Legislature(2005 - 2006)CAPITOL 17

02/10/2006 03:15 PM LABOR & COMMERCE


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03:42:40 PM Start
03:42:47 PM HB51
04:45:54 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 51 EMPLOYER ASSN FOR WORKERS' COMP INS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB  51-EMPLOYER ASSN FOR WORKERS' COMP INS                                                                                    
                                                                                                                                
3:42:47 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  announced that the  only order of  business would                                                               
be SPONSOR SUBSTITUTE FOR HOUSE BILL  NO. 51, "An Act relating to                                                               
modifying the  qualifications required for  workers' compensation                                                               
self-insurance  and permitting  employers  in the  same trade  or                                                               
industry  to  form  an   employer  association  for  self-insured                                                               
workers' compensation  coverage; and  providing for  an effective                                                               
date."                                                                                                                          
                                                                                                                                
3:43:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KEVIN MEYER,  Alaska State  Legislature, sponsor,                                                               
began by  saying that there is  a sponsor substitute (SS)  due to                                                               
drafting errors in the original bill.   He said he would begin by                                                               
giving an oversight of how  self-insurance currently works, while                                                               
explaining the changes  made by the SS.  The  SS, he said, allows                                                               
five  or more  employers to  "bind" themselves  together for  the                                                               
purpose  of  self-insuring  against their  workers'  compensation                                                               
obligations.   He  stated that  the original  version amended  AS                                                               
21.076.010,  which  applies   to  joint  insurance  arrangements.                                                               
However,  he said,  this bill  is  intended to  apply to  private                                                               
entities,  therefore the  SS shifts  the proposed  changes to  AS                                                               
23.30.090,  which governs  self-insurance.   Currently, a  single                                                               
employer is allowed to  self-insure his/her workers' compensation                                                               
obligations.   He  explained  that the  employer  must submit  an                                                               
application  to the  Alaska Workers'  Compensation Board  (board)                                                               
and the board can then approve  or deny the application.  He said                                                               
that the SS  allows the new association of employers  to meet the                                                               
same requirements  of a single  employer.   He noted that  the SS                                                               
does not  require the board  to issue a certificate  of insurance                                                               
nor does it  encourage small employers to  self-insure, rather it                                                               
allows them to do so.   He noted that there are several obstacles                                                               
which require  careful evaluation,  for small employers  who wish                                                               
to self-insure.                                                                                                                 
                                                                                                                                
3:44:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MEYER   said  that   there  are   many  different                                                               
perspectives  on this  issue.   He  offered his  belief that  all                                                               
parties are  in agreement  regarding the  high cost  of insurance                                                               
and its effect  on small employers.  In conclusion,  he said that                                                               
SSHB 51 offers  a tool for small employers to  "grapple" with the                                                               
costs of the [workers' compensation] system.                                                                                    
                                                                                                                                
3:45:25 PM                                                                                                                    
                                                                                                                                
CHAIR  ANDERSON noted  that  there  was a  handout  given to  the                                                               
committee entitled  "Self-Insured Groups" and inquired  as to who                                                               
prepared it.                                                                                                                    
                                                                                                                                
3:45:42 PM                                                                                                                    
                                                                                                                                
MIKE  PAWLOWSKI,  Staff  to Representative  Kevin  Meyer,  Alaska                                                               
State  Legislature,  sponsor,  replied  that  the  aforementioned                                                               
handout was  prepared by  Pro Group  Management, Inc.,  and noted                                                               
that  Robert Vogel  would be  explaining the  handout during  his                                                               
testimony.                                                                                                                      
                                                                                                                                
3:45:52 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON asked if Representative  Meyer had a preference on                                                               
the order of testimony.                                                                                                         
                                                                                                                                
3:46:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MEYER replied  that Larry  Partusch would  be the                                                               
best person to explain the details of the bill.                                                                                 
                                                                                                                                
