Legislature(2001 - 2002)
04/27/2001 01:10 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
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HB 184 - INSURANCE CODE AMENDMENTS Number 2128 CHAIR ROKEBERG announced that the last order of business would be HOUSE BILL NO. 184, "An Act relating to the business of insurance, including changes to the insurance code to implement federal financial services reforms for the business of insurance and to authorize the director of insurance to review criminal backgrounds for individuals applying to engage in the business of insurance; amending Rule 402, Alaska Rules of Evidence; and providing for an effective date." [Before the committee was CSHB 184(L&C).] Number 2103 BOB LOHR, Director, Division of Insurance, Department of Community & Economic Development (DCED), explained that HB 184 is the result of federal legislation that passed in 1999 - the Financial Services Modernization Act, also referred to as the Gramm-Leach-Bliley Act (GLBA). This Act took down the barriers among insurance, banking, and securities that were erected right after the [Great Depression] by the Glass-Steagall Act. As a result of GLBA, regulation of these three sectors - insurance, banking, and securities - has had to adapt to "the new reality." He noted that the Federal Reserve was appointed to be the "umbrella regulator" over all sectors, but below that, functional [state] regulation was the key with respect to each of the other sectors, and, specifically for insurance, state authority to regulate insurance is preserved. The insurance sector is unique in the federal picture because there is essentially no federal regulation of insurance, unlike the banking and securities sectors in which there is both federal and state regulation. MR. LOHR explained that under GLBA, the federal government is requiring states to adopt specific standards for insurance regulation without which national regulation will "kick in"; HB 184 is designed to maintain state government authority for regulation of insurance. He noted that there are three areas covered by HB 184. One area pertains to producer licensing - licensing of agents and brokers; if 29 states do not adopt licensing statutes that treat nonresidents on a reciprocal basis, then a national system of licensing will be imposed. Thus far 45 states have introduced legislation to accomplish reciprocity, which allows someone licensed in another state to be granted a nonresident license in Alaska and vice versa for an Alaskan licensee, as long as there is not a regulatory issue to prevent it such as a criminal background or other problems found by the regulating agency. Basically, by sending money to one location, a person could be licensed in all 50 states and the District of Columbia through a 24-hour process. The licensing fees would in turn be distributed to the appropriate states. MR. LOHR said that a second area covered by HB 184 pertains to privacy. House Bill 184 addresses what information a person may share that is obtained from insurance applications, which could include financial information and/or health information, and what degree of restrictions are appropriate with respect to marketing and sharing information. A third area covered by HB 184 involves consumer protection for banks selling insurance. Currently there are consumer protection provisions for insurance companies, but now that banks are permitted to sell insurance, additional provisions are necessary in order to ensure consumer protection in those areas too. Number 1816 MR. LOHR, in response to questions, said that there are currently some barriers to nonresident reciprocity. One provision in HB 184 says that there will be no "post-licensing" barriers, that is, no additional barriers to licensing. Some states, for example, do not have very much "surplus-lines" activity for a non-admitted insurer selling insurance in that state. Alaska does have a good deal of "that," he said, and as a result, requires a $200,000 bond from a surplus-lines licensee. Some states, he noted, require up to a $200,000 bond but other states do not require anything, so with regard to reciprocity, "if it's good enough in their state, it's good enough in ours," and while this bond can become an additional restriction on licensing, it also provides Alaskans with some important consumer protections. What is proposed by HB 184 is to maintain the ability of the director to have a surplus-lines requirement but not to have it in the licensing chapter; rather to move it from there to a separate section where it is not tied in as a licensing restriction. MR. LOHR mentioned that trust accounts [are an example of a licensing requirement]; a trust account is used when an agent or broker is receiving funds that are going to be used to buy insurance from the company - those funds must be maintained and accounted for separately from any other funds. In HB 184 the term "trust account" has been replaced by "fiduciary responsibility"; the net effect is identical and the director maintains the authority to require trust accounts, but "we de- link it" from the notion of being an additional licensing requirement. He opined that this terminology change would satisfy the requirement of reciprocity