Legislature(2011 - 2012)BELTZ 105 (TSBldg)
01/26/2012 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB156 | |
| HB146 | |
| SB157 | |
| SB158 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 157 | TELECONFERENCED | |
| *+ | SB 158 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 156 | ||
| = | HB 146 | ||
SB 157-CANCEL INSUR. ON CERTAIN VACANT PROPERTY
1:44:54 PM
CHAIR EGAN announced SB 157 to be up for consideration.
SENATOR PASKVAN moved to bring SB 157, version 27-LS0928\B,
before the committee for discussion.
CHAIR EGAN objected for discussion purposes.
DANA OWEN, staff to the Senate Labor and Commerce Committee,
sponsor of SB 157, explained that they were approached by a
local insurance agent with what he presented as a problem in the
statutes and SB 157 attempts to correct that problem. It would
allow insurance companies licensed in the State of Alaska to
cancel insurance on a property which has been abandoned; the
technical term is "unoccupied or vacant." House vacancy
increases the risk that was originally insured.
1:47:14 PM
SENATOR GIESSEL asked what the definition of "unoccupied" is.
Her house could be construed as being unoccupied at times for
weeks when she is in Juneau.
MR. OWEN replied he understood that it has to be more than just
someone is not there. It has to mean there is substantial
evidence that people are not going to return; the place has
either begun to be run down in some significant way or the
furniture has been moved out, something hasn't been attended to
that should have been if someone had been there.
SENATOR GIESSEL said that sounds subjective and asked if the
definition was written somewhere.
MR. OWEN replied he didn't know.
SENATOR MENARD echoed Senator Giessel's question. She is a widow
working in Juneau for 90 days and has people looking after her
house, but what if they are called away for an emergency and she
wasn't notified. She wanted a clear definition of what
"unoccupied" means and asked what the amount of loss the
insurance company feels has taken place as the result of an
occurrence.
MR. OWEN replied that the industry is looking at if the risk has
increased from what was originally insured; it's not a matter of
a loss they have incurred. If the company perceives the risk is
larger than what the policy originally covered.
SENATOR MENARD wanted to really know why this is needed in
Alaska and that it could be happening because of what is going
on with foreclosures.
MR. OWEN said he received a phone call in last 18 hours from
someone who is also concerned about that same thing.
SENATOR MENARD asked if they are talking about a primary
residence.
MR. OWEN answered that he thought it applied to all property.
SENATOR PASKVAN said it could also apply to commercial property.
MR. OWEN agreed.
1:52:43 PM
SHERIE PARKER, State Farm Insurance, Bloomington, Illinois,
clarified that SB 157 applies only to policies of personal
insurance; it doesn't apply to commercial properties. She said
it's important to remember that no one at State Farm wants to
cancel a policy unless they have a legitimate reason. In this
situation they are talking about an increased hazard or risk
that wasn't part of the original risk that was insured.
Originally these homes were occupied by owners whose
circumstances have changed for some reason, therefore increasing
the insurers' risk. In Alaska there is a one-year policy term,
which is typically renewed unless there has been some change in
the property characteristics. This recommended change is only
related to mid-term cancellation.
She explained that sometimes State Farm feels they need to take
action mid-term because something about the risk has changed
drastically. As the statute is currently written they can't take
action. Claims from these risks impact Alaskan customers because
homes that are vacant, unoccupied and uncared for have a higher
propensity for loss.
1:55:14 PM
The goal is to clarify language for carriers and for the
Division of Insurance. The specific language for this bill is
found in 12 other states. Most states are silent on this issue,
and they can mid-term cancel without it. But 12 states,
including Alaska, need further clarification. If they were to do
a Notice of Cancelation to the insured, that would provide the
owner opportunity to clarify the situation that has led State
Farm to believe the home is abandoned or is not being cared for
properly and to correct it.
