Legislature(1995 - 1996)

05/05/1995 03:10 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 SB 53 - OMNIBUS INSURANCE REFORM                                            
 Number 306                                                                    
 The last order of business was CSSB 53(JUD), "An Act relating to              
 regulation of risk retention or purchasing groups; to preemption              
 of the regulation of insurance agents and insurance producers; to             
 the general powers of the director of the division of insurance;              
 to insurance examination hearings; to insurer certificates of                 
 authority; to annual and quarterly statements, taxes, and                     
 prohibited acts of insurers; to reinsurance credit allowed a                  
 domestic insurer; to risk based capital for insurers; to insurer              
 assets and liabilities; to insurer investments; to insurance                  
 holding companies; to regulation, licensing, examination, and                 
 trade practices of insurance producers, managing general agents,              
 third-party administrators, brokers, independent adjusters, and               
 reinsurance intermediary managers; to surplus lines insurance; to             
 criminal insurance acts; to premium increases in automobile                   
 insurance; to insurance rating; to assigned risk pools; to filing             
 and approval of certain insurance policy forms; to required                   
 insurance coverage for acupuncture, nurse midwives' services,                 
 mammography, and phenylketonuria; to health insurance provided by             
 small employers; to transfer of an insurer's status as a domestic             
 insurer; to quarterly statements of benevolent associations,                  
 fraternal benefit societies, and health maintenance                           
 organizations; to reciprocal insurers; to the definition of                   
 'member insurer' for purposes of the Alaska Life and Disability               
 Insurance Guaranty Association; to electronic insurance data                  
 transfer and insurance funds transfer; to the definitions of                  
 'managing general agent' and 'person' applicable to insurance                 
 law; to automobile assigned risk plans; placing a person employed             
 by the division of insurance as an actuary or assistant actuary               
 into the exempt service; amending Alaska Rule of Civil Procedure              
 45; and providing for an effective date."                                     
 CHAIRMAN KOTT stated they first would hear testimony from the                 
 teleconference line in Anchorage.                                             
 Number 325                                                                    
 CIVIL DIVISION, DEPARTMENT OF LAW, was first to testify on the                
 measure.  He informed the committee his client is the Division of             
 Insurance (DOI).  He said he was prepared to talk on anything                 
 relating to the independent counsel provision.  He gave the                   
 following background on the provision:                                        
 It's a provision which was added into the division's omnibus at a             
 late date without the division's knowledge.  This independent                 
 counsel provision, which is found in the omnibus, near the end of             
 the bill, would add a new section to the insurance code at                    
 21.89.100.  The proposed legislation implements an Alaska Supreme             
 Court decision from 1993, which is called CHI of Alaska v.                    
 Employers Reinsurance.  The citation for that case is                         
 A44P22.11.13.  That case, in brief, stems from the proposition                
 that an insurer or a purchaser of insurance has a unilateral                  
 right to select independent counsel to represent them, and they               
 can do that at the insurance companies expense.  That is kind of              
 a controversial decision.  The Alaska Supreme Court has followed              
 the California Supreme Court in a case called the Cumis decision.             
 The Cumis decision was issued in 1984, and its right to                       
 independent counsel has been referred to in various states                    
 thereafter as the Cumis Council.                                              
 MR. STEBING continued that Alaska now has the Cumis Counsel and               
 this the proposed legislation added on to the omnibus bill seeks              
 to implement the CHI decision.  The CHI decision is not                       
 identified anywhere in the legislation but is clearly what is                 
 sought to be implemented.  The proposed language in this                      
 provision is essentially the same as California's.  California's              
 law was controversial and was intended to resolve problems which              
 arose when the Cumis Counsel remedy came into existence.  He                  
 explained some of the problems which the Wall Street noted in an              
 article was that attorneys were abusing this right by creating                
 conflicts of interest and there were even some multi million                  
 dollar fraud situations.                                                      
 MR. STEBING stated this was a controversial provision.  He is not             
 convinced this is a pro-consumer provision.  The DOI is charged               
 with protecting Alaskan insurance consumers.  Some might think                
 they're charged with protecting insurance companies and that is               
 not true.  However, DOI is supposed to provide a level playing                
 field and facilitate a healthy insurance industry.  However, the              
 Alaska Supreme Court in the Northern Adjusters decision of 627 P              
 2nd.205 of 1981, said the purpose of Title 21 was to protect                  
 Alaskan insurance consumers.  With that in mind, he believes that             
 this provision presents some problems in trying to implement the              
 CHI decision and its focuses on when a conflict of interest                   
 arises between an attorney and the insured.                                   
 MR. STEBING said it was his opinion the reference in subsection               
 (b) to narrowly defines conflict of interest.  This is an                     
 advantage to insurance companies in that they are excluding from              
 conflict of interest, a claim for punitive damages and a claim of             
 damages in excess of policy limits.  Those are two classic                    
 instances of a conflict of interest.  He said over the past few               
 years they have spent hundreds of hours collectively working on               
 this, and at the last minute this provision is added on that                  
 presents some controversy.                                                    
 MR. STEBING felt there would be a problem with the DOI having to              
 determine when a conflict of interest arises.  This would be a                
 matter subject to conflict and could be litigated.  The Alaska                
 Division of Insurance is charged with enforcing all of Title 21,              
 which includes all provisions within the title.  He said there                
 may be some problems with enforcement.  In closing, he noted that             
 the California is in the California Civil Code of Procedure.  He              
 said this law would be better placed in the Code of Civil                     
 Procedure rather than in the insurance code.                                  