3:47:09 PM                                                                                                                    
                                                                                                                                
LARRY  PARTUSCH,  Treasurer   and  Government  Affairs  Co-Chair,                                                               
Anchorage  Home Builders  Association (AHBA),  Anchorage, Alaska,                                                               
noted that he  is also the owner of Partusch  Plumbing & Heating,                                                               
Inc. and Northern Sheetmetal Fabricators,  Inc. in Anchorage.  He                                                               
stated that  the AHBA  is in  support of SSHB  51.   He explained                                                               
that  as  a  self-insured  group, the  AHBA  would  be  industry-                                                               
specific, which means the AHBA  would be "self-placing" more than                                                               
it is currently.  He said that  the AHBA has a vested interest in                                                               
maintaining a safe work environment  for all employees, including                                                               
those  who  can't afford  workers'  compensation  insurance.   He                                                               
stated that currently, the AHBA  has an "assigned risk" pool, and                                                               
companies are  placed in this  pool regardless of whether  or not                                                               
they  "deserve"  to be.    This  legislation would  enable  these                                                               
companies  to receive  coverage under  the  AHBA.   The AHBA,  he                                                               
said, would not penalize companies because of their size.                                                                       
                                                                                                                                
3:48:21 PM                                                                                                                    
                                                                                                                                
MR. PARTUSCH  stated that Pro  Group Management, Inc. has  a good                                                               
track record.   He said that  23 percent of the  employees in the                                                               
state  are covered  under  self-insured  programs through  single                                                               
employers, adding that by allowing  groups of single employers to                                                               
pay for insurance, the risk is spread around.                                                                                   
                                                                                                                                
3:49:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  for   an  example  of  what  the                                                               
[insurance]  premium rates  have done  over the  past few  years,                                                               
along with why [Mr. Partusch] feels this would be a good idea.                                                                  
                                                                                                                                
MR. PARTUSCH  replied that his  rates have tripled over  the past                                                               
five  years, adding  that this  is "better  than the  norm."   He                                                               
opined  that  this  bill would  not  benefit  rates  immediately;                                                               
however,  it  is  a start.    He  added  that  if claims  can  be                                                               
controlled and  working environments  made safer,  eventually the                                                               
rates may stop  increasing.  It is "disheartening,"  he said, for                                                               
a business  to do  well over  the year and  have few  claims, yet                                                               
still be required to pay high prices for insurance.                                                                             
                                                                                                                                
3:51:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG  pointed  out   that  past  issues  have                                                               
included  insolvency  and the  ability  to  maintain coverage  of                                                               
injured and  disabled workers after  employment.  Referring  to a                                                               
letter from Spinelli Homes, Inc.,  in committee packets, he asked                                                               
if  Mr.  Partusch  would  explain  how  he  views  his  financial                                                               
commitments and net  worth requirements, and how  this would work                                                               
over the long term.                                                                                                             
                                                                                                                                
3:52:06 PM                                                                                                                    
                                                                                                                                
MR. PARTUSCH  said that his  premium for 2006 for  both companies                                                               
is $289,000.   If  combined with the  premium of  Spinelli Homes,                                                               
Inc., the total is close to $600,000.                                                                                           
                                                                                                                                
3:52:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG asked  what type of assets  would be made                                                               
available through the association of single employers.                                                                          
                                                                                                                                
MR. PARTUSCH replied  that he does not foresee  any difficulty in                                                               
generating  premium.    In  response  to  a  comment  from  Chair                                                               
Anderson, Mr.  Partusch said  that the  goal is  to have  all the                                                               
companies in the  AHBA involved.  He said that  this way the risk                                                               
would be shared by each member in the group.                                                                                    
                                                                                                                                
3:53:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG commented that  this would require taking                                                               
on the work  practices of smaller employers, which may  not be as                                                               
good as other companies.                                                                                                        
                                                                                                                                
MR. PARTUSCH  said that initially, the  association would include                                                               
small  employers  that  run  good  companies  but  are  penalized                                                               
because of their size.  He  added that as this association grows,                                                               
a  company with  negative claim  history may  try to  improve its                                                               
status in order to be involved in the association.                                                                              
                                                                                                                                
3:54:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked if  there has been  any analysis                                                               
on the projected changes to the workers' compensation rates.                                                                    
                                                                                                                                
3:54:57 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  explained that  [during the  previous legislative                                                               
session]   the   workers'   compensation  hearing   process   was                                                               
restructured,   along  with   the   committees  responsible   for                                                               
assessing injuries and the appeals  process.  He added that these                                                               
changes have not been fully enacted.                                                                                            
                                                                                                                                