1:57:01 PM
MS. PARKER said most carriers work with their agents to
determine what is occurring at the property in question even
before they would ever send out a cancelation letter. They are
in the business of insuring property, but they don't want to be
required to maintain insurance on a property that has increased
risk of hazard which they didn't anticipate when they first
insured it.
There is no legal definition for "vacant" but an understood
definition in the industry is that vacant would be a property
that is substantially void of personal property; maybe a broom
or an end table is left behind. An "unoccupied" home is where
people are not occupying the dwelling, but personal property is
still in it; for instance, senators traveling to the capital for
session. It could also mean a seasonal secondary vacation type
of a risk, because those homes during part of the year are
unoccupied. However, the concern in the industry really isn't
with those homes as much as it is with the homes that aren't
being cared for. It's not a rash decision. They contact the
agent and find out what is going on first.
1:59:43 PM
SENATOR DAVIS asked if they want to be able to cancel the
insurance policy why this language is needed. Isn't there
another way to handle it?
MS. PARKER replied that they have a vacancy endorsement
providing limited coverage for vandalism and breakage of glass
that is otherwise excluded, but it needs to be added by the
customer. The cases she is addressing are homes that are vacant
because an owner is no longer living on site. So they don't
easily have a customer to go to ask if they want to add the
vacancy endorsement; nor would they want to, because that is
meant for a short term period while a customer is trying to sell
that home. She said banks notify them when a home is unoccupied
and they check on their properties.
SENATOR DAVIS asked if Legislative Legal had a definition for
unoccupied.
CHAIR EGAN said Ms. Hall from the Division of Insurance was
available to answer that shortly.
SENATOR PASKVAN said the sponsor statement uses "abandoned
property" and bill talks about "un-occupancy or vacancy" and
asked if she would have a problem with changing them to
"abandonment."
MS. PARKER replied that they would consider it, but there are
cases when the home is unoccupied and the owner is not taking
the proper steps to make sure the house maintains heat if they
are in a winter climate or that it is checked on periodically.
SENATOR PASKVAN said he assumed they are dealing with properties
where the owner has paid the premium, and he was struggling with
the concept of a fully paid premium; that was the deal that was
struck. Why should they allow insurance companies to change the
bargain mid-term?
MS. PARKER replied because when the policy was written they
expected the customer would not walk away from the home and that
it wouldn't be vacant. An endorsement could be added if the home
was going to be vacant for a period of time. They did enter into
a contract when they wrote the policy, but the owner has a
responsibility, too, to maintain their property in a way that
doesn't add more risk. Sometimes they ask a person to replace
their roof because it has reached the age of not being able to
fully protect that house from water damage. This is a similar
type of increased risk exposure, but they can't ask the person
to move back in if that's not what they are going to do.
SENATOR PASKVAN asked if after the deal was struck if they
suspected fraudulent intent they could retroactively cancel the
policy.
MS. PARKER answered yes.
SENATOR PASKVAN said he was thinking in the context of how
Alaska law looks at insurance contracts as contracts of
adhesion: in other words, a take it or leave it basis, and they
have total control at time of contracting for whatever term that
might be. So, he was struggling with carriers wanting to get
greater mid-term cancellation rights if the owner wants to keep
a property insured and they aren't fraudulent or haven't
misrepresented anything.
MS. PARKER replied in many cases the owner has left or they
aren't taking care of the property. Cancelation is already
allowable for physical changes in the insured property that
result in it becoming uninsurable.
2:08:21 PM
SENATOR PASKVAN said it sounds like this is arising out of the
collapse of the economic system in 2008 and that the banking
industry has insurance requirements and asked what their view
is.
MS. PARKER replied that hasn't been an issue in the other states
she works with in the Pacific Northwest and according to
colleagues working in other parts of the nation. When the
mortgagee receives a separate notice as required by the policy
contract with them, it doesn't have to state a reason. She
suspected they would place coverage of their own on that piece
of property.
SENATOR PASKVAN asked if State Farm provides insurance coverage
to banks for foreclosed property.
