Legislature(1995 - 1996)
04/03/1996 03:28 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 524 - INSURANCE POOLING BY EMPLOYER ASS'N. Number 1983 CHAIRMAN KOTT announced the committee would hear HB 524, "An Act relating to insurance pooling." TERRY DUSZYNSKI, President , Alaska State Homebuilders' Association, was first to come before the committee to testify in support of HB 524. He pointed out that currently, they are supporting the concept of the bill. After hearing testimony at the last hearing on the bill by the Division of Insurance and the Division of Workers' Compensation, he has met with Marianne Burke and Paul Grossi. He said they spent time going over some of the problems they have had with the current language in HB 524. He said they decided to bring some amendments forward to make it compatible or palatable between both of those people and groups. He said he read a letter into the record: Dear Representative Kott: The Alaska State Homebuilders' Association met with the principal state regulators yesterday to discuss House Bill 524. The meeting produced an agreement between the homebuilders and the regulators that House Bill 524 should be amended to include the following principles: Group self insurance will be for workers' compensation purposes only; groups that self insure must be shown to be solvent; groups that self insure must be able to pay any potential claims; a plan for liquidation must be included in the legislation; the guarantee fund must be included in the legislation; all parties who may participate in the group must be treated equally; and group self insurance plans will be regulated by the state. "If these principles are included in the bill, we believe the regulators will support the bill. Such a bill will protect Alaska workers while allowing groups to manage their own workers compensation destinies and reduce their costs of doing business in the state of Alaska." MR. DUSZYNSKI informed the committee that Mr. Ken Mitchell was in attendance with him. He is the executive officer of the North Carolina Homebuilders' Association. Mr. Duszynski said they are modeling everything they are bringing forward based on what they have had in their success. Number 2114 KEN MITCHELL, Executive Vice President, North Carolina Homebuilders' Association, was next to address the committee. He noted he also serves as the administrator for the North Carolina Homebuilders' Set Insurers Fund. He explained this is a situation they got into twelve years ago. Mr. Mitchell said they were in a posture where insurance rates were going extremely high. Many of their small builders weren't able to buy workers' compensation insurance and many of the traditional markets had left the marketplace. There is a provision in the North Carolina law that groups that are homogeneous can form together and prove their risk as far workers' compensation is concerned. There are requirements. He said they are regulated by the North Carolina Department of Insurance. They started their fund in May, 1984. The first year, they had 400 member firms who participated in the plan. They had about $840,000 of annual premium. During 1995, they have over 8,500 employers generating $65 million of annual premiums. Mr. Mitchell said they have been able to reduce the cost of workers' compensation by two or three different ways. Number one is they make sure they have a good underwriting program so that they bring desired firms into the plan. Secondly, they don't just pay claims, they manage claims. He said he thinks this is where the real cost savings are involved in workers' comp. If you, as an employer, can become very involved in the claims and accidents that you have on your workplace, then you can save dollars through lowering your expense (indisc.), getting your people back to work as quickly as possible. MR. MITCHELL said they are no different than the builders in Alaska in that they want to make sure that their employees that are injured in the workplace receive every benefit that they're entitled to. He said they want to make sure that happens anywhere that does group self-insurance across the country. He said they want to be able to control their destiny and costs so that they can be in a situation where they can reduce the cost of workers' comp. Every house that is built, a large portion of the expense of building that house goes into the area of workers' compensation. If they can reduce those costs, then they can make housing more affordable to the citizens of North Carolina and Alaska. He said he doesn't think it is the builders in Alaska or their intent to circumvent any of the rules or regulations that are involved in workers' compensation in the state of Alaska. They want to have the opportunity to move forward and to do the things that currently 36 other states allow which is to allow individual firms to join a group self-insurance program so that they can have some control as far as their destiny is concerned. MR. MITCHELL informed the committee that currently there are 14 homebuilders associations throughout the country and soon to be 15 that will offer to its employers and members the ability to join a group self-insurance fund. He said he hopes that in the future Alaska will be in that posture. Mr. Mitchell noted he is not a paid consultant and that he isn't in attendance for a profit motive. The only reason he is here is to work with the legislature and the members of the Alaska Homebuilders to hopefully provide them with a vehicle so that they can deliver their workers' comp to their workers in a manner that will be cost effective and, in the long run, that will save them money and it will help to reduce the accidents and the cost of those accidents on the job site. Number 2287 REPRESENTATIVE ELTON referred to Mr. Mitchell stating that they started with 400 and have expanded to 8,500 and asked if there is a minimum of the number of employees necessary