without sacrificing consumer protection. REPRESENTATIVE COGHILL asked what regulations Mr. Lohr anticipates developing. MR. LOHR said, for example, that some of the provisions of HB 184 have delayed effective dates, and if the Division of Insurance determines that additional regulations are needed, the authority is there to develop them; essentially reenacting by regulation what is currently in statute until after the delayed effective dates. He noted, however, that some negotiations are occurring at the national level because "we" don't know quite what it takes to trigger reciprocity since that will be a "post state legislative decision"; once a bill is enacted in at least 29 states, that legislation will be submitted for review to determine whether the states are reciprocal. In states that are not, regulations could be adopted to fix the problem without further statutory change. On the issue of fingerprinting, Mr. Lohr noted that the Division of Insurance is attempting to strengthen the fingerprinting requirements by simplifying the process through which fingerprints of licensee applicants can be used to obtain "FBI data" for criminal background checks. Number 1561 LINDA BRUNETTE, Licensing Supervisor, Central Office, Division of Insurance, Department of Community & Economic Development (DCED), added that currently the Division of Insurance requires any individual - both residents and nonresidents - who transacts the business of insurance and who is applying for a license to submit a fingerprint card for a criminal background check. MR. LOHR noted that a separate process for companies grants what is called a Certificate of Authority. In response to questions, he noted that the privacy provisions begin on page 43 with Section 59, that there is no specific reference in this section to GLBA, that subsection (b) grants authority to the director [to adopt regulations that provide protection for a person's financial and health information], and that paragraph (5) contains reference to the Health Insurance Portability and Accountability Act (HIPAA) as the default regulations for health insurance. CHAIR ROKEBERG mentioned that the House Labor and Commerce Standing Committee favored a default "opt in" regarding health insurance information. MR. LOHR noted that directions for "opt in", which prohibits sharing, start with subsection (a), and that the following paragraphs itemize exceptions. CHAIR ROKEBERG pointed out that paragraph (4) contains a large list of different insurance activities that would be exempted; he added that he finds this method of listing exceptions cumbersome. REPRESENTATIVE COGHILL noted that subsection (b) still gives authority to make regulations. CHAIR ROKEBERG noted that while this is correct, the issue is what type of policy call the legislature is making, whether "opt in" or "opt out." MR. LOHR explained that the term "opt out" means that personal information may be shared with others unless the person specifically says that it can not be shared; whereas "opt in" means that personal information may not be shared unless explicit permission to do so is given. He added that "opt in" is typically more protective of privacy than "opt out." If a person does not respond to an "opt out" questionnaire, information can be shared. If a person does not respond to an "opt in" questionnaire, the information will not be shared. Number 1241 CHAIR ROKEBERG noted that what is happening "with this federal law is that we are in a position where we have to conform our statutes with national practice." He said that the question faced by the legislature is which default Alaskans will have: "opt in" or "opt out." He opined that one of the goals should be to provide a "level playing field" for local insurers and banks that compete against national entities. He remarked that he has come to the conclusion that national insurance companies are making national policy, so in order for Alaskan companies to compete, they should not be out of step. He suggested that the default for health insurance should be "opt in" and the default for other types of insurance should be "opt out." He added that Amendment 1 addresses this issue. Amendment 1 reads [original punctuation provided]: Sec. 21.36.162 Nondisclosure of personal information. The director shall adopt regulations regarding the release of financial and health information regarding an individual who seeks to obtain, obtains, or has obtained an insurance product or service from a licensee that is to be used primarily for personal, family, or household purposes. The regulations must be no less restrictive than the model regulations adopted by the National Association of Insurance Commissioners (NCOIL) Financial Information Privacy Protection Model Act, adopted by the NCOIL Executive Committee on November 17, 2000 and amended on March 2, 2001. MR. LOHR explained that Amendment 1 would replace most of Section 59, beginning on page 43, line 15, through page 45, line 27. MS BRUNETTE pointed out that Amendment 1 contains a typo: "National Association of Insurance Commissioners" should instead read "National Conference of Insurance Legislators". As corrected, Amendment 1 reads [original punctuation provided]: Sec. 21.36.162 Nondisclosure of personal