 Number 417                                                                    
 REPRESENTATIVE ROKEBERG asked where the provision was located in              
 the Senate committee substitute (CS).                                         
 Number 420                                                                    
 MR. STEBING said he wasn't sure if it was in the current version              
 of the bill.                                                                  
 Number 427                                                                    
 CHAIRMAN KOTT said it is not in the current version of the bill.              
 MR. STEBING said it was his understanding this was an amendment.              
 Number 430                                                                    
 REPRESENTATIVE ROKEBERG asked Chairman Kott if there was an                   
 CHAIRMAN KOTT responded there would be.                                       
 REPRESENTATIVE ROKEBERG asked if that would be to insert the                  
 Cumis rule.                                                                   
 MR. STEBING responded, "To insert the independent counsel                     
 REPRESENTATIVE ROKEBERG said, "Which is consistent with the                   
 Alaska Supreme Court, is that correct?"                                       
 MR. STEBING said it seeks to implement the CHI decision.                      
 REPRESENTATIVE ROKEBERG questioned whether or not Mr. Stebing                 
 agreed with that.                                                             
 Number 434                                                                    
 MR. STEBING responded that he believes it has some problems.  It              
 may define conflict of interest more narrowly than the Supreme                
 Court intended.                                                               
 REPRESENTATIVE ROKEBERG inquired who the parties of interest                  
 Number 441                                                                    
 MR. STEBING responded he hadn't had any feed back from anyone.                
 He reiterated that the provision was added onto the same bill                 
 last year without the knowledge of the division.                              
 REPRESENTATIVE ROKEBERG commented they had been discussing                    
 amendments instead of the bill.                                               
 CHAIRMAN KOTT stated they had been discussing a proposal.                     
 Number 453                                                                    
 REPRESENTATIVE SANDERS questioned why the provision was taken out             
 of the bill.                                                                  
 MR. STEBING said he wasn't sure.  He was told that someone                    
 outside of the Division of Insurance had it added last year which             
 was unknown to the division.  When the bill was reintroduced this             
 year, it was removed.  He said this amendment would require a                 
 title change and could slow the process for the omnibus bill.                 
 Number 475                                                                    
 CHAIRMAN KOTT noted this was a Senate Labor and Commerce                      
 Committee bill.  He and asked Sherman Ernouf if he would like to              
 comment on this.                                                              
 ALASKA STATE LEGISLATURE, testified that the Senate Labor and                 
 Commerce Committee had introduced SB 53 at the request of the                 
 Division of Insurance.  It's important to the DOI that this                   
 passes the legislature this legislative session for accreditation             
 purposes.  He said they removed the independent counsel                       
 provisions in the Senate Labor and Commerce CS.  He said he would             
 try to answer any questions the committee had.                                
 Number 485                                                                    
 REPRESENTATIVE SANDERS inquired on the background as to why they              
 removed it.                                                                   
 Number 490                                                                    
 MR. ERNOUF responded they had removed it because of the very                  
 questions that were being raised now.  They wanted to make sure               
 SB 53 passes this session.                                                    
 REPRESENTATIVE ROKEBERG asked why it was put in.                              
 MR. ERNOUF responded no.                                                      
 REPRESENTATIVE ROKEBERG asked who added it.                                   
 Number 494                                                                    
 MR. ERNOUF replied at the time the bill was drafted they got                  
 proposed language from the DOI.  When the committee took                      
 testimony, it became a controversial issue so the bill was                    
 amended to take out that provision.                                           
 Number 500                                                                    
 CHAIRMAN KOTT thanked Mr. Ernouf for his testimony and asked the              
 director of the DOI, Marianne Burke to join them.                             
 CHAIRMAN KOTT referred to the Senate version, CSSB 53(JUD) and                
 asked why on page 4, line 9, the wording, "The director may close             
 an examination hearing to the public when the director finds the              
 closure is necessary to protect a person against unwarranted                  
 injury or is in the public interest," was inserted.  He asked                 
 what type of situation would warrant conclusion that closing                  
 examination hearings are in the public's interest.                            
 COMMERCE AND ECONOMIC DEVELOPMENT, responded if information of a              
 proprietary nature were being discussed in a hearing that would               
 give the insurance companies competitors an advantage, then the               
 meeting would be closed.                                                      
 Number 515                                                                    
 CHAIRMAN KOTT referred to page 7, line 6, and asked what the                  
 purpose was of filing with the National Association of Insurance              
 Commissioners (NAIC).                                                         
 MS. BURKE responded the purpose of going towards a central filing             
 was for the added efficiency of filing throughout the United                  
 States.  The insurers must still file with the department.  She               
 said they hope to get to the point where it will all be                       
 electronically submitted so not only Alaska would be able to                  
 access data base, but other states would as well.  Currently,                 
 they receive "tons" of paper.                                                 
 CHAIRMAN KOTT asked what would justify a waiver.                              
 Number 532                                                                    
 MS. BURKE replied it would have to be a most unusual                          
 circumstance.  At this time she couldn't think of a situation.                
 Perhaps being technically impossible or impractical for them to               
 meet their filing deadlines.                                                  
 CHAIRMAN KOTT asked if there were procedures in place to                      
 electronically file the annual reports, and if there wasn't                   
 wouldn't there be some fiscal application?                                    
 MS. BURKE explained the NAIC is working on the data base                      
 themselves, and would be filing it.  With the membership in the               
 NAIC, the division would have the ability to access it.                       
 CHAIRMAN KOTT asked how a foreign company comply with the filing.             