to keep the risk from being too concentrated. MR. MITCHELL said he isn't sure that there is a certain number of employers that Alaska should be interested in; it is the dollar premium that is generated. He said that in North Carolina 12 years ago, they had to have $750,000 in annual premiums to start their program. Some states have $500,000, and it varies across the board. He stated he doesn't think it is the number of firms you have, but the premiums that they generate. Number 2320 REPRESENTATIVE BRIAN PORTER asked Mr. Mitchell if his association has joint and several liability. MR. MITCHELL said, "Yes Sir. There are really a number of safeguards we feel very strongly about and we want to make sure there is protection for the worker. The main thing that we want to make sure the end result is is that if anybody is hurt on that job site, that there is money there to pay for those people. First of all, there is premium collected that is exactly the same as the premium that is prescribed they rate bureau. We don't try to get around that. Secondly, the state of North Carolina requires us to put up $600,000 in cash in a guarantee fund made payable to the Department of Insurance in the event that we can't pay our claims. We can either do that in the form of cash or in the form of a a surety bond. Thirdly, we have joint and several liability in the event that the process gets to the point where we can't pay our claims, then we can go back and assess our people. But prior to that, we're also required to buy reinsurance where we will take a certain portion of the risk up front and then we will have reinsurance that will cover that risk for catastrophic type losses. And there are two types of reinsurance that we deal with. One is for the specific claims that we have and the second is called an `aggregate reinsurance' which is kind of like an umbrella coverage in your general liability policy, it takes an overall look at where we are. And then -- then the next area, which would be the (indisc.) of protection is that we also have a guarantee fund in the state of North Carolina where every individual self insurer and every group self insurer contributes money into a guarantee fund. And if we have one of those groups or individual firms that become insolvent, after everything else is exhausted then the guarantee fund will go in and pay the worker's claims that they have and then we will go back and reassess everybody who is individually or group self-insured in the state to recoup those losses and build the guarantee fund back up. Fortunately or unfortunately, I've been on the guarantee fund since the very start. The commissioner of Insurance appointed the first guarantee fund and I was a part of that and have served as the chairman of the guarantee fund for the last two years. I probably told you more than you wanted to know about it. Number 2417 CHAIRMAN KOTT referred to the three areas underpinning the North Carolina program - underwriting, pay and manage claims and questioned what the third one was. MR. MITCHELL responded, "Safety - loss control." CHAIRMAN KOTT asked him to expand on the loss control aspect. MR. MITCHELL explained they have safety engineers that are employed by the third party administrator who oversees their program. Safety engineers are professional people who go out to the job sites and inspect. He noted some of the safety engineers on staff and then they use some on a contract basis. Mr. Mitchell said, "Lets say that you have a construction job and your experience mod continues to rise and you have a frequency of accidents. Then our safety engineers will go to your job site and say, `You must do the following things because these are not right on your job site.' Then we will write a letter to that individual employer saying, `Here is the problems that you have on the job site, you've got 30 days to correct these,' and if they don't correct those then we don't allow them to stay in the fund anymore. We have tried to sell the concept to our people that this is your fund, you can do with it whatever you see fit. If you work together and you prevent accidents on the job site, then you're going to save money. And I have people that builders that will call me and say, `Ken, you need to go over and look at Terry Duszynski's job site, he's got some people over there doing things that he's not supposed to do and he's going to have an accident and when he does, it's going to cost me money.' And that's the kind of concept that we've tried to foster in North Carolina - that this is our member's fund and any monies that they have that we can produce as a savings on the claim side, then we give that money back to our participants." [END OF TAPE....] TAPE 96-32, SIDE B Number 001 MR. MITCHELL continued, "Our safety dividends work in the following manner: If you don't have a 70 percent loss ratio, then you don't participate in the safety dividend because you didn't help create the monies that are there that are leftover. For 1995 -- We have to get this approved by the Department of Insurance to be able to give this money back. For 1995, we have asked for and have been approved to give back $5 million to our people. Those are the kinds of things that we're able to do with the concepts that we have. We want to get involved, and I hope I don't offend anybody that's in the traditional insurance business, if I do I'm sorry but that's the way it is. Most of the time what we've found in North Carolina, it may be different in Alaska, is that they just pay the claims that come in and what we want to do is manage those claims. We want to make sure that we cut out fraud in the workplace. Our statistics tell us that probably 25 percent of the claims that are filed for workers' comp are fraudulent and we passed legislation in North Carolina that makes that a felony and we send those people to jail because it's steeling, and if it's not a real claim where