information. The director shall adopt regulations regarding the release of financial and health information regarding an individual who seeks to obtain, obtains, or has obtained an insurance product or service from a licensee that is to be used primarily for personal, family, or household purposes. The regulations must be no less restrictive than the model regulations adopted by the National Conference of Insurance Legislators (NCOIL) Financial Information Privacy Protection Model Act, adopted by the NCOIL Executive Committee on November 17, 2000 and amended on March 2, 2001. Number 0855 MR. LOHR said that this change would provide for an "opt in" default for health information, and an "opt out" default for financial information. He said these defaults would be set as "the minimum floor"; the Division of Insurance would be allowed to adopt regulations that would provide for no less than these standards. CHAIR ROKEBERG called an at-ease from 3:06 p.m. to 3:13 p.m. Number 0703 STEVE CLEARY, Alaska Public Interest Research Group (AkPIRG), testified via teleconference. He said that the AkPIRG has concerns about privacy rights. [The AkPIRG] is a strong proponent of an "opt in" default for health information, but does not support the use an "opt out" default for financial information. The latter is inappropriate and will hurt consumers, he opined. He pointed out that the mailings sent out informing consumers that their information will be shared unless they respond will contain very fine print, and therefore consumers may not be cognizant of the fact that their personal financial information is going to be shared rather than held private. Mr. Cleary said that the AkPIRG would also like to see included in HB 184 "a private right of action." Right now, he explained, individuals need to wait for the Division of Insurance to act on their behalf, but a private right of action would allow individuals to proceed on their own. He concluded by saying he would like to give further testimony at the next meeting after taking more time to review HB 184 and its proposed amendments. CHAIR ROKEBERG remarked that the director of the Division of Insurance and various people from the insurance industry all recommend using the NCOIL model as the baseline for regulations. He noted that he intends to put a sunset on that provision so that the legislature can review the issue. Number 0366 JOHN L. GEORGE, Lobbyist for American Council of Life Insurance (ACLI), National Association of Independent Insurers (NAII), and American Family Life Assurance Company (AFLAC), said that the organizations he represents favor the adoption of Amendment 1; without it, the language is too complicated and far different from what is being applied in other states. Most companies, on the other hand, are already familiar with the NCOIL model. In response to questions, he said that the "opt out" default for "non health insurance" has to be in place for the sake of uniformity. To have an "opt in" standard for "non health insurance" purposes would be different from what "everyone else" has. The "opt out" standard allows insurance companies to continue with their everyday business while still providing consumers with the option of stating that they do not want their information shared. Number 0163 SHELDON E. WINTERS, Attorney at Law, Lessmeier & Winters, Lobbyist for State Farm Insurance Company ("State Farm"), said simply that State Farm supports Amendment 1 with the understanding that a "sunset" provision will be added. Number 0058 REED STOOPS, Lobbyist for Health Insurance Association of America (HIAA), said simply that the HIAA supports Amendment 1 even though health information is treated more stringently than financial information. Consistency around the country, he opined, is paramount to the industry in order to allow Alaskan companies to do business under the same basic rules as other states. He noted that the regulatory process for "this particular subject" is fairly extensive under the NCOIL model. TAPE 01-77, SIDE A Number 0030 CHAIR ROKEBERG opined that with the provisions of the GLBA and the provisions encompassed by HB 184 going into effect, the consumer will have substantially more protection than previously. MR. LOHR concurred with that point. There is no protection for insurance information gathered from applications at this point in time; whatever level of privacy standard that is adopted by the legislature will be an increase over what there is currently, he said. CHAIR ROKEBERG asked whether Mr. Lohr would be offended if the legislature were to attach a letter of intent regarding "opt in/opt out." MR. LOHR opined that a letter of intent is not necessary; the mandate to the director is very clear, it is not permissive, and it does "set a floor." Therefore, he added, he could not imagine a scenario under HB 184 where it would not be "opt in" for health information [and "opt out" for financial information]. CHAIR ROKEBERG argued, however, that the language simply refers to the NCOIL model and does not specify what the legislature's policy is with regard to "opt in/opt out." MR. LOHR said, "it's your call, but I don't believe it's necessary." Number 0159 CHAIR ROKEBERG made a motion to adopt Amendment 1, as