                                    
                                                                                                                                
DALE   FOSSELMAN,    SENIOR   VICE    PRESIDENT,   CORPORATE                                                                    
DEVELOPMENT,  DENALI ALASKAN  FEDERAL CREDIT  UNION, WASILLA                                                                    
(via teleconference), testified in  opposition to Section 79                                                                    
of the  legislation. He detailed  that the credit  union had                                                                    
55,000  members and  over 500  sponsor  employers, the  vast                                                                    
majority of whom employed less  than 50 workers. He spoke to                                                                    
Section 79 of HB 164,  which would address individual health                                                                    
care  insurance policies  in the  group  market. The  credit                                                                    
union felt that  the language in the  section would severely                                                                    
limit  both  employer and  employee  choice  of health  care                                                                    
insurance,  and  would  leave  employees  without  insurance                                                                    
options for extended periods of times.                                                                                          
                                                                                                                                
Mr.  Fosselman  provided  the   example  of  a  hypothetical                                                                    
employer forced to drop group  health insurance coverage due                                                                    
to   declining  profitability,   the   increasing  cost   of                                                                    
insurance, or  a combination of  both factors.  According to                                                                    
the proposed  language in HB  164, no insurer could  issue a                                                                    
policy to  those employees for  six months after  the group-                                                                    
plan coverage ended. He believed  the restriction was "quite                                                                    
onerous" and was poor public policy on several levels.                                                                          
                                                                                                                                
Mr. Fosselman  believed employers and employees  should have                                                                    
more  options to  obtain health  insurance in  the described                                                                    
circumstances,  instead  of   facing  restricted  access  to                                                                    
health insurance. He thought the  language of Section 79 was                                                                    
so broad  as to  seemingly prohibit  even the  discussion of                                                                    
individual health insurance policies with employers.                                                                            
                                                                                                                                
Mr.  Fosselman  proposed  enacting  legislation  that  would                                                                    
expressly  permit the  use of  federal tax-favored  programs                                                                    
such as health reimbursement  accounts (HRAs) when employers                                                                    
eliminated   group  health   insurance  benefits.   From  an                                                                    
employer perspective,  he felt HRAs were  easy to administer                                                                    
and allowed flexibility  in determining contribution levels.                                                                    
From an  employee perspective, he  thought HRAs  allowed the                                                                    
ultimate flexibility in how the  dollars were spent, because                                                                    
they could  be used  for either a  specific list  of medical                                                                    
expenses (known  as 213(d) expenses)  or for those  that had                                                                    
health insurance,  they could be used  for co-insurance, co-                                                                    
pays, or  deductibles, in  conjunction with  that insurance.                                                                    
For  those without  insurance, HRAs  could be  used to  fund                                                                    
health   insurance   premiums.  Unlike   flexible   spending                                                                    
accounts, there would be no "use-it-or-lose-it" provision.                                                                      
                                                                                                                                
Mr. Fosselman  opined that  individual policies  were better                                                                    
than  group  policies.  For one,  individual  policies  were                                                                    
portable,  and  not  tied to  employment,  which  benefitted                                                                    
seasonal,  part-time,  and   temporary  workers.  Individual                                                                    
policies  typically had  more  stable  pricing, because  the                                                                    
risk-rating group  was much larger than  a smaller employer-                                                                    
based  group. Individuals  could currently  chose from  more                                                                    
than  40  plan  designs  available,  in  order  to  optimize                                                                    
coverage  and  cost  at the  individual  level.  The  option                                                                    
remained   for   individuals   to  apply   to   the   Alaska                                                                    
Comprehensive Health Association  if pre-existing conditions                                                                    
prevented  an insurer  from issuing  coverage; in  addition,                                                                    
the employer would be able  to increase the contribution for                                                                    
the individual employee.                                                                                                        
                                                                                                                                
Mr.  Fosselman  concluded  that   Section  79  created  more                                                                    
problems  than it  solved for  working  Alaskans and  stated                                                                    
that establishing additional  alternatives for employees and                                                                    
employers   would    constitute   better    public   policy.                                                                    
Specifically,  he   believed  that  a  statute   that  would                                                                    
absolutely  confirm   that  employers  of  any   size  could                                                                    
establish HRAs  that could fund individual  health insurance                                                                    
expenses  without triggering  small  group health  insurance                                                                    
regulation would  ably and better  serve both  employees and                                                                    
employers.                                                                                                                      
                                                                                                                                