MR.  PARTUSCH said  that  his rates  didn't  increase last  year,                                                               
compared to  previous years.   He stated that his  company's base                                                               
rate in 1999  was $4.39 per $100, and currently  it is $12.39 per                                                               
$100, although he is not able to  say that the increase is due to                                                               
the changes made to the workers' compensation law.                                                                              
                                                                                                                                
3:55:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked  how  the  rate  increases  are                                                               
justified.                                                                                                                      
                                                                                                                                
MR. PARTUSCH surmised that the rates  are based on the history of                                                               
the industry.                                                                                                                   
                                                                                                                                
3:56:43 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  noted that  [Mr. Partusch]  is not  commenting on                                                               
whether or  not the  rates are  fair or  reasonable, and  at this                                                               
stage does not know the full process.                                                                                           
                                                                                                                                
MR. PARTUSCH agreed that this is correct.                                                                                       
                                                                                                                                
CHAIR  ANDERSON commented  that  other  groups have  self-insured                                                               
under  Title 21,  while  this  bill is  drafted  under Title  23,                                                               
resulting in  different reporting  requirements.  He  inquired as                                                               
to how this bill compares to  other states, and noted that Alaska                                                               
has a unique infrastructure.                                                                                                    
                                                                                                                                
3:59:04 PM                                                                                                                    
                                                                                                                                
ROBERT   VOGEL,  Vice   President   of   Operations,  Pro   Group                                                               
Management, Inc., said  that Pro Group Management,  Inc. (PGM) is                                                               
a plan  administrator for self-insured  groups in Nevada,  and is                                                               
interested in doing  similar activity in Alaska.   He stated that                                                               
PGM began with  self-insured groups in New Mexico  and then moved                                                               
to Nevada,  where it currently manages  four self-insured groups.                                                               
He noted  that three of the  four groups started in  1995 and the                                                               
fourth started in 1999, adding  that the latter is a homebuilders                                                               
group.                                                                                                                          
                                                                                                                                
3:59:54 PM                                                                                                                    
                                                                                                                                
MR.  VOGEL   stated  that  generally,  self-insured   groups  are                                                               
regulated  in  the  same statute  that  regulates  single,  self-                                                               
insured  employers.   In Nevada,  he said,  this falls  under the                                                               
Division  of  Insurance; however,  some  states  have a  separate                                                               
department of workers' compensation insurance.   He said that the                                                               
PGM groups  did not  initially save money,  noting that  they are                                                               
primarily safety driven groups.   If the companies follow through                                                               
with  their  responsibilities,  he  said,  this  will  eventually                                                               
provide continuity for members.                                                                                                 
                                                                                                                                
MR.  VOGEL  said  that  this  type  of  program  requires  strong                                                               
underwriting and  initially, only 30-40 percent  of the employers                                                               
that apply will  qualify.  He explained that an  employer may not                                                               
qualify due to  poor loss experience, not  exhibiting good safety                                                               
and  risk management  practices, or  financial stability  that is                                                               
not "up to par" with group  requirements.  He said that the joint                                                               
and several  liability agreement is  the basis of  a self-insured                                                               
group, adding that  if necessary, the companies need  to have the                                                               
financial ability to provide additional funding.                                                                                
                                                                                                                                
4:02:20 PM                                                                                                                    
                                                                                                                                
MR. VOGEL noted  that [a self insured group] is  different from a                                                               
standard insurance  company or a captive  alternative which would                                                               
require a substantial  amount of cash upfront.   Instead, members                                                               
of the  self-insured groups  would pledge  the entire  company to                                                               
the success  of the  group which  helps to  ensure solvency.   He                                                               
said  that  the  self-insured  group   is  an  aggregate  of  the                                                               
employers who  want to form the  group.  He stated  that the long                                                               
term goal  is to add additional  members in order to  provide the                                                               
stability  needed   if  one  member   of  the  group   filed  for                                                               
bankruptcy, and  he added that  all employers who join  the group                                                               
will be aware that this is part of the risk.                                                                                    
                                                                                                                                