 Number 535                                                                    
 MS. BURKE said a foreign company is really a company domiciled in             
 another state.  NAIC is nationwide so every company would have                
 the ability to comply.                                                        
 CHAIRMAN KOTT asked how an alien company would file.                          
 MS. BURKE said there are efforts underway to have a consistent                
 and uniform way of providing information.  The filing requirement             
 for alien companies, those outside the U.S., the filing                       
 requirement are not precisely the same as inside the U.S.                     
 REPRESENTATIVE PORTER joined the committee at 3:45 p.m.                       
 Number 547                                                                    
 REPRESENTATIVE ELTON said his understanding is that the NAIC is a             
 professional organization.  He said he would like the rationale               
 explained to him about mandating, in state law, that a private                
 business report to a professional organization and further saying             
 that if you don't do that, the state imposes a fine of $100.                  
 Number 558                                                                    
 MS. BURKE said this is a group of insurance commissioners who                 
 have joined together and have been in existence since the 1870s.              
 She explained that if a company only does business in the state               
 of Alaska the director could exempt them from this.  However, if              
 an insurer is doing business nationwide, it would be to their                 
 advantage to also cut down on the number of filings.  They could              
 do this electronically.  Ms. Burke said to her knowledge, there               
 has been encouragement on the part of the insurers for the                    
 electronic filing.  Currently, there are penalties for late                   
 filing or non filing of the paper form.                                       
 Number 576                                                                    
 REPRESENTATIVE ELTON asked the chair's intention and commented                
 that he didn't want to take up a lot of time today if they were               
 going to move the bill.  However, he would like an answer as to               
 why they were mandating filing with a professional organization,              
 and if they don't, why would the state would collect $100 per                 
 day.  He said if they weren't planning on moving it today, the                
 staff could get back to him.                                                  
 Number 581                                                                    
 CHAIRMAN KOTT responded it was his intent to move the bill today.             
 Number 584                                                                    
 COMMERCE AND ECONOMIC DEVELOPMENT, testified the NAIC is a                    
 clearing house whose main purpose is to carry out the McCarran-               
 Ferguson Act.  The reason the division asks companies doing                   
 business on a national basis to file with NAIC is to cut down on              
 paperwork for departments who regulate the domestics that have to             
 send this information out if required.  He said this is public                
 information within the division's purview.  Once they receive a               
 certain companies financial statements, anyone would be entitled              
 to a copy of that financial statement.  Instead of the department             
 handling 100,000 requests from different individuals, the NAIC is             
 equipped to handle this electronically.                                       
 MR. SYKES referred to the question regarding foreign companies                
 and told the committee that the foreign companies look to file                
 with the NAIC because there is a type of insurance called surplus             
 lines.  This means in some states you'd go into that state and                
 say, "I would like to do business in your state."  In other                   
 states you could go in and say, "I want to do business in your                
 state but I don't want to go through your registration process."              
 From there, that state can go to the NAIC or back to the                      
 domiciliary state and obtain the electronic information.  He said             
 this is a check and balance between the both the NAIC and the                 
 stated domicile.                                                              
 MR. SYKES continued that the NAIC also collects electronic data               
 filings from those alien companies outside the United States                  
 under the acronym NAIIO.  The NAIIO handles companies such a                  
 Lloyd's of London, Madagascar Indemnity, etc.                                 
 Number 607                                                                    
 REPRESENTATIVE PORTER asked if this was an unusual requirement                
 based on what other states require.                                           
 MR. SYKES answered no.                                                        
 Number 609                                                                    
 CHAIRMAN KOTT referred to page 8, lines 1 and 2, and said talks               
 of a monetary refund.  He asked why not carry that over into the              
 second and subsequent years as far as a tax refund.                           
 MS. BURKE said there is that option.  The insurer may prefer to               
 have the tax refund paid to them or they could carry it over, it              
 gives latitude.                                                               
 CHAIRMAN KOTT acknowledged having the latitude but asked if it                
 would be cleaner if the money was left for the subsequent year                
 rather than having to go through the paperwork.                               
 MS. BURKE said there is the paperwork, tracking credits and                   
 keeping those monitored through the next year.  She said there                
 are costs associated either way.                                              
 CHAIRMAN KOTT inquired if it was common to have a tax premium                 
 credit at the end of the year.                                                
 MS. BURKE responded that it wasn't.                                           
 Number 626                                                                    
 CHAIRMAN KOTT referred to page 28, line 5, Section 27 and asked               
 why the language was changed from "domestic insurer may acquire,"             
 versus how it was previously "may not acquire."                               
 TAPE 95-56, SIDE B                                                            
 Number 000                                                                    
 REPRESENTATIVE KUBINA said, "You're going from `not' though to                
 `may,' instead of `may not' it's `may acquire.'"                              
 REPRESENTATIVE PORTER said, "In number one, you're going from                 
 `it's got to exceed,' to `cannot exceed.'  It's double shift."                
 MS. BURKE said, "We're adding does not exceed" in the next....                
 REPRESENTATIVE KUBINA commented that it is a double negative.                 
 Number 011                                                                    
 CHAIRMAN KOTT referred to page 30, lines 18 and 19, "An insurer               
 subject to registration under (a) of this section shall register              
 annually by April 1 of each year" and asked why the date of April             
 1 was chosen.   He asked if this was accommodating the insurers.              
