Legislature(1997 - 1998)
03/25/1997 01:30 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 104 OMNIBUS INSURANCE REFORM
CHAIRMAN LEMAN announced SB 104 to be up for consideration.
MS. MARIANNE BURKE, Director, Division of Insurance, testified that
SB 104 is designed to bring some efficiency and effectiveness to a
number of existing sections in the code, to eliminate some
unintended barriers that had been created over the years, to add
some clarification, remove some redundancy, and to even the playing
field for insurers doing business in the State of Alaska.
The first section recognizes the fact that the Division of
Insurance routinely requests input from volunteers from industry,
the community, and producers. Historically they have served on
task forces at no cost to the Division and they might be challenged
on that unless the intent was clarified to not pay transportation
and per diem, etc. to these individuals. In many cases these
people are paid for their time and expenses by the industry. This
will just clarify what is and has been the practice for many years.
Section 2 requires their annual report to contain certain
information and is amended to reflect current practices which are
far more complete and detailed.
CHAIRMAN LEMAN apologized for the interruption to MS. BURKE and
said they had Ms. Wyche on teleconference for the Board of Barbers
and Hairdressers.
MS. BURKE said section 3 deals with the cost of the examination
given to insurers. This section recognizes what is currently being
done which is paying properly documented out-of-pocket expenses and
allows the Division to charge for a portion of the overhead that
occurs in the examination process.
Sections 4 and 5 address premium tax, which approaches $30 million
to the general fund, and is collected by the Division of Insurance
on March 1 of each year. It was determined that by moving the
collection date to a quarterly basis, as well as recognizing
technology, and allowing electronic transfers of the funds, the
State would be able to generate a significant amount of interest
income. She added that she has personally talked to every
"domestic" in the State and they have all known it was inevitable
that they would pay on a quarterly basis. This is the norm in
other states. Based on current rates of interest, this translates
into more than $450,000 of interest revenue to the State each year.
CHAIRMAN LEMAN asked if any companies were unable to make the
transfer electronically. MS. BURKE replied that there were none.
Section 6 just updates the statute and requests that if anyone
holds a certificate of authority to do business in this State, that
they provide the division with current information. There is
currently no requirement on the books to inform the division of
changes in Articles of Incorporation, addresses, etc. They feel
that in order to regulate they need to know where the people are
located that they are regulating.
Number 403
Section 7 spells out that all insurers must retain their records
and they must be available for examination. Currently, all
domestics are subject to this and they are just requesting that it
is extended to all insurers who do business up here. This is
consistent through-out the states.
Section 8 basically requires that an alien insurance company who
wants to do business in Alaska must get a particular certification
from their country. They found that only one country provides that
certification, the U.K., and it was never the intention to exclude
every other insurer in the world. She pointed out that they are
still subject to certification by their independent auditors and
independent verification. It is not their intent to treat one
country differently from another.
Section 9 defines the fact that stop loss insurance is health
insurance which is a barrier they have in statute. Right now only
property and casualty companies can write stop loss insurance and
it is a very frequently used form of insurance in health.
SENATOR KELLY asked her to define stop loss insurance. MS. BURKE
explained it means that an individual or company can decide they
will cover all of their losses up to some predetermined amount,
then they want to be insured for everything that goes over that
amount.
SENATOR KELLY asked if it was like reinsurance. MS. BURKE said
there were some significant differences in that this will never
kick in unless you hit a specific dollar amount on each claim or in
the aggregate.
SENATOR KELLY asked if the State receives the 2.7% premium tax on
stop loss insurance. MS. BURKE replied that now we do not unless
it is reported by the company. There is a massive debate going on
in the states on whether or not stop loss is insurance. However,
the division is defining it as insurance.
SENATOR KELLY asked if they currently regulate self insureds. MS.
BURKE replied no, that they are preempted by ERISA.
SENATOR KELLY asked if stop loss insurance was defined as
insurance, would they begin to regulate the self-insureds. MS.
BURKE answered no, and said it is specifically designed not to do
that because they would run head on into the federal preemption.
