Legislature(1995 - 1996)

03/27/1995 01:34 PM JUD

Audio Topic
* first hearing in first committee of referral
+ 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               
 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            
 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                
 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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