 MS. BURKE responded the insurers have a December 31, year end, to             
 give them sufficient time and it also to gives the division                   
 enough time.                                                                  
 Number 025                                                                    
 CHAIRMAN KOTT referred to page 31, lines 13 and 14, "(1)                      
 additional educational or experience requirements may not apply               
 to a licensee who has been licensed by the division of insurance              
 before January 1, 1980;" and inquired as to why 1980 was selected             
 as the cutoff date.                                                           
 MS. BURKE replied that the language was agreed to by the                      
 Association of Independent Agents and Insurance Brokers.                      
 Number 039                                                                    
 MR. SYKES added that at the agents and brokers convention, this               
 language came from their educational committee.  They felt this               
 to be an appropriate cutoff date and proposed it to the division.             
 Since they will be responsible for certifying courses and helping             
 to carry on this chapter, the division honored the request.                   
 Number 046                                                                    
 CHAIRMAN KOTT said further down the page on line 29, it states,               
 "The director shall establish a continuing education advisory                 
 committee."  He asked whether there would be some kind of a                   
 fiscal application.                                                           
 MS. BURKE said the educational advisory committee is not                      
 envisioned as being part of the division.  This would be part of              
 the professional groups themselves and they bear their own costs.             
 CHAIRMAN KOTT referred to line 31 and asked what a limited lines              
 insurance representative was.                                                 
 Number 064                                                                    
 MR. SYKES  answered that AS 21.27.150 is the current statute, and             
 explained a limited lines insurance license are for the those                 
 insurance lines which typically do not have a high exposure.  For             
 instance that would be a travel agency which sells a limited type             
 of insurance called travel insurance.  It only covers a specific              
 item like domestic tickets or your trip insurance.  Another line              
 is credit life and credit disability insurance which can only be              
 sold if it is tied to a credit transaction.  It cannot be sold in             
 conjunction with any other product.  Title insurance is another.              
 Number 085                                                                    
 REPRESENTATIVE ELTON asked who enforces this.                                 
 MS. BURKE replied the industry wants this and would be part of                
 the licensing process.  Prior to renewal, the division would                  
 access the data to show they had met the requirements for their               
 continuing education.  It is tied to a licensing process which is             
 the same as is done with just about every profession in the state             
 with the exception of attorneys.                                              
 Number 106                                                                    
 CHAIRMAN KOTT referred to page 32, subsection (h) and said it                 
 states, "The director may make arrangements, including                        
 contracting with an outside agency, for administrative services,"             
 and asked if this would have a fiscal application.                            
 MS. BURKE said she would defer the question to her staff who                  
 handles fiscal notes.                                                         
 Number 116                                                                    
 way the continuing education provisions are envisioned is that                
 there would be a course fee.  The division would establish                    
 regulations for a course approval fee and probably there probably             
 would be an associated filing fee for the completion of the                   
 course.  The NAIC is developing a continuing education clearing               
 house, where (indisc.--coughing).  There are also national                    
 contractors where providers register with them.  The agents or                
 producers file their paperwork with them.  They in turn file with             
 the division.  Continuing education has the potential of becoming             
 paper intensive.  They want to get rid of the paper.  She said                
 any fees would be born by the producers.                                      
 Number 139                                                                    
 CHAIRMAN KOTT referred to Section 56 and asked if the 10 percent              
 was a standard within the industry.  He asked it that basically               
 something the NAIC is purporting to push.                                     
 MS. BURKE responded yes.                                                      
 Number 146                                                                    
 CHAIRMAN KOTT referred to page 39, line 26, of Section 56, "(1)               
 at least 20 days before expiration of a personal insurance                    
 policy;" and asked if that includes auto insurance.                           
 MS. BURKE replied there was a section which specifically address              
 auto insurance.                                                               
 Number 153                                                                    
 CHAIRMAN KOTT commented that this brought him to the next                     
 section.  He said he understood that there was a requirement when             
 the insurance industry raises their rates, they must provide the              
 consumer with the reason for the increase on their annual                     
 MR. SYKES explained there is only two reasons for an insurer to               
 raise the rates.  Based on the language in this section, the                  
 insurer would has to let the insured know within 20 days whether              
 the raise in rates was based on a change in risk or a raise in                
 Number 177                                                                    
 CHAIRMAN KOTT asked if the reason for change would be if you had              
 been cited and convicted for a traffic violation.                             
 MS. BURKE stated that would be a raise in risk.                               
 CHAIRMAN KOTT asked if this was supported by the NAIC.                        
 MR. SYKES answered yes.                                                       
 Number 187                                                                    
 REPRESENTATIVE ROKEBERG inquired if the 20 day period was a                   
 national standard or something the NAIC had agreed to.                        
 MR. SYKES answered that it was a national standard.                           
 Number 197                                                                    
 REPRESENTATIVE ROKEBERG commented that 20 days wasn't much notice             
 particularly if you were to have major increase.  He asked if                 
 this would also apply to cancellation notices.                                
 MR. SYKES said there is notification and cancellations.  However,             
 cancellation is a different animal in relation to this section.               
