Legislature(2003 - 2004)
03/05/2003 03:15 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 120 - SERVICE CONTRACT SALES ARE NOT INSURANCE Number 2379 CHAIR ANDERSON announced that the final order of business would be HOUSE BILL NO. 120, "An Act excluding service contracts from regulation as insurance; and providing for an effective date." TAPE 03-17, SIDE B Number 2370 REPRESENTATIVE JOHN COGHILL, Alaska State Legislature, the sponsor of HB 120, said service contracts are being treated as a form of insurance in Alaska. Service contracts are not insurance, he said, and in this bill he proposes excluding service contracts from Title 21, Insurance. He pointed to the language on page 1, Section 1, line 5, of the bill that states in part, "(e) This title does not apply to a service contract offered, issued". He explained that the service contract could then be regulated through other existing laws, for example, contractual law or the Unfair Trade Practices and Consumer Protection Act. Number 2300 REPRESENTATIVE COGHILL said that regulating service contracts as insurance requires bonding and many pages of regulations. A service contract for an appliance or a computer doesn't involve a risk pool; it's simply a contract to repair the item under certain circumstances. He explained that he considered a model law used by other states but rejected that approach because he didn't want to create more regulations and government. He said he wants to clarify that service contracts should not be regulated under insurance law, as done by the last administration. He said he's looking for the simple approach. His only question involved whether HB 120 should include automobile service contracts that are covered under AS 45.25.620, Motor Vehicle Transactions. Number 2210 CHAIR ANDERSON noted that the sponsor's bill packet included information from the Department of Law listing various contract and consumer protection laws. REPRESENTATIVE COGHILL gave an example of one company, Sears, which sells service contracts in Alaska. Its subsidiary company, Sears Protection Company, will not sell service contracts in Alaska because the Division of Insurance treats it like an insurance company. Number 2146 STAN RIDGEWAY, Deputy Director, Division of Insurance, Department of Community and Economic Development, explained that the division has been dealing with complaints about service contracts, receiving several calls per month. This bill covers service contracts on property, but the division gets calls regarding a multitude of other types of contracts, for example, ambulance service, towing service, and legal services. This legislation could cull some of the smaller service contracts for which regulation might be overbearing. The current bill is very broad and covers extended warranties and service contracts on all property including automobiles, homes, and home appliances. He said the bill appears to be directed at items like stereos, home appliances, or hot tubs, which range in value from $200 to $2,000. These dollar amounts are quite different from the those involved in a home or automobile warranty. He said insurance has a very broad and complicated definition, but simply put, it's a contract to pay or provide a benefit for an unforeseeable loss. Service contracts, including those covered by HB 120, fall under that definition. Number 2045 MR. RIDGEWAY said he'd like to work with the sponsor to see if they can narrow the scope of the bill and remove home warranties and automobile extended-service contracts and warranties. He recommended focusing on what the bill intends to cover, while giving some of the higher dollar items and more confusing contracts the protection of insurance. He said there are lots of hybrids in this field: some insurance companies sell service contracts, and some automobile insurance covers towing and rental reimbursement. He strongly recommended clarifying the scope of service contracts up front, keeping the fiscal note low, and meeting the needs of Sears and other companies that would like to provide these contracts. Number 2008 CHAIR ANDERSON asked Representative Coghill if he would agree to hold the bill over to work with the Division of Insurance. REPRESENTATIVE COGHILL said yes. Number 1997 REPRESENTATIVE ROKEBERG asked Mr. Ridgeway if home warranties come under the Division of Insurance's purview. MR. RIDGEWAY said yes, they do, but admitted upon questioning by Representative Rokeberg that the division has not been enforcing the sale of home warranties by unlicensed sellers. REPRESENTATIVE ROKEBERG asked Mr. Ridgeway if his division was concerned that consumers wouldn't have a regulatory agency to look after their interests if service contracts were removed from oversight by the Division of Insurance. Number 1953 MR. RIDGEWAY responded that the Division of Insurance has a lot of work to do, and HB 120 could help clarify where it should direct its efforts. He said it's not a turf battle. He said the division just wants to clarify what a service contract is, for legal services, ambulance, homeowners, automobiles - all of those areas. REPRESENTATIVE ROKEBERG proposed considering a change in language in HB 120, on page 1, line 8, after "property", to add "or services unless sold as part of an insurance product". He asked if that