4:06:01 PM                                                                                                                    
                                                                                                                                
Vice-chair  Fairclough  asked  for  a written  copy  of  the                                                                    
testimony given. She CLOSED public testimony.                                                                                   
                                                                                                                                
Ms.  Hall  acknowledged  the complexity  of  the  bill.  She                                                                    
pointed out  that there were  several sections that  she had                                                                    
not had an  opportunity to speak to  and welcomed individual                                                                    
questions if additional information was needed.                                                                                 
                                                                                                                                
HB  164  was  HEARD  and   HELD  in  Committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
HB8-NEWFNLAW-CIV-03-18-11.pdf HFIN 3/22/2011 1:30:00 PM
SSTA 4/11/2012 9:00:00 AM
HB 8
CSHB 8 Executive Orders Info.pdf HFIN 3/22/2011 1:30:00 PM
HB 8
CSHB 8 CFR Costs.pdf HFIN 3/22/2011 1:30:00 PM
HB 8
CSHB 8 -HR0009A.pdf HFIN 3/22/2011 1:30:00 PM
HB 8
CSHB 8 Null & Void article.pdf HFIN 3/22/2011 1:30:00 PM
SSTA 4/11/2012 9:00:00 AM
HB 8
CSHB 8 NYC v FCC Syllabus.pdf HFIN 3/22/2011 1:30:00 PM
HB 8
CSHB 8 Sectional.pdf HFIN 3/22/2011 1:30:00 PM
SSTA 4/11/2012 9:00:00 AM
HB 8
CSHB 8 stroke of pen.pdf HFIN 3/22/2011 1:30:00 PM
HB 8
CSHB 8 sponsor.pdf HFIN 3/22/2011 1:30:00 PM
HB 8
CSHB 8 Supremacy-10th Amend.pdf HFIN 3/22/2011 1:30:00 PM
SSTA 4/11/2012 9:00:00 AM
HB 8
CSHB 8 Utah Em. Dom. Article.pdf HFIN 3/22/2011 1:30:00 PM
HB 8
HB8-NEWFNLAW-CIV-03-18-11.pdf HFIN 3/22/2011 1:30:00 PM
HB 8
CSHB10-NEWFNDOA-DMV-03-18-11.pdf HFIN 3/22/2011 1:30:00 PM
HB 10
HB 10 Explanation of Changes.pdf HFIN 3/22/2011 1:30:00 PM
HB 10
HB 10 Sponsor Statement.pdf HFIN 3/22/2011 1:30:00 PM
HB 10
HB24 Supporting Documents - Email Mike O'Meara 3-15-2011.pdf HFIN 3/22/2011 1:30:00 PM
HB 24
HB24 Supporting Documents - Fax AARP 3-14-2011.pdf HFIN 3/22/2011 1:30:00 PM
HB 24
HB24 Supporting Documents - Leg Audit #08-20067-11 Summary.pdf HFIN 3/22/2011 1:30:00 PM
HB 24
HB24 Sponsor Statement ver M.pdf HFIN 3/22/2011 1:30:00 PM
HB 24
HB24 Supporting Documents - Leg Audit #08-20067-11.pdf HFIN 3/22/2011 1:30:00 PM
HB 24
HB24-NEWFNCCED-RCA-03-18-11.pdf HFIN 3/22/2011 1:30:00 PM
HB 24
HB24 Supporting Documents - Letter GCI 3-15-2011.pdf HFIN 3/22/2011 1:30:00 PM
HB 24
CSHB64-NEWFNDOA-DMV-03-18-11.pdf HFIN 3/22/2011 1:30:00 PM
HB 64
HB 64 CS Section Changes.pdf HFIN 3/22/2011 1:30:00 PM
HB 64
HB 64 Sponsor Statement.pdf HFIN 3/22/2011 1:30:00 PM
HB 64
HB64_Vehicle CountsDMV.pdf HFIN 3/22/2011 1:30:00 PM