 When you cancel, you are given five or six situations under which             
 you could cancel, and the time of notice varies based on the                  
 Number 215                                                                    
 CHAIRMAN KOTT referred to Section 63 and asked Mr. Sykes to                   
 explain the difference between a criminal insurance act and a                 
 fraudulent insurance act.                                                     
 MR. SYKES would defer to AS 09.11.100 where it states the                     
 differences between the criminal act and a fraudulent act.  He                
 told the committee the division had a number of prosecutions last             
 year and they had gotten an education on this.  They said please              
 (indisc.) definitions for which you need to do to get more                    
 Number 230                                                                    
 CHAIRMAN KOTT said in Section 66, they have omitted "is guilty of             
 a felony."  He asked what the current violation is the violator               
 would be convicted of.                                                        
 MR. SYKES said they revised the statutes in Chapter 36, which                 
 speaks to trade practices.  What that his means anyone doing the              
 business of insurance in the state of Alaska is subject to any                
 provision under Chapter 36.  The division has updated what they               
 consider to be criminal or fraudulent acts to coincide with the               
 criminal statutes of AS 09.11.100.                                            
 Number 255                                                                    
 CHAIRMAN KOTT referred to the word "phenylketonuria" in Section               
 75 and asked the meaning.  He then commented that it was brain                
 damage, due to an accumulation of toxic metabolic products.                   
 REPRESENTATIVE ELTON asked why Section 3, gives the director the              
 extraordinary authority to precede the Governor on a catastrophe.             
 Number 274                                                                    
 MS. BURKE pointed out the perfect examples of this is the                     
 earthquake in California or the explosion in Oklahoma.  They need             
 to be able to waive some provisions to get claim adjusters on                 
 site to begin payment  and investigation of claims in meeting the             
 needs of the victims as quickly as possible.  This specifically               
 addresses these types of issues.  It does put some limits that it             
 can't go on forever.                                                          
 Number 283                                                                    
 REPRESENTATIVE ELTON said he understood the reasoning.  However,              
 you could apply the same reasoning toward an outbreak of some                 
 horrendous disease in Western Alaska or Southeast Alaska.  He                 
 asked if this was standard language that other states use.                    
 MS. BURKE replied this is language to facilitate the division's               
 continuing accreditation.  Dealing with an outbreak you might not             
 have to have the same licensing and noticing requirements to deal             
 with that outbreak as you would to have someone authorized to                 
 start making payments.  For example, there are provisions as to               
 how those payments must be made.                                              
 REPRESENTATIVE ELTON asked if other states had this language.                 
 MS. BURKE responded yes.                                                      
 Number 300                                                                    
 REPRESENTATIVE ELTON referred to page 10, line 7, and asked                   
 why the language dealing with confidentiality was included.                   
 Number 322                                                                    
 MS. BURKE responded that the amount of information the division               
 requires to be presented for them to affectively monitor the                  
 solvency of the insurer, requires that they divulge a lot of                  
 proprietary confidential information.  If that information were               
 made available to competitors, it would impose disadvantages.                 
 Number 334                                                                    
 REPRESENTATIVE ELTON asked why they can't say, "The director may              
 not release for proprietary business information," rather than                
 having the broad language saying the "upon the director's                     
 Number 341                                                                    
 MS. BURKE said, "An all inclusive list would -- say for some                  
 proprietary information, there are also terms and conditions of               
 reinsurance agreements.  That is it really proprietary."                      
 REPRESENTATIVE ELTON referred to page 32, Section 36, and                     
 inquired if there was a penalty for noncompliance.                            
 MS. BURKE replied there is.  The violations of license and                    
 statutes can result in loss of license or imposing penalties.                 
 Number 356                                                                    
 REPRESENTATIVE ELTON noted that on page 34, Section 42, and said              
 it seems odd to him.  We're saying that the director may issue or             
 renew a license with restrictions on the scope of that person's               
 license if the director determines the person has violated                    
 provisions for this title.  He can't do that unless he has the                
 consent of the applicant of the licensee.                                     
 Number 365                                                                    
 MR. SYKES responded, "In this provision here, we do get into a                
 situation where a licensee may not cause a substantial -- or may              
 not be a substantial danger or harm to the public, but we want to             
 his activities and his exposure to the public so we may put a                 
 condition on his license that he transact certain types of                    
 insurance and that he report to us the people he is doing                     
 business with.  Also, additional reporting requirements for who               
 he is producer for."                                                          
 Number 380                                                                    
 REPRESENTATIVE ELTON said he understands that.  However, the                  
 initial words in paragraph (c), you have that ability but only if             
 you have the consent of the applicant or the licensee.                        
 MR. SYKES responded this was in lieu of one of the more stringent             
 provisions within the licensing code.  For example, revocation or             
 Number 388                                                                    
 REPRESENTATIVE ELTON noted that if you have this stutter step                 
 toward a more full enforcement action, it seems you would be                  
 invalidating the stutter step if it's left to the discretion not              
 just of the director but also of the person who is being                      
 licensed.  If the licensee doesn't agree to the limitations, you              
 would be forced to go to....                                                  
 MS. BURKE said, "To revocation".                                              
 REPRESENTATIVE ELTON asked if that seemed strange to Ms. Burke.               
 REPRESENTATIVE ELTON explained that the way he understands                    
 regulation of the insurance industry is regulation is                         
 accomplished by 50 different states.  There is not a national                 
 regulatory body which enforces national standards.  It seems to               
 him that the state is leaning toward a body of law which applies              
 NAIC standards.  His concern is that there is no central federal              
 body of law regulating the industry.  It seems they will be                   
 consolidating that central authority into a professional                      
 organization.  That professional organization has the ability to              
 either accredit or not accredit Alaska.  The choice Alaska makes              
 is we better go along with what they want because if we don't, we             
 might lose our accreditation and access to information.  He asked             
 how NAIC makes their mind up.  He asked if they are they                      
 inundated with lobbyists from the industry.                                   
 MR. BURKE said, "You ask how these come about."  She said the                 
 staff in Alaska is active in pulling together and proposing these             
 standards.  They are on many committees that they have input.                 