language would remove all service contracts from the department. He asked if Mr. Ridgeway would support such a change. Number 1899 MR. RIDGEWAY said that one major issue is that anyone who sells service contracts should have an insurance license. Some people who sell extended warranties for automobile dealers and home warranties do have insurance licenses. But currently there are many sellers of service contracts who are not licensed. He said he's not saying that they need to be licensed; rather, the division wants to clarify it so that staff can deal with it. Number 1867 REPRESENTATIVE LYNN explained that he's an associate broker with a real estate company, and occasionally he sells a home warranty in addition to a home. He asked if he needs an insurance license in addition to his real estate license. MR. RIDGEWAY replied that currently the division's interpretation of the insurance statute is that yes, he would need an insurance license. REPRESENTATIVE ROKEBERG asked what kind of fee and paperwork is involved in registering to sell insurance. Number 1825 MR. RIDGEWAY said the cost of an insurance license is around $200. The Motor Vehicle Transactions law, AS 45.25, does not exclude automobile service contracts from insurance regulation; it simply tells people selling these service contracts what kind of guidelines they have to follow. He referenced model legislation by the NAIC [National Association of Insurance Commissioners] that has a different approach to service contracts that would require smaller companies to purchase a bond or reimbursable insurance that would pay the consumers in case the company went out of business. But, he added, the division doesn't want to go there. He said he wants to make it as simple as possible to exempt these types of contracts from the insurance code. Number 1765 REPRESENTATIVE ROKEBERG confirmed Mr. Ridgeway's point that under AS 45.25.620, automobile service contracts are still an insurance product regulated by the Division of Insurance. He asked Mr. Ridgeway to explain his statement about a required bond for selling insurance. MR. RIDGEWAY said the bond was an option available if the state adopted the NAIC model legislation for consumer protection. Number 1737 REPRESENTATIVE DAHLSTROM confirmed that an insurance agent or broker must also pass extensive tests in order to be licensed, in addition to paying a fee. REPRESENTATIVE LYNN asked how many licensed real estate practitioners are in Alaska. REPRESENTATIVE ROKEBERG said there are 1,800 to 2,000 in the Anchorage municipality. REPRESENTATIVE LYNN wondered what percentage of real estate agents in the past have sold home warranties along with selling or listing the house. MR. RIDGEWAY reiterated that this part of the insurance code is not being enforced. REPRESENTATIVE ROKEBERG expressed his frustration with laws that are not enforced. Number 1651 REPRESENTATIVE GATTO asked Mr. Ridgeway to comment about the recourse available to a consumer who paid $100 for a lifetime of oil changes and then discovered the company disappeared a week later. MR. RIDGEWAY said that is an example of a maintenance agreement, which is not covered under the Division of Insurance. It is different from a service contract that is designed to repair or replace a product. He added that people tend to use these terms interchangeably: referring to a maintenance agreement as a service contract, and a service contract as a warranty. He explained that warranties are not insurance. Warranties are provided only by the manufacturer; they come with the product at no additional cost. Number 1581 REPRESENTATIVE ROKEBERG said the Division of Insurance had no authority to investigate individual consumer complaints until about three years ago, when the legislature gave the division additional authority. Before this change, the division could only act on a pattern of activity. He asked Mr. Ridgeway if the division's ability to follow up on consumer complaints was relatively limited. Number 1525 MR. RIDGEWAY said there are two separate issues. The division has a section that deals only with consumer complaints. Those complaints are usually a misunderstanding between the policyholder and the underwriter or the agent. Division staff are able to resolve most of these complaints in a relatively short period of time. The division's ability to look at practices of the insurance industry is totally different from helping a consumer resolve an issue. If HB 120 passed and service contracts were excluded from the division's oversight, then the division's consumer protection section would not take complaints about service contracts. REPRESENTATIVE ROKEBERG summarized two key issues raised in HB 120. People must be licensed to sell home warranties, and auto warranties fall under the jurisdiction of the division. He noted that Representative Coghill can choose to deal with only certain types of service contracts; he can either limit or expand the scope of the bill. Number 1418 REPRESENTATIVE COGHILL said again that he's willing to hold the bill over. He noted that HB 120 does not exclude automobile warranties under Title 45, Motor Vehicle Transactions, and that provision would remain as is. Number 1395 CHAIR ANDERSON announced that HB 120 would be held over.
| Document Name | Date/Time | Subjects |
|---|