                                                                                                                                
4:03:43 PM                                                                                                                    
                                                                                                                                
MR.  VOGEL went  on to  say that  the group  will buy  additional                                                               
insurance  through  an  "A" rated  excess  insurance  carrier  to                                                               
provide protection  for catastrophic injuries and  the group will                                                               
have a deductible.   He stated that the market  retention rate is                                                               
around   $750,000,   depending   on  the   risk,   and   workers'                                                               
compensation  claims  mature  in  2-3   years  on  average.    He                                                               
explained  that  [the  PGM] encourages  groups  to  do  quarterly                                                               
actuarial  reviews that  are a  five-year  projection of  losses,                                                               
which  will show  whether  enough funds  have  been collected  to                                                               
cover the claims over the five  year projection.  He said "If you                                                               
do that on a quarterly basis,  you don't have any surprises," and                                                               
he added  that this will  allow the  group to make  any necessary                                                               
rate  adjustments.   He said  that the  insurance group  would be                                                               
subject  to annual  Certified  Public  Accountant (CPA)  reports,                                                               
annual actuary audits, and rate  reviews to ensure the protection                                                               
of the members and availability of funds to pay for claims.                                                                     
                                                                                                                                
4:05:28 PM                                                                                                                    
                                                                                                                                
MR. VOGEL said that only  those employers who exhibit good safety                                                               
practices can  qualify.   In addition, he  stated that  the group                                                               
would   need   to   implement  safety   mandates,   on-site   job                                                               
inspections,  on-site safety  training,  video  training for  all                                                               
phases  of  specific  industry,   and  claims  training  for  the                                                               
employers.   This would  ensure that  employers report  claims as                                                               
they  happen.     He  said  "The  main  focus   ...  of  workers'                                                               
compensation is  to be  able to treat  our employees  fairly, ...                                                               
pay their claim ... and get them back to work."                                                                                 
                                                                                                                                
4:07:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG  remarked  that  Nevada is  one  of  the                                                               
fastest growing  areas in  the United States  and he  opined that                                                               
the homebuilders  in Nevada have  experienced a lot of  growth in                                                               
their  businesses.   He asked  if there  had been  any discussion                                                               
within   the  [Nevada   homebuilders]  regarding   the  potential                                                               
"bursting  of the  housing bubble"  and the  impact of  a rapidly                                                               
declining market on the ability to meet obligations.                                                                            
                                                                                                                                
4:07:42 PM                                                                                                                    
                                                                                                                                
MR. VOGEL  replied that the  board discusses this regularly.   He                                                               
said that  the board  does quarterly  actuarial reviews  and also                                                               
projects for losses that are  "incurred but not reported" (IBNR).                                                               
He stated  that this is to  ensure that all projected  claims are                                                               
taken  care  of, adding  that  on  a  fully reserved  basis,  the                                                               
builders group  has a 22  percent loss ratio.   He said  that the                                                               
companies  are  offering  more services  with  surplus  funds  to                                                               
ensure that  the amount  of claims  is reduced.   He  stated that                                                               
when employees  do not have another  job to go to,  the number of                                                               
claims begin to  rise.  In addition, he said,  PGM is in constant                                                               
contact  with its  members so  that PGM  knows where  its current                                                               
jobs are and where the next job  is, as well as the length of the                                                               
job.  He said that PGM  works with its employers and employees to                                                               
work through  the job ending process  to ensure that there  is no                                                               
carelessness.    The  short  answer,  he  said,  is  through  the                                                               
actuarial  projections and  premium assessment  collection, which                                                               
have  collected enough  funds  to  pay out  all  of the  expected                                                               
claims.  He  said the purpose of the actuarial  review is to have                                                               
an  independent party  looking at  funds that  are collected  and                                                               
trends in  losses, and  then generate enough  surplus to  pay for                                                               
claims that are unknown.                                                                                                        
                                                                                                                                
4:10:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  how   the  loss  ratio  for  the                                                               
homebuilders  group  compares  to   the  other  three  individual                                                               
insurance groups.  In addition, he  asked what kind of savings is                                                               
estimated for the homebuilders since forming their own group.                                                                   
                                                                                                                                