 They have effectively gotten things this state and this division              
 feels are critical to do their job.  A number of these are                    
 uniform from state to state.                                                  
 Number 434                                                                    
 MR. SYKES added that the division goes through the same process               
 that the legislature does.  For example, the Division of Alaska               
 participates on a number of committees dealing with health care,              
 property, casualty, licensing.  They participate with other                   
 states, and solicit the input of the other 50 states to find a                
 common ground, a common thread and then draft broad language that             
 would be a minimum standard that all states could impose.  Once               
 they have the minimum standard, all states vote on it.                        
 MR. SYKES commented on the lobbying efforts from the insurance                
 industry.  The lobbyist might be looking for a provision which                
 might be too protective of the consumer.  Ms. Burke has the final             
 vote on that language.  He said the division sits on committees,              
 just like the legislature, they send things to subcommittees.                 
 Their process in adopting uniform laws, which are just minimum                
 standards, that the NAIC looks at a state enacting just the                   
 minimum language and then allows for amendments to fit their                  
 particular situation.                                                         
 Number 456                                                                    
 REPRESENTATIVE ELTON said as he went through the bill several                 
 things had struck him.  They were adopting standards which are                
 NAIC standards, extending the scope to reinsurance groups and                 
 purchasing groups, mandating filings with the NAIC, and                       
 determining how risk retention groups are reformed.  This is all              
 because of NAIC.                                                              
 Number 470                                                                    
 REPRESENTATIVE ROKEBERG asked Mr. Sykes to give the committee an              
 update on the movement to bring the regulation of the national                
 insurance business under federal statute because of the privacy               
 of the state on New York and the insurance commissioner of the                
 state of New York and their influence on the national trade                   
 Number 476                                                                    
 MR. SYKES responded that there was a movement under Dingle.                   
 Dingle wanted to looked at bringing the regulation of insurance               
 under federal statute with, federal (indisc.), and with the                   
 repeal of the McCarran-Ferguson Act.  At that time the DOI                    
 director, Mr. David Walsh, was also President of the NAIC.  He                
 led the charge of that organization to the federal government to              
 show why the NAIC and the processes with the 50 states worked                 
 better as a regulatory framework than as a federal government.                
 They were able to show that in the process of accreditation, if               
 you look at all the laws in the 50 states, you have a minimum                 
 standard that is the same language throughout.  That is enforced              
 the same way throughout except for one other provision that may               
 be unique to that area.  Obviously, we don't have the population              
 base of New York and we don't have the number of domestic                     
 companies like New York.  However, the minimum standards that we              
 have - the (indisc.) standards that we have - the risk retention,             
 etc., are laws that were developed by the 50 states.  There were              
 actual problems, i.e. insolvencies by risk retention.                         
 Number 496                                                                    
 CHAIRMAN KOTT asked how long we have been a member of the NAIC.               
 MS. BROWN said she believes it has been as long as there has been             
 a state insurance department.  She said they have been accredited             
 since 1992.                                                                   
 CHAIRMAN KOTT asked if there was a break in accreditation.                    
 MS. BROWN said it was a new program and Alaska was the fifteenth              
 state to become accredited.                                                   
 Number 513                                                                    
 There being no further testimony, CHAIRMAN KOTT stated he had a               
 couple of amendments.  He said he would offer Amendment 2 first               
 as he believes the department desires it to be in the bill.                   
 Chairman Kott indicated the amendment is extensive and deals with             
 consumer credit.  He moved Amendment 2 be adopted.                            
 Number 426                                                                    
 REPRESENTATIVE KUBINA objected for the purpose of hearing from                
 the department.                                                               
 MS. BURKE explained consumer credit insurance is, for the most                
 part, directed at the least sophisticated buyer of insurance.                 
 She referred to fliers that people may have received with their               
 credit card billings and said they relate to getting insurance                
 for paying off your unpaid bill in the event of disability or                 
 death.  It is also the type of insurance that if you go to buy a              
 car, quite often they'll say, "Well you must secure the debt with             
 insurance."  She said there are a number of other products on the             
 market that can do the same sort of thing.  The proposed                      
 Amendment 2 was a gain of product of the NAIC, but it was                     
 spearheaded by the Alaska DOI personnel.  They feel this is an                
 extremely important protection for the consumer.  It requires                 
 disclosure that the DOI feels is absolutely essential for the                 
 protection of the consumer, for example, that they do not have to             
 buy that particular product.  They can buy term life or other                 
 types of insurance.  The freedom is there for the consumer.  Ms.              
 Burke indicated the amount of coverage a company offers may not               
 be sufficient to pay off your debt.  It alerts the consumer to                
 the fact that it may not be sufficient.                                       
 MS. BURKE said it is not a area of the product line that is                   
 properly regulated at this point, it is directed at                           
 unsophisticated purchasers.  She said the DOI feels it is                     
 extremely important that the DOI be able to insist on minimum                 
 disclosures of what the people are buying and if they have                    
 Number 557                                                                    
 REPRESENTATIVE ROKEBERG asked if the insurance includes mail                  
 orders in terms of marketing.  He said if that is the case, how               
 would the DOI be able to enforce that on an interstate bases.                 