She noted that right now it is not legal to buy stop loss insurance
in the State of Alaska that is sold by a health writer. But they
do it and it's a common practice. She can see no regulatory reason
why the State should hang the availability on a technicality like
that.
SENATOR KELLY asked if the legislature defined stop loss insurance
as insurance, would the Division be able to collect the 2.7%
premium tax. MS. BURKE said she couldn't answer that definitively,
but she would pursue the legality of doing that without bringing
down the preemption of the federal government. She said she has
been in contact with other states on this issue and the problem has
been the dollar amount at which it becomes insurance. For instance
at $250 it becomes merely a deductible. There have been a number
of cases heard in court and so far they have all gone against the
states and for as high as $10,000. She said they are continuing to
push this through the NAIC.
SENATOR KELLY asked if they passed this would they still have to go
to court to try to collect the premium tax. MS. BURKE responded
that passing this would help.
CHAIRMAN LEMAN asked if the $10,000 was per person per incident or
per year, or what. MS. BURKE replied that the case she was citing
was in Illinois and was $10,000 per occurrence.
Number 475
Section 10 defines the stop loss as she has just discussed with
them.
Section 11 brings some efficiencies by deleting the need for the
Division to formally request a risk based capital report. She said
they need one every year.
Section 12 also brings some efficiencies by making it clear that
instructions for filing a risk based capital report that are
adopted by the NAIC are the ones that should be used instead of
doing instructions by regulation every year.
CHAIRMAN LEMAN asked what supplemental information the director
might request on these filings. MS. BURKE said there is some State
specific information they request. For example they require that
the companies let them know of investments in the State of Alaska.
CHAIRMAN LEMAN asked if there had been any challenge regarding the
risk based capital instructions. MS. BURKE replied no and most
states are moving toward this more efficient way of doing business.
Section 13 sets up minimum reserves for health insurance.
Sections 14 and 15 are highly technical actuarial requirements for
the policy and claims reserves. She noted that some claims are not
filed and they should be accounted for.
SENATOR KELLY said regarding section 14 he gets awfully nervous
when something is repealed and reenacted and there's generally a
reason for that like a major change that someone doesn't want you
to see. He asked if this section conforms to provisions of other
states or is it special to Alaska. MS. BURKE replied that this is
a minimum standard in all the states.
Section 16 is to assist the domestics because there is nothing in
statute that requires the custodian of a trust to indemnify the
insurer if there's a loss from theft, defalcation, or negligence
and this requires the custodian to replace the asset or the value
of that asset. It additionally provides that a bank, a trust
company, or a securities firm may serve as a custodian if it's
authorized by the insurer and approved by the director.
CHAIRMAN LEMAN asked what the difference was between defalcation
and embezzlement. MS. BURKE said for both it gets down to the fact
that it has been misappropriated. She said she would get the
definitions to him.
TAPE 97-13, SIDE B
MS. BURKE said that Section 17 is an editorial revision.
Section 18 removes a redundancy. It clarifies that an attorney-in-
fact of a reciprocal insurer who meets the qualifications to be
exempt from licensure as an attorney-in-fact is not required to be
licensed again under AS 21.27.
CHAIRMAN LEMAN asked if Section 17 has created any challenges. MS.
BURKE said it did not.
Section 19 codifies a current procedure that requires an applicant
to certify under oath that the information provided on a license
application is true and correct. CHAIRMAN LEMAN asked if this took
in to account certain religious beliefs against swearing. MS.
BURKE responded that they use the word "oath" to avoid that.
Section 20 says if you are a licensee there are certain
requirements that you can't do kick-backs, but they want it to
apply to all people, not just licensees. So they want to change
the word "licensee" to "person." She said they have had one
complaint where that was the case.
Section 21 conforms temporary licensing procedures with what's
necessary to issue the temporary license under the welfare reform
bill that was passed last year.
Section 22 updates procedures to allow the director the flexibility
to provide service of notice to a person in the most effective and
efficient way. Right now they are required to serve notice with a
certificate of mailing.
