Legislature(1995 - 1996)
03/27/1995 01:34 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SJUD - 3/27/95
SB 53 OMNIBUS INSURANCE REFORM
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to
order at 1:34 p.m. The first order of business was CSSB 53(L&C).
JOAN BROWN, Administrative Officer of the Division of Insurance,
gave the following overview of CSSB 53 (L&C). CSSB 53 (L&C) is the
successor bill to SB 362 and HB 534, which were introduced last
year at the request of the division, but did not pass. CSSB 53
(L&C) includes language to address new areas of insurance
regulation, adopt new accreditation standards added by the National
Association of Insurance Commissioners (NAIC), and makes needed
corrections to the insurance statutes. These changes will bring
the statutes up to date with the insurance market, and allow the
division to maintain its NAIC accreditation, which was granted in
December of 1992. A zero fiscal note accompanies the bill.
MS. BROWN continued. Several minor changes were made to the bill
between legislative sessions. They include language clean-ups to
reflect the 1992 change in license classes from agent to broker to
producer, and general agent to general managing agent. There was
a revision of language pertaining to the standard valuation law,
replacing a reference to the Federal Savings and Loan Insurance
Corporation with the Federal Deposit Insurance Corporation. The
bill adds new fraudulent insurance acts: falsely altering an
insurance document; and knowingly possessing a forged insurance
document; knowingly issuing a forged insurance document; and
establishes penalties for those acts. It also clarifies that a
reciprocal insurer insuring municipalities or nonprofit utilities,
or providing marine insurance, does not have to participate in the
assigned risk plan for motor vehicle coverage. The bill also
includes the division's actuary and assistant actuary in the
statutory provisions on exempt employees.
MS. BROWN reviewed the 22 sections related to continuation of NAIC
accreditation, submitted to committee members' files. Next she
discussed the following changes made by the Senate Labor and
Commerce Committee. A new bill section was added to give the
director discretion to accept an insurer examination report from a
nonaccredited state, and would give the director clear authority to
require extra examination supervision if a state was performing
substandard exams. Sections pertaining to risk retention groups
were revised to avoid conflict with federal law, and the fraudulent
insurance acts revisions were modified to reflect recommendations
from the Department of Law. Language was added to various health
insurance contract statutes to reflect health maintenance
organizations, and a section regarding appointment of independent
counsel was deleted.
MS. BROWN stated two proposed amendments have been submitted to the
committee by the division, dated March 21 and March 23. They are
minor clean-up matters.
Number 150
SENATOR TAYLOR announced the two amendments were incorporated into
the amendment labeled 9-LSO467\F.2, dated 3/27/95. He asked Ms.
Brown to further comment about the modification in law that would
allow insurance carriers to respond more promptly to catastrophic
situations. MS. BROWN explained that provision gives the director
the ability to suspend and shorten the normal processing time for
claims resulting from catastrophic situations. Currently the
director has 15 days to respond to rate items, and 30 days to
respond to form items.
SENATOR TAYLOR questioned what kind of catastrophic situations
would require emergency rates. MS. BROWN clarified Section 5
refers to natural disasters. SENATOR TAYLOR noted it truly would
facilitate a more rapid response to a natural disaster. He
commented he has never seen a situation in which an insurance
company was motivated to come up with a rapid response, in the form
of a check.
Number 190
SENATOR ELLIS asked how the bill originated. MS. BROWN replied the
bill was introduced in both the House and Senate last year at the
request of the division. This year the Senate Labor and Commerce
Committee has sponsored it. SENATOR TAYLOR stated it passed the
Senate last session, and after extensive hearings in the House, was
calendared but was not voted on in the final days of the session.
SENATOR ADAMS asked if consumer rates will be affected by the
passage of CSSB 53 (L&C). MS. BROWN stated she did not believe the
bill contains anything that might specifically affect insurance
rates.