 MS. BURKE said there is telemarketing and the DOI would require               
 that the product be regulated by the DOI.  For example, if they               
 do have an advertisement for a particular product by                          
 telemarketing, the DOI will be aware of it.  If it is misleading,             
 it would be subject to the same sort of misleading and fraudulent             
 statutes that currently exist.  Ms. Burke said it currently goes              
 on and they may get complaints about it.  They don't have a lot               
 of (indisc.) to do anything about it.                                         
 MS. BURKE said she would like to point out that they have                     
 incorporated suggestions made by marketers office product to the              
 extent that it didn't totally erode the regulatory nature of this             
 product.  She said the DOI is not requesting that they file it                
 before they do it.  There was a complaint lodged that if they had             
 to file a copy of every single piece of paper they sent out, it               
 would be onerous.  The DOI did amend that portion to say that                 
 they would still have the right to regulate it and if it were                 
 false or misleading, they would take appropriate action.                      
 CHAIRMAN KOTT asked if the amendment was in the original version              
 of the bill.                                                                  
 MS. BURKE indicated it was.  She said they did make some minor                
 changes to accommodate comments that were made in a Senate                    
 Judiciary Committee meeting.  It was deleted in Senate Judiciary.             
 Ms. Burke noted a lot of testimony was given from organizations               
 in the lower 48 via teleconference.  She said the DOI wasn't                  
 aware that they would be objecting to this.  There was no                     
 testimony in opposition to the provisions last year in the                    
 hearing process.  Ms. Burke said Senator Taylor requested that                
 people providing testimony via teleconference present that to                 
 them in writing since it was so voluminous.  They did and that is             
 the information that the DOI incorporated again to the extent                 
 that they could without eroding the product.                                  
 Number 584                                                                    
 REPRESENTATIVE SANDERS asked if he could assume that the                      
 controversial part is not in Amendment 2.                                     
 CHAIRMAN KOTT said that is a safe assumption.                                 
 Number 593                                                                    
 REPRESENTATIVE ROKEBERG asked if it was deleted in Senate                     
 Judiciary Committee this year.  MS. BURKE responded that it was,              
 but Senator Taylor also agreed to introduce a separate piece of               
 legislation.  She noted it hasn't been introduced to date.                    
 Number 595                                                                    
 REPRESENTATIVE PORTER asked if would be a fair statement to say               
 that the bill is a product of incorporating some of the                       
 suggestions that lead to the other one being taken out.  He said,             
 "This isn't precisely what was taken out, this is a softened up               
 version, if you will."  MS. BURKE responded, "That's correct."                
 REPRESENTATIVE ELTON said, "I was willing to take on faith, kind              
 of 60 or some page bill with over 90 sections in the                          
 waining(sp.?) days of the legislative session, and I mean                     
 absolutely no disrespect to the division or the department or                 
 anybody else, but -- and they're pulling all the right chains for             
 me -- consumer protection, outside groups are nervous about it.               
 I mean I kind of -- made me feel good when Mari K. didn't want                
 something and some of the others I thought `well, you know why                
 are all these national groups...'  Obviously, were maybe doing                
 something right.  So the arguments that I have heard from the                 
 department all want me to vote with my heart and say, `Hey, right             
 on, lets do it.'  But, Mr. Chair, I guess -- I mean I'm probably              
 going to make a statement here and I am going to go with my head              
 rather than my heart, in that I don't think it's good public                  
 process to get a bill this big, move it out of committee and add              
 a 16 page amendment to it that I haven't had a chance to read.  I             
 mean I've read this one and I thought my god, I'm going to pat                
 myself on the back for getting through it.  I was willing to not              
 object to moving it out.  I think if we do this despite the fact,             
 then I think we're probably doing the right thing.  Without                   
 seeing any of the backup material of what made people nervous,                
 without a good explanation of what was in that's now out of it                
 that was making people nervous that kind of process just pushes               
 me over the edge.  I'm going to... If somebody makes a move to                
 amend with this, I'll object for whatever good it may do.  I                  
 guess if somebody had come to me a week ago and said, `Kim, this              
 is very important for these reasons' and given me an opportunity              
 to think about it, make at least a few phone calls, I'd have                  
 probably gone `yea,' and I would have been an enthusiastic                    
 supporter.  I probably will be an enthusiastic supporter when it              
 comes back, but I'm not right now."                                           
 Number 630                                                                    
 REPRESENTATIVE ROKEBERG stated he agrees with Representative                  
 Elton.  REPRESENTATIVE SANDERS said he also does.                             
 TAPE 95-57, SIDE A                                                            
 Number 001                                                                    
 CHAIRMAN KOTT withdrew Amendment 2.  He then distributed                      
 Amendment 1.  He asked the drafting attorney to come forward.                 
 Number 037                                                                    
 AFFAIRS AGENCY, informed Chairman Kott he is the drafting                     
 attorney for SB 53.                                                           
 CHAIRMAN KOTT explained the committee had before them a work                  
 draft of the bill, dated 3/30/95, Version G.  He said the                     
 official bill packet has the same CS, 9-LS0467\G.  There appears              
 to be some difference between the two versions.  He asked Mr.                 
 Ford if he was correct in that assumption.                                    
 MR. FORD said he was just informed of that by Mr. Dozier.  He                 
 said he believes there was a change in the title made by the                  
 Senate Labor and Commerce Committee.  Mr. Ford said he can't                  
 explain why the title in the committee files is different than                
 the printed copy, but it is.  It could be that there has been an              
 error in printing.  He both should be the same.                               
 CHAIRMAN KOTT said if there is a difference, it probably would be             
 in the title.  MR. FORD said that is the error that has been                  
 pointed out to him.  He said he would have to check his file as               
 to what the problem is.  He said he has a G Version of CSSB
 53(JUD).  He said he believes that is the version before the                  
 committee.  Occasionally, there are errors in printing.  He said              
 that could be the problem and he indicated he would have to check             
 his file.                                                                     
 CHAIRMAN KOTT asked Mr. Ford if he is looking at the copy that                
 has "WORK DRAFT" stamped on it.  MR. FORD indicated he wasn't.                