Section 23 asks for authority to fine a person who illegally
transacts business of insurance in Alaska. She said that usually
industry informs them of this, but they have no recourse other than
to ask them politely to please not do that. CHAIRMAN LEMAN asked
what happened if the financial benefit involved more than $25,000.
MS. BURKE said there were several things that could happen. If
they are licensed in another state, which is usually the case, they
notify the other state which takes action against them. If they
are just an individual who is not licensed in any state, there
isn't any way they can take action on an administrative level.
However, they can be reported to appropriate authorities for
criminal prosecution if they took the money under false pretenses.
Section 24 is another catch-22 they have discovered. Third-party
administrators are an organization that provides administrative
services to a self-insured entity and are currently required to
have two-years of audited financial statements before they can be
licensed in the State. There are a number of entities that are
spin-offs from highly reputable companies that have not been in
business for two-years and are precluded from coming into the State
of Alaska. They want to remove that barrier and apply the same
rigorous review process they do to any licensee and have them
provide them with financial statements for all the time they have
been in business.
Section 25 establishes solvency requirements for each syndicate or
insurer of Lloyds or a similar operation. Right now if a syndicate
is going to do business in the U.S., they must have in trust in an
American Bank the equivalent of the premium dollars spent so it
won't be tied up in a foreign court.
Number 456
Section 26 clearly indicates that if you are part of a syndicate
that's part of an insurance exchange, the change in the name from
Lloyds to syndicates does not get you out of the requirements.
Sections 27 and 28 addresses the premium tax issue and applies to
surplus lines tax of 1% which is in addition to the 2.7% premium
tax. They would like it collected on a quarterly basis and with
electronic payments. She explained that surplus lines are usually
paid as incurred and many of them pay electronically now.
SENATOR KELLY asked if industry disagreed with these two prepay
provisions. MS. BURKE said she has had no complaints at all; they
are already set-up to pay on a quarterly basis. Some states do it
on a monthly basis.
Section 29 is to replace a generic term with a specific term.
Section 30 incorporates a requirement established by the NAIC Model
Unfair Trade Practices Act for an insurer to maintain records
regarding the complaints it receives. The record will assist the
division in evaluating an insurer's consumer practices.
Section 31 clarifies that an insurance policy may only be non-
renewed on an anniversary date. This applies to property and
casualty.
Section 32 states that rates on personal auto insurance cannot be
changed more often than every six months even if its written for a
shorter term and says that an anniversary period is one year six
months. SENATOR KELLY asked what happens in the case of a DWI.
MS. BURKE replied your rates would go up at renewal time.
Section 33 adds a requirement that insurers and other licensees
report producer defalcations, embezzlements, or violations to the
director in much the same manner as currently is required for
reporting claim fraud. Currently, licensees are not required to
report.
Section 34 clarifies that the credit scale recognizing differences
in wages paid applies only to the construction industry. SENATOR
KELLY asked what the purpose was. MS. BURKE explained that
construction workers, because of their high wages and their
overtime, were actually paying higher worker's comp premiums than
would be indicated based on their risk basis. She said the
construction industry pushed for this section.
Section 35 clarifies that rates for individual health insurance are
not subject to approval consistent with current statutes that do
not provide a mechanism or guidelines for such rate review. They
do review, as required by federal law, the medicare supplemental
insurance.
Section 36 requires that benefits provided under health insurance
contracts be coordinated. This coordination is applicable only
when an individual is covered under more than one health insurance
contract. This will help prevent individuals receiving
reimbursement from more than one company for the same thing. She
explained that companies have the data bases already. If it's big
dollars, they coordinate. She said industry is very embarrassed
about this when it's pointed out.
Section 37 clarifies that insurance coverage changes required by a
law change become effective at renewal unless the law provides an
earlier effective date for the changes.
Number 225
Section 38 requires that rates for group health insurance contracts
not be excessive, inadequate, or unfairly discriminatory to provide
a consistent standard for all group health insurers. SENATOR KELLY
asked who makes the determination of unfairly discriminatory. MS.