Number 220
SENATOR ADAMS asked how many states have adopted the NAIC model
legislation, such as CSSB 53 (L&C). MS. BROWN replied 44 states.
SENATOR ADAMS asked about the deletion of the independent counsel
provision from the original bill. MS. BROWN indicated the
Department of Law advised that provision was neither necessary nor
consistent with the Alaska Supreme Court decision which it sought
to implement. The case was CHI of Alaska, Inc. vs. Employers
Reinsurance Corporation.
SENATOR TAYLOR questioned the intent of the provision. MS. BROWN
stated if there was a conflict of interest between the insurance
company's counsel and the insured, then a procedure was established
to appoint an independent counsel. SENATOR TAYLOR commented the
insurance companies want that in law so they can get themselves out
of bad faith claims they create when they want to litigate, but the
insured does not. MS. BROWN stated the division supported the
removal of that provision.
Number 267
SENATOR TAYLOR discussed a hypothetical situation that could occur
if that provision had remained in the bill and become law. He
stated his support for its removal.
SENATOR ADAMS asked who requested that provision be removed. MS.
BROWN replied the division made the request.
JIM CLARK, Balboa Life & Casualty Insurance Company, testified.
Balboa writes credit-related insurance nationwide, and is
specifically opposed to those portions of SB 53 which pertain to
consumer credit insurance, Sections 80-95. He noted those sections
are not part of the NAIC accreditation process and are opposed by
the industry.
MR. CLARK reviewed specific problems with the following sections.
Section 81 expands the nature of consumer credit from five years to
cover transactions of unlimited duration. The NAIC offered such a
model several years ago, but not one state adopted this approach.
Section 83 reduces the amount of coverage available to borrowers by
about eight percent. In his experience, most of those who purchase
his insurance do not have other insurance. If life insurance
purchased by a borrower exceeds that amount necessary to pay off a
loan, it is paid to the family or the estate of the borrower.
Section 85 adds additional disclosure requirements which Balboa
does not oppose, but it prohibits transactions by phone, and
subsection (10) alters contract follow-up methods but most loans
become delinquent at some point in time. Subsection (10) also ties
into Section 86, which requires certificates of insurance for
[indis.] life policies and would require the printing of another
disclaimer. Section 87 would prohibit [indisc.] operations because
of the requirements to deliver a policy or certificate when the
insurance is placed. Additionally, it requires that evidence of
insurance refers exclusively to insurance coverage which seems
overly restrictive and unnecessary since this is tied to a loan
transaction. Subsection (c) requires a full refund be made but
does not take into account that a refund might not be due on a
fully paid life insurance claim.
MR. CLARK suggested modifying Section 88 to include reference to
rates being reasonable in relation to the benefits provided, by
taking into account all costs and expenses, and a reasonable
profit. Section 89 does not address the issue of life insurance
refunds when a deceased's estate has already filed a claim.
Furthermore, it ignores the origin of refund methodology. The
penalties in Section 92 are onerous and excessive, and it would
establish the most restrictive penalty provisions adopted in the
United States. Section 94 includes electronic rate charges and
other necessary tools within the definition of "compensation." He
stated the definition has considerable merit, but is so restrictive
that common business practices would be precluded. Subparagraph
(3) of Section 94 redefines consumer credit insurance to include
"credit unemployment insurance." He expressed his objection since
the division has made it a point to promote the regulation of this
coverage using a loss ratio approach as opposed to a component rate
method, in which all expenses and costs are considered when
establishing a rate.
Number 438
SENATOR TAYLOR questioned whether the definition of "compensation"
in Section 94 applies to insurance salespeople. MR. CLARK replied
he feels the definition is too inclusive, and is not required for
NAIC accreditation. He added other states have taken the approach
that these costs should be excluded as part of the cost of doing
business. SENATOR TAYLOR clarified that Mr. Clark does not want a
definition that restricts his ability to compensate those people in
his employ. MR. CLARK disagreed, and stated he believes a
definition is appropriate, but the definition should contain an
exclusion for such things as rate charges and other costs of doing
business.