4:10:41 PM                                                                                                                    
                                                                                                                                
MR.  VOGEL  replied  that  PGM  has  four  different  independent                                                               
insurance  groups.    He  said   that  the  loss  ratio  for  the                                                               
homebuilders  is 24  percent, compared  to the  industry overall,                                                               
which has a loss ratio of 45 percent.   He stated that PGM has an                                                               
auto  dealers  group   with  a  loss  ratio  of   30  percent,  a                                                               
transportation  group with  a loss  ratio  of 41  percent, and  a                                                               
retail group with a loss ratio  of 19 percent.  He explained that                                                               
the  homebuilders'   rate  is  20  percent   below  the  standard                                                               
statewide rate, and  he added that Nevada is  an National Council                                                               
on Compensation  Insurance, Inc., (NCCI)  state.  He  stated that                                                               
PGM's trucking company  overall rates are about  15 percent below                                                               
the standard rate,  the auto dealers are about  40 percent below,                                                               
and  the  retail group  is  approximately  20 percent  below  the                                                               
standard rate.                                                                                                                  
                                                                                                                                
4:12:11 PM                                                                                                                    
                                                                                                                                
MR. VOGEL  stated that  if the homebuilders  had remained  in the                                                               
standard  market, the  group would  have spent  about 25  percent                                                               
more than in the self-insured group.                                                                                            
                                                                                                                                
4:13:23 PM                                                                                                                    
                                                                                                                                
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce,  Community, &  Economic  Development,  began by  saying                                                               
that  she has  been studying  [HB 51]  for about  one year.   She                                                               
opined that this issue is a public policy call.                                                                                 
                                                                                                                                
4:15:04 PM                                                                                                                    
                                                                                                                                
MS.  HALL stated  that she  has very  serious concerns  about the                                                               
legislation, which she has discussed  with the bill sponsor.  She                                                               
said that  she would be  discussing four major points,  the first                                                               
of which  is financial  oversight.   She stated  that one  of the                                                               
basic principles  of insurance  regulation is  solvency oversight                                                               
to ensure that claims are paid.   She said that the division does                                                               
extensive examinations, which are required  by the statutes.  She                                                               
said  that  audit teams  are  on  the  premises to  look  through                                                               
records,  and are  looking for  balance sheets  and the  types of                                                               
investments made.   She said that  there are a limited  number of                                                               
investments  that insurance  companies  are allowed  to make  and                                                               
these  are called  "admitted  assets."   She  explained that  the                                                               
quality and liquidity  of the investment plays a  role in whether                                                               
or  not  it is  allowed,  and  this  is  part of  the  regulatory                                                               
process.   She noted that  the National Association  of Insurance                                                               
Commissioners  (NAIC) has  a Securities  Valuation Office,  which                                                               
rates the quality of investments.                                                                                               
                                                                                                                                
MS. HALL explained that the  division also determines "risk based                                                               
capital,"  which shows  the capital  funds available  to pay  the                                                               
loss reserves.   In addition, she said that the  division does an                                                               
actuarial analysis  of the  loss reserves.   She stated  that the                                                               
annual  statements range  from  110  to 120  pages  long and  are                                                               
standardized throughout the country.                                                                                            
                                                                                                                                
4:17:28 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  noted that Mr.  Vogel testified that  Nevada does                                                               
perform  quarterly  actuarial  reviews,  annual  independent  CPA                                                               
audits,  safety practice  inspections,  and video  training.   He                                                               
asked if the  division is concerned that there may  be a bias, as                                                               
PGM is a hired group and the division is a state entity.                                                                        
                                                                                                                                
4:18:12 PM                                                                                                                    
                                                                                                                                
MS. HALL  replied that the  language of the bill  doesn't require                                                               
any of  the aforementioned reports  and audits.  She  stated that                                                               
the Nevada statutes are much  more detailed and require a greater                                                               
level of financial and regulatory oversight.                                                                                    
                                                                                                                                
4:18:43 PM                                                                                                                    
                                                                                                                                
MS.  HALL  informed  the  committee that  the  division  has  the                                                               
oversight and authority  to penalize a company  if the accounting                                                               
is  not done  properly.   Noting that  the state  has a  domestic                                                               
company,  which is  an American  International Group,  Inc. (AIG)                                                               
subsidiary, she explained that earlier  in the week AIG agreed to                                                               
make  a payment  of $1.64  billion,  which was  partially due  to                                                               
deceptive accounting  practices.   She stated  that in  2005, the                                                               
division fined AIG $400,000 for similar reasons.                                                                                
                                                                                                                                