MS. PARKER replied no. If a customer shared that they were
leaving their home, the agent would have a conversation with
that customer about their new insurance needs, and their policy
would be canceled in the normal course of business. They might
not need a homeowner's policy, but they might need a rental
policy. But here they are talking about the cases where the
customer has walked away and is not caring for the property.
2:11:58 PM
SENATOR PASKVAN asked how financial institutions protect their
interest without getting notice of cancellation.
MS. PARKER replied that notice happens automatically.
SENATOR PASKVAN asked who would come in during the process of
foreclosure, if there was no fraud and they just lost their job.
Who makes up the difference in the mortgage that would be
covered by the insurance?
MS. PARKER replied the customer could tell them when they no
longer have ownership.
2:14:15 PM
SENATOR MENARD said she has heard tragic stories in the Lower
48, but that is not the case here in Alaska, and she wanted
respect for the person who owns the policy. What kind of steps
do they take in notifying a customer? Do they have to send a
certified letter? Are there three or four different methods they
are going to try to get a hold of them?
MS. PARKER answered in any situation where they mid-term cancel
a policy, they provide 30 days' notice plus mailing time to the
last known address and it's certified. Additionally, they send
10 days advance notice to the agent before sending the notice to
the customer to give them an opportunity to track down and reach
out to that customer. In addition to that, before any notices
are sent they have contacted the agent to try to discern what
has occurred at that property and what the needs of that
customer now are.
SENATOR MENARD asked how much the vacancy endorsement costs for
a typical 2500 sq. ft. home.
MS. PARKER replied State Farm charges $30/year for vandalism or
malicious mischief and breakage of glass like a broken window.
It's not meant to be for a long time, although some vacant homes
are taking longer to sell.
SENATOR MENARD said $30/year doesn't seem like a lot of money.
Instead of changing the law, could they be encouraged to take
out a vacancy endorsement?
MS. PARKER replied that their risk exposure isn't from the
customer who asked for the endorsement, but from a customer who
is no longer there. If the home burns down it's covered. Their
increased exposure is loss from water damage because often water
is not noticed until it is running out the door.
2:20:42 PM
SHELDON WINTERS, lobbyist, State Farm Insurance, said he has
discussed this issue [SB 157] with the division since 2010. Home
owner insurance policies in Alaska have a one-year term; after
that term, insurance companies can renew the policy or not.
Virtually every state in the country including Alaska allows for
cancellation of an insurance policy before that one-year period
if there are legitimate reasons for doing so, and it's called a
mid-term cancellation. Alaska statute has five reasons; one of
them is if there is a physical change in the insured property
mid-term that results in the property becoming uninsurable.
He explained when someone purchases a homeowners product, there
is a risk that is underwritten. It's assumed in that premium
that the property will not be vacant and for the most part
occupied and taken care of. It doesn't mean that when the owner
goes on a three-week vacation it's viewed as unoccupied. The
thrust of the bill is if after he has paid his premium and
decides he doesn't like his job or the weather and decides to
leave, there's no heat and the pipes freeze; that's the
increased risk. Vacancy is not defined in statute, but in
Webster's it means "you're gone."
MR. WINTERS said all insureds pay into a risk pool and it always
depends on the accuracy of the underwriting. All home owners'
insurance premiums are based on that home being occupied and
being taken care of. Including these losses will increase the
cost of insurance to everyone. He said, "It's universally
accepted that insurers need to be able to cancel mid-term if the
risk changes significantly...and in the case when somebody
leaves it vacant, as I've talked about, there's no doubt about
it." Vandals are attracted to those places.
2:25:18 PM
He said the definition of vacancy is pretty clear cut; they're
gone and not coming back. Unoccupied is a little bit different,
because someone might leave a few things but they are basically
gone as well. He didn't want to get into the definition of un-
occupancy because it depends on the homeowner. It's not the
intent to cancel a legislator's policy, but if they leave and
turn the heat off and go to Costa Rica, that's the kind of
situation they are talking about. He emphasized that carriers
want to write that policy for people and the agents want the
business. He would call the owner of a property and find out
what's going on, and that would probably pass with underwriting.