corrected. There being no objection, Amendment 1, as corrected, was adopted. Number 0203 CHAIR ROKEBERG made a motion to adopt Amendment 2, which read [original punctuation provided]: *Sec. X AS 21.18. is amended by adding a new section to read: Sec.21.18.160. Valuation of investments. For the purposes of this chapter, the value or amount of an investment acquired, held, or invested in or an investment practice engaged in under this title, unless otherwise specified in this title, must be the value at which assets of an insurer are required to be reported for accounting purposes under this title and as required under procedures prescribed in published accounting and valuation standards of the National Association of Insurance Commissioners, including the purposes and procedures manual of the securities valuation office, the valuation of securities manual, the accounting practices and procedures manual, and the annual statement instructions or valuation procedures officially adopted by the National Association of Insurance Commissioners. *Sec. X AS 21.21.010 is repealed and reenacted to read: Sec. 21.21.010. Scope. This chapter applies only to an investment and investment practice of a domestic insurer and a United States branch of an alien insurer entered through this state. Except as provided in AS 21.42.370(c), this chapter does not apply to separate accounts of a life insurer. *Sec. X AS 21.21.020 (d) is amended to read: (d) An investment limitation based upon the amount of the insurer's assets or particular funds shall relate to the assets or funds shown by the insurer's annual statement most recently required to be [AS OF THE PRECEDING DECEMBER 31, DATE OF ACQUISITION OF THE INVESTMENT BY THE INSURER, OR SHOWN BY A CURRENT FINANICAL (stet) STATEMENT] filed with the director. *Sec. X AS 21.21.020 is amended by adding a new section to read: (e) Determination of compliance with limitations under this chapter shall use admitted asset values. *Sec. X AS 21.21.255 is amended to read: As provided under 15 U.S.C. 77r-1(b) and (c)(Secondary Mortgage Market Enhancement Act of 1984), securities that are purchased, held or invested in by an insurer shall be regulated under AS 21.18.160 [AS 21.18.150], AS 21.21 [AS 21.21.050, 21.21.260, 21.21.270], and other applicable provisions of this title. *Sec. X AS 21.21 is amended by adding a new section to read: Sec. 21.21.420. Regulations. The director shall adopt regulations regarding insurance company investments that are consistent with the defined limits standards for investments of the National Association of Insurance Commissioners, as amended from time to time." *Sec. XX. AS 21.24.030(a) is amended to read: (a) All deposits required under AS 21.09.090 for authority to transact insurance in this state shall consist of certificates of deposit [,] or any combination of rated credit instruments of the United States, Canada, or state of the United States [SECURITIES OF THE KINDS DESCRIBED IN AS 21.21.060, 21.21.080, AND 21.21.090]. *Sec. XX AS 21.87.220(b) is amended to read: (b) AS 21.21 shall [THE FOLLOWING SECTIONS] apply to the investments of service corporations, to the extent applicable, and, for the purposes of the application, a service corporation shall be considered to be an insurer.[: AS 21.21.020-21.21.050, 21.21.290, AND 21.21.300]. *Sec. XX AS 21.18.120, 21.18.130, 21.18.140, 21.18.150; 21.21.030, 21.21.040, 21.21.050, 21.21.060, 21.21.070, 21.21.080, 21.21.090, 21.21.100, 21.21.110, 21.21.120, 21.21.130, 21.21.140, 21.21.150, 21.21.160, 21.21.170, 21.21.180, 21.21.190, 21.21.200, 21.21.210, 21.21.220, 21.21.225, 21.21.230, 21.21.240, 21.21.245, 21.21.250, 21.21.260, 21.21.270, 21.21.280, 21.21.290, 21.21.300, 21.21.310, 21.21.321, 21.21.330, 21.21.350, 21.21.355, 21.21.360, 21.21.370, 21.21.380, 21.21.390, 21.21.400, 21.21.600; AS 21.87.340(7), and 21.87.340(8) are repealed. *Sec. XX The uncodified law of the State of Alaska is amended by adding a new section to read: TRANSITION: REGULATIONS. The director of insurance may immediately proceed to adopt regulations necessary to implement the changes made by this Act. The regulations take effect under AS 44.62 (Administrative Procedure Act), but not before the effective date of the statutory change. *Sec. XX Sections XX-XX of this Act take effect January 1, 2002. Number 0239 CHARLIE MILLER, Lobbyist for Alaska National Insurance Company (ANIC), explained that ANIC is one of three locally domiciled insurance companies in Alaska and as such is one of the three companies whose investments are regulated under the authority of Alaska's Division of Insurance. All the other insurance companies that underwrite and practice in Alaska are domiciled elsewhere and so their investments are regulated by other states. The companies domiciled in Alaska have been operating under some pretty old statutes that haven't been updated in quite some time. To update those statute would be cumbersome; they are lengthy and difficult to deal with. At the suggestion of the director of the Division of Insurance, he spoke with his client about supporting an amendment authorizing the director to promulgate regulations that would address the regulation of investments. He said his client doesn't feel that there is any