4:20:14 PM                                                                                                                    
                                                                                                                                
MS. HALL went on to explain  that the guarantee fund is a "safety                                                               
net"  for insolvency.   In  2004,  she said,  a major  insolvency                                                               
nearly caused  the guarantee fund  to run  out of money.   During                                                               
this  time,   there  were  over   600  employees   with  workers'                                                               
compensation claims and, potentially, no  money to pay them.  She                                                               
said that  the legislature  worked to find  a solution  which has                                                               
been effective.                                                                                                                 
                                                                                                                                
4:21:24 PM                                                                                                                    
                                                                                                                                
MS.  HALL expressed  concern  regarding the  safety  net for  the                                                               
self-insured  group,  and  opined  that it  is  inappropriate  to                                                               
include  self-insured  groups  in  regulated  industry  guarantee                                                               
funds.   Although some states have  self-insured guarantee funds,                                                               
she does not foresee there being  enough groups to create a self-                                                               
insured guarantee fund  in Alaska.  She said  that although there                                                               
have been  very successful self-insured  groups, there  have also                                                               
been extreme failures.                                                                                                          
                                                                                                                                
4:22:13 PM                                                                                                                    
                                                                                                                                
MS. HALL went on  to say that one function of  the division is to                                                               
oversee  the  practices  of  any   person  or  entity  performing                                                               
insurance transactions.  She noted  that Chapter 36 of [Title 21]                                                               
contains statutes  controlling trade practices and  frauds, which                                                               
give  the division  oversight of  marketing insurance,  deceptive                                                               
practices,  false   advertisement,  discrimination,   and  claims                                                               
settlements.   These,  she said,  come from  insurance companies,                                                               
agents, and adjusters.                                                                                                          
                                                                                                                                
4:22:53 PM                                                                                                                    
                                                                                                                                
MS. HALL explained that the  division currently has the authority                                                               
to examine producers  and adjusters and receives  complaints on a                                                               
regular basis.   She stated that  over the course of  the summer,                                                               
the  division received  complaints from  injured workers  who did                                                               
not feel their complaints were  being handled appropriately, four                                                               
of which  were regarding  the same  company.   She said  that the                                                               
division did not receive a  response to letters written regarding                                                               
this  issue, nor  did the  [Division  of Workers'  Compensation],                                                               
which  had  also  received  a   complaint.    In  regard  to  the                                                               
aforementioned  situation, she  said  the  division is  currently                                                               
going through the  files of the company in question.   She stated                                                               
that this type of regulatory oversight is not included in HB 51.                                                                
                                                                                                                                
4:25:46 PM                                                                                                                    
                                                                                                                                
MS. HALL  said that  she has  researched other  states' insurance                                                               
statutes  and regulations,  including  Nevada.   She offered  her                                                               
understanding that Nevada is growing at  a rate of 750 people per                                                               
day.    Florida,  which  also has  self-insured  groups,  has  an                                                               
average growth of  1,000 people per day.  She  stated that Nevada                                                               
and Alaska  are "very different"  business environments,  and she                                                               
is  not sure  Alaska  has a  large enough  population  to have  a                                                               
viable [self-insured] program.   She commented that 30-40 percent                                                               
of employers  qualifying is a  small number, and  questioned what                                                               
happens to  the remaining 60-70  percent.  She said  this doesn't                                                               
leave any place to spread the risk.                                                                                             
                                                                                                                                
4:27:07 PM                                                                                                                    
                                                                                                                                
MS.  HALL said  that  [Title  21], Chapter  75  provides for  the                                                               
formation  of  reciprocal insurers.    She  said that  there  are                                                               
currently two,  the Alaska Timber Insurance  Exchange and [Alaska                                                               
Power  Association  (APA)], both  of  which  have been  operating                                                               
successfully.   She  explained  that the  division  has the  same                                                               
regulatory  oversight of  these entities,  which are  smaller and                                                               
member  driven.   She opined  that the  capital requirements  are                                                               
minimal, as  they require $5  million, which  is half of  what is                                                               
required of  a traditional insurer.   She said that  $1.5 million                                                               
does not go  far, with the current cost  of workers' compensation                                                               
claims.  She  stated that she would question the  viability of an                                                               
organization if  it does  not have  money that  is liquid  to pay                                                               
claims.   In conclusion, she  said that she  has not seen  a good                                                               
reason why a reciprocal [insurer] would not be effective.                                                                       
                                                                                                                                