SENATOR PASKVAN said if property is truly abandoned he can
appreciate their concern. Some standard of outright abandonment
or permanent un-occupancy or vacancy would help. Certainly if
you're contacting a financial institution and you find out that
an owner is not current with their mortgage, that tells him that
they are treating their property in a certain way, but if they
paid their mortgage and their insurance and they just are
temporarily leaving it vacant, he didn't want to leave it to the
discretion of their underwriting to rewrite the deal that was
initially set.
MR. WINTERS said he thought they were on the same wave length;
the real concern is vacant abandoned property, and they used
"vacant" because that is what other states have used.
SENATOR GIESSEL asked how they decide and who decides. Do they
drive around and look at the properties they insure and peer in
the window?
MR. WINTERS replied that the agent drives by a house in a town
like Juneau and sees that the driveway isn't plowed and the
lights haven't been on, for instance. Maybe he hasn't paid his
auto insurance - some sort of red flag.
2:31:01 PM
SENATOR GIESSEL said she was still not reassured.
CHAIR EGAN said he has owned real property since 1969 and not
once has his agent tried to sell him a vacancy endorsement. How
do homeowners know they have to spend an additional fee because
they are tired of shoveling snow and want to go to Palm Springs?
MR. WINTERS answered that endorsement is for when you are truly
not occupying the home; when you go on vacation your home is not
un-occupied.
CHAIR EGAN asked what the $30 covers.
MR. WINTERS replied when the home is unoccupied for three or
four months.
MS. PARKER said the endorsement is good in limited
circumstances: first the home needs to be vacant, have no
personal property and no one is living there. It just provides
that limited coverage for vandalism or malicious mischief and
broken glass. If the home is vacant without the endorsement
those three things are not covered under the policy contract.
It's not necessary when legislators are at the capital working.
SENATOR GIESSEL said the definition still feels like it only
refers to vacancy and leaves the un-occupancy way out there. In
her district she has multiple "snowbirds" who leave for six
months and their driveways could look unplowed in one day with
all the snow they get.
MR. WINTERS responded that it's one thing if the snowbird leaves
for six months and shuts everything like the heat down. He
agreed that some subjectivity is involved, but he believed the
consumer wants the flexibility of not having a 30-day
definition.
2:36:40 PM
CHAIR EGAN said abandoned, vacation and unoccupied are terms
that have to be defined, because it's too subjective.
SENATOR MENARD asked who would make the claim if someone on the
Hillside was gone for six months and paid the premium six months
ahead, or if they were out of the country for six months.
MR. WINTERS replied maybe they paid a year in advance, but that
premium is based on the home being occupied. If you go to the
insurance agent and say by the way I'm going to be gone for a
year...
SENATOR MENARD asked if it's her burden to let the insurer know.
MR. WINTERS said on the application it's going to be an
"occupied home." If you decide to leave for a year, he didn't
know if anyone would notice, but the agent could contact you and
ask if the heat is on and that should suffice. But if he can't
get ahold of you and no one is there, a notice of cancellation
would be issued.
SENATOR MENARD said she would like "abandonment" instead of
"vacancy."
CHAIR EGAN said he would hold SB 157 and would continue public
testimony at another time.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 157 Sponsor Statement.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 157 |
| SB157-DCCED-INS-01-19-12.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 157 |
| SB 157 lttr supporting, Winters.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 157 |
| SB 157 lttr supporting, PCI.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 157 |
| SB 158 Sponsor Statement.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 158 |
| SB158-DCCED-CBPL-01-21-12.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 158 |
| SB158 lttr supporting, AK Assoc. of Realtors.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 158 |
| SB 158 Lttr supporting, Somers.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 158 |
| SB 158 lttr supporting, Bates 012412.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 158 |
| SB 157 comments opposing - Aksamit, Loken.pdf |
SL&C 1/26/2012 1:30:00 PM |
SB 157 |