Number 467
GLORIA GLOVER, financial examiner at the Division of Insurance,
commented the issue of credit insurance at NAIC is contentious.
The language in CSSB 53 (L&C) was taken from the NAIC model and
uses a loss ratio method to set rates. The division is supportive
of the idea of component rating, however it would take time and
effort to make that transition.
SENATOR TAYLOR asked Mr. Clark to fax his concerns to the committee
for further analysis by the division and the committee. SENATOR
ADAMS requested the division to respond to the comments made
regarding Sections 80 - 95. MR. CLARK noted there is also a minor
change to the title he would address. SENATOR ADAMS requested the
committee discuss the independent counsel provision at a later
date.
Number 500
TIM WAGNER, representing Central States Indemnity (CSI) in Omaha,
Nebraska, testified. CSI provides credit card credit insurance; a
package of life, disability, and unemployment insurance and is
primarily concerned with Section 88. CSI is a direct response
company; it sells insurance by mail and telephone and solicits
customers through brochures sent with bank statements. CSSB 53
(L&C) would require prior approval all advertising, which is not a
standard adopted by any other state. AS 21.36.400 relates to
unfair trade practice and covers false advertising. CSI does not
see the need for prior approval as they deal with 100 financial
institutions in 50 jurisdictions, and could not possibly file every
piece of advertising with the Division of Insurance. CSI would be
prevented from doing business in other parts of the country without
Alaska's approval because CSI could not selectively insert
brochures based on state of residence. He also expressed concern
about the penalty of $10,000 for an inadvertent violation. He
stated a clerical oversight in the filing of thousands of forms
could cost $10,000. Section 85 (c) requires written
acknowledgement and maintenance of records for five years. CSI is
not opposed to written acknowledgement, but feels it is unnecessary
to keep such records for five years. CSI has contacted the
Division of Insurance on this issue.
SENATOR TAYLOR asked Mr. Wagner to fax his comments to the
committee for further review.
TAPE 95-15, SIDE B
MIKE MEDLAND, CUNA Mutual Insurance Group, expressed concern about
the provisions relating to credit insurance in Sections 85-94 of
CSSB 53 (L&C). CUNA is in favor of fair and concise disclosure,
however the requirements in Section 85 are paper intensive for a
product that is incidental to a loan transaction. A great deal of
the information would be repetitive. The disclosure is required of
the insurer who must keep the records; yet the creditor is the
policy administrator. Subsection (4) would be unnecessary unless
the same statement is made for all insurance sold. Subsection (8)
requires a "brief" description which is unrealistic. Subsection
(10) is particularly problematic because many contingencies can
occur that are impossible to predict when writing the insurance up
front. This item is not in the NAIC model act. Section 86 departs
from the model act, particularly in subsections (2), (3), (6) and
(7). Subsection (2) requires the name of the debtor be identified,
yet frequently a group certificate is tied into loan by identifying
the loan and account numbers. Subsection (3) requires the premium
be paid by the debtor. Technically, the debtor is paying the
insurance charge, not the premium. Also, premium calculations vary
from creditor to creditor, therefore it would be difficult to
specify every calculation on each certificate. Subsection (6)
requires an explanation of how refunds are calculated in the event
of a policy termination, but is unclear as to how that should be
done. Subsection (7) makes no mention of unemployment insurance
and again, there are too many contingencies that can have an effect
that are impossible to predict.
Number 520
SENATOR TAYLOR suggested removing those sections relating to credit
card insurance and unemployment insurance from the bill and
creating a second bill to cover those areas. He asked Mr. Medland
to send a written response to the committee on CSSB 53 (L&C), the
proposed amendments and the possibility of creating a second bill.
He announced the bill would be rescheduled on Wednesday, April 5.
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