4:29:14 PM                                                                                                                    
                                                                                                                                
MS. HALL stated  that insurance statutes were  crafted to protect                                                               
the  public and  she does  not want  to see  an erosion  of these                                                               
protections.   She  expressed concern  [that the  division] would                                                               
not  have oversight  and authority  of the  proposed self-insured                                                               
groups.                                                                                                                         
                                                                                                                                
4:29:54 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  said that insurance  laws across the  country are                                                               
specific in  regard to what  constitutes an asset or  a liability                                                               
and  how this  value  is determined.   He  asked  if the  current                                                               
version includes these.                                                                                                         
                                                                                                                                
MS. HALL replied that it does not.                                                                                              
                                                                                                                                
4:30:16 PM                                                                                                                    
                                                                                                                                
CHAIR  ANDERSON asked  if  the division  is  required to  monitor                                                               
assets and liabilities.                                                                                                         
                                                                                                                                
MS.  HALL  replied   that  these  are  included   in  the  annual                                                               
statement.   She explained that insurance  companies are required                                                               
to  list the  various types  and  grades of  assets, stocks,  and                                                               
bonds.                                                                                                                          
                                                                                                                                
4:30:38 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON asked if there is regulation in Title 23.                                                                        
                                                                                                                                
MS. HALL  replied that  the bill does  not currently  contain any                                                               
oversight.  She  said that the PGM requirements  are not included                                                               
in the legislation.                                                                                                             
                                                                                                                                
4:31:05 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON clarified that this  is not mandated, although PGM                                                               
would most likely adhere to its current practices.                                                                              
                                                                                                                                
MS. HALL said yes, and added that it is mandated in Nevada.                                                                     
                                                                                                                                
4:31:37 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  asked how one  company's bankruptcy  filing would                                                               
affect other members.                                                                                                           
                                                                                                                                
MS. HALL replied that the  joint and several liability would make                                                               
the remaining  members responsible for  the bankrupt member.   In                                                               
response  to another  question, she  stated that  the reciprocals                                                               
have an assessable policy which  requires them to pay assessments                                                               
proportionately, and  she added  that the reciprocals  fall under                                                               
the guarantee association.                                                                                                      
                                                                                                                                
4:31:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG,  referring to Page 2,  subsection (d),                                                               
of SSHB  51, asked if  the liability is  still in place  once the                                                               
certificate for self-insurance has been revoked.                                                                                
                                                                                                                                
MS. HALL  replied that  she was unable  to answer  this question,                                                               
and shared  her hope that  the joint and several  liability would                                                               
continue.   If  it did  not,  she said,  there would  be a  large                                                               
number of claims that may potentially have no funding.                                                                          
                                                                                                                                
REPRESENTATIVE GUTTENBERG, again referring  to Page 2, subsection                                                               
(d), asked if  this is a "fire door exit,"  which would allow the                                                               
self-insurance association  to dissolve and then  reform, leaving                                                               
it's liabilities behind.                                                                                                        
                                                                                                                                
MS. HALL replied that this might be possible.                                                                                   
                                                                                                                                
4:33:39 PM                                                                                                                    
                                                                                                                                
PAUL  LISANKIE,  Director,  Division  of  Workers'  Compensation,                                                               
Department  of Labor  & Workforce  Development,  stated that  the                                                               
Division of  Workers' Compensation  currently assists  the Alaska                                                               
Workers' Compensation Board  in determining who is  allowed to be                                                               
self-insured.  He explained that  he chairs the southern panel of                                                               
the   board,   which   performs   the  review   and   makes   the                                                               
determination.  Due  to problems that have occurred  in the past,                                                               
he said, there is concern  regarding the amount of regulation for                                                               
the  proposed  self-insured  groups.     He  explained  that  the                                                               
division does not  provide the same type  of regulatory oversight                                                               
to the  self-insured groups  as it  does other  groups.   He said                                                               
that the International Association  of Industrial Accident Boards                                                               
and Commissions agrees "whole-heartedly"  with Ms. Hall in regard                                                               
to  self-insured  groups.   He  stated  that  the  aforementioned                                                               
oversight needs to be in place.                                                                                                 
                                                                                                                                