people are actually being hurt then we don't want to pay that and we don't want our employers to have to pay that." Number 058 CHAIRMAN KOTT questioned if a safety engineer's visit isn't necessarily triggered by an event. MR. MITCHELL said it could be for any reason. A safety engineer could be driving by a job site and stop. He pointed out that if there are people who are questionable as far as underwriting is concerned, they will send a safety engineer out before they are actually accepted into the plan. CHAIRMAN KOTT asked how the safety engineers are funded. MR. MITCHELL explained that it comes from the premium that is generated through the group self insurance. Presently, they have what is called a third party administrator who does all their billing, collections, claims and safety engineering. He said all of that will be in-house by July 1. Mr. Mitchell noted they are going to have $2 million plus dollars, annually, in savings by bringing this in-house. CHAIRMAN KOTT thanked Mr. Mitchell for his testimony and introduced Mr. George. Number 221 JOHN GEORGE, National Association of Independent Insurers, was next to address HB 524. He informed the committee his background is in risk management and he has worked on forming (indisc.) insurance companies for corporations. He said he thinks there are some benefits in any group looking at themselves internally to find out why they have losses, how they can improve that, whether they end up in an insurance program, a self-insurance program or a pool. He said he would like to reserve his comments until he can see what the new proposal is. CHAIRMAN KOTT invited Paul Grossi and Marianne Burke to come before the committee. He explained Mr. Duszynski had indicated there had been a meeting between Mr. Grossi, Ms. Burke and members of the industry. Chairman Kott asked them to comment on what direction we're taking. Number 300 MARIANNE BURKE, Director, Division of Insurance, Department of Commerce and Economic Development, was next to come before the committee. She said she thinks we were all tremendously relieved to realize that we're not talking about joint insurance arrangements (JIAs). Once that issue was put aside, they then discussed the considerations that they felt were essential to protect the workers in the state of Alaska. She said, "Outlined under Title 21, the insurance title, some options that are already there in that we already have in statute provisions for reciprocal arrangements. I'd suggested that they look to this -- the statute to see if this met their needs. And we also discussed, under Title 23, the option of self-insurance was there but that in statute there are very strict solvency requirements and very strict requirements as the net worth of the company, et cetera, (indisc.) that is already in statute. Our meeting I think was extremely productive in that we had a opportunity to outline our concerns and what we felt were necessary to protect the individuals in the state of Alaska. As we pointed out to them, our concern is that someone is there to pay the bills for the injured worker. The concept of loss control, of course, is the key to keeping workers' comp costs down. It is not that the premiums just go up, the claims go up, and as the claims go up they cause more to get the insurance. So we applaud their interesting concern in having a active safety program. Loss control and managing of the claims is the secrete and we have told them we would work with them and to make sure that the concerns that we have are addressed. And again, I have suggested that they look to statutes that are already on the books that provide for similar type arranges. The timber exchange is a perfect example. It has worked very well, very successful. It is regulated. I have talked to the -- I have information from North Carolina. From inception, all of their employer associations were regulated and there were solvency requirements required from the very beginning. And effective 1/1/96, basically their (indisc.) they were an insurance company and that they're filing the required statements, they have solvency requirements, reporting and they also have the guarantee fund which has been set up. And again, I think this is a wonderful concept that we would need if, in fact, this sort of arrangement came into being in Alaska. Right now, (indisc.--coughing) certain companies participate in the guarantee fund. So we have the added assurance that the policy holders or the beneficiaries of the policy will have a source to pave the corners through the guarantee (indisc.--coughing) insurance companies. If an association, such as this, had problems - if they also have a guarantee association there is that extra safety. Number 473 PAUL GROSSI, Director, Division of Workers' Compensation, Department of Labor, said he didn't have much to add to Ms. Burke's testimony. He said their main concern is to make sure that workers' compensation liability is covered under anything that they do relating to legislation that is passed. Mr. Grossi pointed out one thing they did discover is that they wanted some sort of workers' compensation coverage. He said he didn't know whether they wanted to address this in Title 21 or Title 23, but it will require a lot of work to change what they have. CHAIRMAN KOTT said he has received a list of suggestions for inclusion into some kind of statutory scheme. He said based on the time left for the legislative session, he isn't sure we will be able to pursue this to finality. He said he will take the ideas that were a result of the meeting and have the drafters try and incorporate those into some type of legislative scheme. Chairman Kott said he will work with the departments as well as the industry in ensuring that all the requirements have been met that need to be met in keeping Alaska's work force safe. He said the bill would be held.
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