 He was looking at a printed (indisc.).                                        
 REPRESENTATIVE ROKEBERG said the difference is on line 8 of the               
 Number 076                                                                    
 CHAIRMAN KOTT said the amendment basically resolves the Supreme               
 Court case that has ruled that in litigation where there is a                 
 conflict of interest between the insurance company and the                    
 insured, the latter is entitled to retain independent counsel.                
 The amendment requires independent counsel to have at least 40                
 years experience in civil litigation, including substantial                   
 defense experience in the subject at issue in the civil action.               
 Unless the policy states otherwise, the prepaid independent                   
 counsel is limited to the right that the insurer pays to                      
 attorneys in the regular course of doing business in this area.               
 In subsection (f), it makes changes to require independent                    
 counsel to consult with the insurer on all matters related to the             
 case and disclosure of the relevant matters except those which                
 are privileged and relevant to the disputed coverage.  It also                
 defines what does not constitute a conflict of interest.                      
 Chairman Kott noted this was in the original bill with the                    
 exception that some (indisc.) changes were made.  He asked Mr.                
 Ford if he would like to elaborate further.                                   
 MR. FORD said he has seen the language before in a different                  
 version.  His only concern is that the title of the Senate bill               
 is fairly narrow.  At present, it describes all the provisions in             
 the bill in a manner that was intended to preclude the addition               
 of other material unless it fits within those specific                        
 categories.  Mr. Ford said he would be concerned that this                    
 material would not fit under the existing title.                              
 Number 120                                                                    
 CHAIRMAN KOTT said he would concur with that assessment.  He said             
 Amendment 1 or Amendment 2 would not conform to the title and                 
 would require a resolution.  He said he has been told there was               
 support for a title change if the committee desires to do that.               
 MR. FORD said aside from that, he doesn't have any legal                      
 Number 140                                                                    
 CHAIRMAN KOTT moved Amendment 1.                                              
 REPRESENTATIVE ROKEBERG objected.  He asked for a brief at ease.              
 The meeting was called back to order at which point a roll call               
 vote was taken.  Representative Kott, Sanders, Elton, Kubina and              
 Porter voted in support of the amendment.  Representative                     
 Rokeberg voted against the amendment.  So Amendment 1 was                     
 Number 167                                                                    
 There was some confusion as to the committee members having the               
 right version before them.  REPRESENTATIVE KUBINA moved, for the              
 record, that the version before the committee was 9-LS0467\G,                 
 Judiciary, Senate Judiciary Committee, and it is NOT marked "WORK             
 DRAFT."  CHAIRMAN KOTT said there is a motion to adopt the                    
 correct version.  Hearing no objection, it was so ordered.                    
 Number 179                                                                    
 CHAIRMAN KOTT said, "To ensure that we are correct, I'm going to              
 ask that we rescind our action in adopting Amendment Number 1."               
 Hearing no objection, it was so ordered.                                      
 CHAIRMAN KOTT then moved Amendment 1.  He asked if there was an               
 objection.  REPRESENTATIVE ROKEBERG objected and called for a 30              
 second at ease.  He informed the committee that he had taken the              
 time to review a law review article.  He said he would like to                
 know what the opinion is of the DOI before it is adopted.                     
 MS. BURKE said the DOI feels that it is more of an attorney legal             
 issue and they don't have a position.                                         
 REPRESENTATIVE ROKEBERG asked if Mr. Stebing was still on line                
 via teleconference.  He said in the testimony given by him, it                
 seemed he wasn't an advocate of the amendment.                                
 MS. BURKE said that is true.  He has some strong legal                        
 considerations and concerns on the issue.  He has expressed those             
 REPRESENTATIVE ROKEBERG said according to information he has                  
 there was a 3 - 2 split in the Alaska Supreme Court, and the                  
 ruling was contained in the CHI case ruling which indicated that              
 this goes against the preponderant adoption and state                         
 jurisdictions throughout the country.  The arguments brought                  
 fourth by the descending justices and the Chief Justice of the                
 Alaska Supreme Court indicated this would be (indisc.) public                 
 policy.  He said he would prefer that the amendment be held until             
 this could be clarified.                                                      
 Number 225                                                                    
 REPRESENTATIVE KUBINA noted that he doesn't have a problem with               
 either amendment.                                                             
 CHAIRMAN KOTT said there is a motion to adopt Amendment 1.  He                
 asked for a roll call vote.  Representative Kott, Porter, Kubina,             
 Elton and Sanders voted in support of the amendment.                          
 Representative Rokeberg voted against the amendment.  So                      
 Amendment 1 was adopted.                                                      
 REPRESENTATIVE KUBINA moved Amendment 2.  CHAIRMAN KOTT asked if              
 there was an objection.  Hearing none, Amendment 2 was adopted.               
 CHAIRMAN KOTT said the committee had before them CSSB 53(JUD), as             
 amended by the House Labor and Commerce Committee.                            
 Number 247                                                                    
 REPRESENTATIVE KUBINA moved to pass SB 53 out of the House Labor              
 and Commerce Committee.  CHAIRMAN KOTT said there is a motion to              
 move CSSB 53, as amended, out of committee with individual                    
 recommendations and accompanying fiscal notes.  Hearing no                    
 objection, HCS CSSB 53(L&C) was passed out of committee.                      

Document Name Date/Time Subjects