CHAIR ANDERSON said, "I  hope we can work to get  this into ... a                                                               
type  of  codified structure  that  would  work with  the  safety                                                               
valves as a matter of public policy we have to vote on."                                                                        
                                                                                                                                
4:34:32 PM                                                                                                                    
                                                                                                                                
MR. LISANKIE agreed,  and added that while  some larger companies                                                               
use the argument  that they are "too big to  fail," this does not                                                               
apply to smaller  companies.  He said that this  places the focus                                                               
on what is being done to anticipate problems.                                                                                   
                                                                                                                                
4:37:37 PM                                                                                                                    
                                                                                                                                
CHAIR   ANDERSON  surmised   that   the  Anchorage   Homebuilders                                                               
Association (AHA) would  say that there are  successful models in                                                               
other states, and that the AHA  is "really hurting" from the high                                                               
prices for workers'  compensation insurance.  The  AHA feels [the                                                               
proposed program] would work.   In addition, he surmised that Mr.                                                               
Lisankie is saying that he would err on the side of caution.                                                                    
                                                                                                                                
4:38:20 PM                                                                                                                    
                                                                                                                                
MR. LISANKIE said  that the division is  worried about short-term                                                               
and  long-term disabilities.    He  said that  he  and two  other                                                               
individuals  are  required  to  sign  documents  that  allow  the                                                               
current large entities  to assure the division that  they will be                                                               
"good" for  the next 20  years, which is  already a concern.   He                                                               
said that a  company worth close to $76  million recently renewed                                                               
and  the division  requested a  large deposit  to securitize  its                                                               
expected obligations.                                                                                                           
                                                                                                                                
4:39:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if this  is currently part  of the                                                               
division's regulatory  authority and  if the company  in question                                                               
was self-insured.                                                                                                               
                                                                                                                                
MR. LISANKIE  replied that currently,  if the board  is convinced                                                               
that the [individual employer]  has the financial responsibility,                                                               
the  employer can  be allowed  to self-insure  and the  board can                                                               
request the filing of security.                                                                                                 
                                                                                                                                
4:39:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  how  [financial  responsibility]                                                               
would be determined.                                                                                                            
                                                                                                                                
MR. LISANKIE  replied that the division  requires annual reports,                                                               
which include financial  information.  He said that  if a company                                                               
feels  the reserves  should  be $2  million,  the division  would                                                               
accept that  amount and  does not perform  an audit;  however, he                                                               
surmised that it may be appropriate to [audit] these companies.                                                                 
                                                                                                                                
4:40:39 PM                                                                                                                    
                                                                                                                                
CHAIR  ANDERSON  noted  that in  the  1997  legislative  session,                                                               
Representative  Kott sponsored  a bill  similar to  [HB 51].   He                                                               
requested a  list of  what is  not mandated in  the bill,  but is                                                               
currently required for the larger companies.                                                                                    
                                                                                                                                
4:41:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG expressed concern  with why the companies                                                               
do not want  to use the current reciprocal statute.   He surmised                                                               
that  there would  be some  savings and  added that  it would  be                                                               
helpful to see this.                                                                                                            
                                                                                                                                
MR. PARTUSCH said  that he would like to have  a chance to answer                                                               
these questions more in-depth at the next committee hearing.                                                                    
                                                                                                                                
4:43:41 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON asked for letters in support of the bill.                                                                        
                                                                                                                                
MR. PARTUSCH said that there  are currently associations that are                                                               
neutral  but are  interested,  and therefore  he  stated that  he                                                               
would obtain [letters from them].                                                                                               
                                                                                                                                
4:44:15 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON asked if the AHBA is one of these groups.                                                                        
                                                                                                                                
MR.  PARTUSCH offered  his  understanding that  the  AHBA is  "on                                                               
board" with the legislation.                                                                                                    
                                                                                                                                
4:44:30 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON announced his intention to hold the bill.                                                                        
                                                                                                                                
4:44:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KOTT referred  to a recent change  in the workers'                                                               
compensation [statutes]  and expressed  concern that  the changes                                                               
made had not been in effect long enough to fully understand the                                                                 
effect the aforementioned changes would have on workers'                                                                        
compensation rates.                                                                                                             
                                                                                                                                
[SSHB 51 was held over.]                                                                                                        
                                                                                                                                
4:45:54 PM                                                                                                                    

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