HB 64
HB64 NEWFN-DEC-AQ-03-18-11.pdf HFIN 3/22/2011 1:30:00 PM
HB 64
02 HB 097 Sponsor Statement.pdf HFIN 3/22/2011 1:30:00 PM
SFIN 4/16/2011 10:00:00 AM
HB 97
04 HB 097 Invasive Weeds and Agriculture Pest Coordinator Accomplishments.pdf HFIN 3/22/2011 1:30:00 PM
SFIN 4/16/2011 10:00:00 AM
HB 97
06 HB 097 LOS AK Comte for Noxious and Inv Plants Mgment.PDF HFIN 3/22/2011 1:30:00 PM
SFIN 4/16/2011 10:00:00 AM
HB 97
06 HB097 Report on the Alaska Weed Project.pdf HFIN 3/22/2011 1:30:00 PM
SFIN 4/16/2011 10:00:00 AM
HB 97
06 HB 097 LOS AK Sealife Center.pdf HFIN 3/22/2011 1:30:00 PM
SFIN 4/16/2011 10:00:00 AM
HB 97
06 HB097 Testify Zaumzeil.pdf HFIN 3/22/2011 1:30:00 PM
SFIN 4/16/2011 10:00:00 AM
HB 97
06 HB097_Perception_of_an_Invasive_Species.PDF HFIN 3/22/2011 1:30:00 PM
SFIN 4/16/2011 10:00:00 AM
HB 97
HB 105 AFA Letter of Support 1.12.2011.pdf HFIN 3/22/2011 1:30:00 PM
HB 105
HB 105 Parcel Maps 12.20.2010.pdf HFIN 3/22/2011 1:30:00 PM
HB 105
HB 105 Public Briefing 1.24.2011.pdf HFIN 3/22/2011 1:30:00 PM
SFIN 4/14/2011 9:00:00 AM
HB 105
HB 105 Land Ownership and Mill Status.pdf HFIN 3/22/2011 1:30:00 PM
HB 105
HB 105 SE Land Summary 2.22.2011.pdf HFIN 3/22/2011 1:30:00 PM
SFIN 4/13/2011 9:00:00 AM
HB 105
HB 105 Transmittal.pdf HFIN 3/22/2011 1:30:00 PM
SFIN 4/14/2011 9:00:00 AM
HB 105
HB 105 Trends Populations Projections 2010-2034.pdf HFIN 3/22/2011 1:30:00 PM
HB 105
HB 105 Value Added 3.8.2011.pdf HFIN 3/22/2011 1:30:00 PM
HB 105
HB 105 Vicinity Map 12-20-2010.pdf HFIN 3/22/2011 1:30:00 PM
HB 105
HB_141_Sponsor_Statement.pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB141_Sectional_Analysis.pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB141_Support_Letter_ GOAC3.pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB141_Support_Letter_DuncanFeilds.pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB141_Support_Letter_Ivanof Bay Tribe.pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB141_Support_Letter_SWAMC.pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB141_Support_Letter_ BVI.pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB141_Support_Letter_Yakutat.pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB147 Sponsor Statement.pdf HFIN 3/22/2011 1:30:00 PM
HB 147
HB147 Supporting Documents-Letter Chair of State Board 1-25-2011.pdf HFIN 3/22/2011 1:30:00 PM
HB 147
HB147 Supporting Documents-Letter Alaska Socity of CPAs 2-1-2011.pdf HFIN 3/22/2011 1:30:00 PM
HB 147
CSHB164(L&C) Sectional Analysis.pdf HFIN 3/22/2011 1:30:00 PM
HB 164
CSHB164(L&C) Sponsor Statement.pdf HFIN 3/22/2011 1:30:00 PM
HB 164
HB 175 Explanation of Changes CD JUD.doc HFIN 3/22/2011 1:30:00 PM
HFIN 4/1/2011 1:30:00 PM
HB 175
HB 175 Sponsor statement CS JUD.doc HFIN 3/22/2011 1:30:00 PM
HFIN 4/1/2011 1:30:00 PM
HB 175
HB175 Sectional CS JUD.doc HFIN 3/22/2011 1:30:00 PM
HFIN 4/1/2011 1:30:00 PM
HB 175
HB 141 NOAA Alaska Fisheries report 4pgs..pdf HFIN 3/22/2011 1:30:00 PM
HB 141
HB 10 AML Letter.pdf HFIN 3/22/2011 1:30:00 PM
HB 10
HB97 Letter.doc HFIN 3/22/2011 1:30:00 PM
HB 97
HB 64 AML Letter.pdf HFIN 3/22/2011 1:30:00 PM
HB 64
HB164 Fosselman Testimony.pdf HFIN 3/22/2011 1:30:00 PM
HB 164