Legislature(1995 - 1996)
03/27/1995 01:34 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.