conflict between what is good for the industry and what is good for the regulators. Primarily, the consumers' investments need to be protected; if there is a claim, the money has to be available to pay the claim. Companies should not be investing the money in risky instruments that would put claims at risk, which, unfortunately, takes a lot of [statutory and/or regulatory] verbiage to ensure. MR. MILLER said that Amendment 2 is drafted so as to put a constraint on the director: he/she can promulgate regulations but they have to be consistent with the current National Association of Insurance Commissioners' (NAIC) Model Acts. He added that the ANIC feels that this authority is appropriate and that there are several steps in the process during which the industry can provide input. The industry also has recourse in court if it feels that the standards of consistency within the NAIC model are not met, as well as the recourse of returning to the legislature for statutory assistance. He said that the ANIC does not feel that the director will be given any unfettered authority via Amendment 2, rather, that it is to the benefit of both the industry and the director to have the flexibility to change current statute via regulation in order to ensure that the investment possibilities are current, safe, and appropriate. REPRESENTATIVE OGAN said he does not share Mr. Millers' comfort level with the bureaucracy. He added that he views [Amendment 2] as a major delegation of legislative authority to the administration. He noted that he would feel better if there were an independent administrative hearing process. Number 0550 MR. MILLER said that he and his client have given a great deal of thought about this particular process, and they do not feel that they are putting themselves at the mercy of a bureaucratic body that won't respond to their needs. This will merely be a promulgation of regulations that have very clear guidelines; since the regulations have to be consistent with the NAIC model, the director and his staff won't have much flexibility. He added that he feels [Amendment 2] constitutes an appropriate use of the regulatory process. MR. LOHR added that if Amendment 2 is adopted and HB 184 becomes law, he intends to promulgate as a proposed regulation the defined limits version of the NAIC's model law on investment regulation. This is an established law, which, if the Division of Insurance were to propose updating Alaska statute, is exactly what would be proposed. This would be the starting point for public comment on a proposed regulation; it would then go through the full Administrative Procedure Act's public hearing process in which the division would receive public comments, and then based on that input, a regulation would be adopted. He opined that the final product of this process would look very similar to the NAIC's "investment regulation bill." MR. LOHR added that there is broad public interest in making sure that insurance companies meet their obligations to pay claims well into the future, and if the money that is now in reserve is not invested wisely, it may not be available to pay future claims. He added that the regulation that would result from the aforementioned process would allow for updated investment vehicles. Investment products that have been invented in the last 25 years may currently be classified as suspect investments simply because they were not available at the time the original statute was developed, but the regulatory process would allow them to be treated as legitimate investments. He said that the Division of Insurance supports Amendment 2. He also remarked that he has not heard of any opposition to the concept of Amendment 2, and that at the national level there have been extensive public hearings on the model during its development. CHAIR ROKEBERG called an at-ease from 3:35 p.m. to 3:37 p.m. Number 0825 CHAIR ROKEBERG asked whether there were any objections to Amendment 2. There being no objection, Amendment 2 was adopted. Number 0842 CHAIR ROKEBERG made a motion to adopt Conceptual Amendment 3, "which would be a three-year basic sunset of the privacy rights. The conceptual amendment would read something to the effect that 'Those provisions under AS 21.36.162 would sunset on the 90th day of the next regular session, two years after the promulgation or adoption of the regulations authorized for that [section].'" Number 0874 REPRESENTATIVE MEYER objected. He asked why the sunset should be three years instead of two years. CHAIR ROKEBERG explained that it would be two years after the regulations were promulgated, and it will take about a year to establish the regulations. MR. LOHR added that a three-year sunset would be preferable to a two-year sunset because the division would experience a couple of years of operating under the regulations that are promulgated. REPRESENTATIVE MEYER withdrew his objection. Number 0967 CHAIR ROKEBERG asked whether there were any further objections to Conceptual Amendment 3. There being no objection, Conceptual Amendment 3 was adopted. [HB 184 was held over; the hearing on HB 184 was recessed to a call of the chair, tentatively scheduled for the afternoon of 4/28/01.]
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