BURKE replied that insurance by its nature is discriminatory and
there are some discriminatory actions that are permitted by
statute, like a 17-year old male driver or a 55-year old driver,
for instance. You can't be unfairly discriminatory; it has to have
a statistical basis to spread risk.
Section 39 allows the director to determine the method of payment
of premium taxes to reflect technology changes such as electronic
payments and to collect premium taxes quarterly.
Section 40 adds investment income as one of the elements to be
considered when evaluating the rates charged by title insurers.
Section 41 is specifically for a domestic insurance company located
in Barrow, but their business address is in Anchorage. The law
says they must have their annual meeting where their principal
business is conducted. They have asked to have it in Barrow and
this section would allow the director, upon showing of good cause,
to allow an annual to be held in another location within the State.
Section 42 requires director approval for an insurer to borrow
funds when a written agreement requires that the money be repaid
only out of the insurer's excess surplus and removes permission for
an insurer to borrow money in this manner for any purpose of the
insurer's business.
Section 43 expands the exception for being licensed as an attorney-
in-fact to all reciprocal insurers.
TAPE 97-14, SIDE A
Number 001
The exemption is allowed when the attorney-in-fact is a wholly-
owned subsidiary of the reciprocal insurer who only acts for the
one reciprocal. Attorneys-in-fact who operate more than one
reciprocal insurer must be licensed under this section.
Section 45 allows for the report filed by the joint insurance
arrangement with its board of directors and the director to be an
audit based on generally accepted accounting principles rather than
requirements established by the director. A report filed with the
director is open to public inspection unless specifically precluded
by statute.
Section 46 extends the period of disapproving claims to 120 days.
She said this language was developed by the NAIC and has been
enacted in many states to reduce litigation over claims.
Sections 47 and 48 update terminology to reflect the fact that
there are some managed care compensation arrangements.
Number 100
Section 49 conforms filing requirements for medical and hospital
service corporations to similar requirements for their insurers
subject to form filing.
Section 50 allows the director discretion to protect medical and
hospital service corporations from competitive disadvantage that
may arise from disclosing rating formulas when other health
insurers are not required to file rates for approval and disclose
rating formulas.
Section 51 requires that hospital or medical service corporations
have minimum reserve standards and reporting consistent with other
health insurers.
Section 52 clarifies that the requirements of AS 21.36.210 -
21.36.310 do not apply to seven-day policies.
Section 53 is important for Alaskans, because some insurance
companies are saying they are not issuing policies, but they are
issuing certificates of insurance and, therefore, they are not
subject to Alaska's Title 21.
Title 54 specifies what "certified financial statement" means in
licensing requirements.
MR. KEVIN SMITH, Risk Manager, Alaska Municipal League Joint
Insurance Association, supported a proposed amendment to section 45
which would be impossible to comply with if adopted as written
because 60-days is an inadequate amount of time for the actuaries
to do their magic. He suggested either picking December 1 of each
year which would be easy for them to comply with or to pick a
number like 150-days as a time to provide an annual report to the
Division of Insurance.
CHAIRMAN LEMAN asked if there were any other anticipated changes.
MS. BURKE replied that they supported 150-days because it would
depend on what the year-end was.
Number 232
MR. REED STOOPS, Aetna, said he hadn't had a chance to review his
client's questions with the director, but he would come back when
the bill was heard again with suggestions. CHAIRMAN LEMAN said
they would probably have it back next Thursday.
SENATOR KELLY remarked that there was a proposal floating around
dealing with rental car insurance and making certain that the
primary responsibility for the rental car insurance was the rentee.
MS. BURKE responded that the wording for that would make the
personal policy primary and the rental car company's insurance
secondary. The Division does not object to that, but she thought
it would detract from the current bill.
SENATOR KELLY asked her to get that language for the committee. He
said he was also concerned that the title to HB 104 was so broad.
CHAIRMAN LEMAN said there was nothing more to come before the
committee and adjourned the meeting at 3:32 p.m.
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