Legislature(1999 - 2000)
03/21/2000 08:10 AM House CRA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
March 21, 2000
8:10 a.m.
MEMBERS PRESENT
Representative John Harris, Co-Chairman
Representative Carl Morgan, Co-Chairman
Representative Andrew Halcro
Representative Lisa Murkowski
Representative Fred Dyson
Representative Reggie Joule
MEMBERS ABSENT
Representative Albert Kookesh
COMMITTEE CALENDAR
HOUSE BILL NO. 404
"An Act relating to joint insurance arrangements; and providing for
an effective date."
- MOVED CSHB 404(CRA) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 404
SHORT TITLE: JOINT INSURANCE ARRANGEMENTS
Jrn-Date Jrn-Page Action
2/16/00 2219 (H) READ THE FIRST TIME - REFERRALS
2/16/00 2219 (H) CRA, L&C
3/21/00 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE DAVIS
Alaska State Legislature
Capitol Building, Room 513
Juneau, Alaska 99801
POSITION STATEMENT: Testified as sponsor of HB 404.
KEVIN SMITH, Risk Manager
Alaska Municipal League's Joint Insurance Association
217 Second Street
Juneau, Alaska 99801
POSITION STATEMENT: Testified in support of HB 404.
SUSAN SPINDLER
Brady & Co
PO Box 107502
Anchorage, Alaska 99510
POSITION STATEMENT: Testified on HB 404.
BOB LOHR, Director
Division of Insurance
Department of Community & Economic Development
PO Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Testified that the division opposes HB 404.
MICHAEL COMBS
Combs Insurance Agency;
Board of Directors
Alaska Independent Insurance Agents and Brokers, Inc.
PO Box 816
Palmer, Alaska 99645
POSITION STATEMENT: Testified in opposition to HB 404.
DEB DAVIDSON, Staff
to Representative Davis
Alaska State Legislature
Capitol Building, Room 513
Juneau, Alaska 99801
POSITION STATEMENT: Commented on the amendment proposed by AIIAB.
EILEEN TERWILLIGER, Executive Director
Alaska Municipal League Joint Insurance Association
807 G Street
Anchorage, Alaska 99501
POSITION STATEMENT: Discussed the JIA and its relationship with
the brokers in the state.
BILL LAWRENCE, Staff
to Representative Morgan
Alaska State Legislature
Capitol Building, Room 409
Juneau, Alaska 99801
POSITION STATEMENT: Offered information regarding the fiscal note
for HB 404.
ACTION NARRATIVE
TAPE 00-17, SIDE A
Number 0001
CO-CHAIRMAN called the House Community and Regional Affairs
Standing Committee meeting to order at 8:10 a.m. Members present
at the call to order were Representatives Harris, Morgan, Halcro,
Murkowski, Dyson and Joule. Representative Kookesh was not in
attendance.
HB 404-JOINT INSURANCE ARRANGEMENTS
CO-CHAIRMAN MORGAN announced that the first order of business would
be HOUSE BILL NO. 404, "An Act relating to joint insurance
arrangements; and providing for an effective date."
Number 0105
REPRESENTATIVE DAVIS, Alaska State Legislature, testified as the
sponsor of HB 404. He noted his involvement in local government
and recalled the increasing costs of municipal insurance policies,
which began 15 years ago. At that time, the pooling concept had
been going around the country. This problem lead to the creation
of the Alaska Municipal League's Joint Insurance Association
(AML/JIA), which has been working well over the years. As the
legislature has created additional difficulties for municipalities
through budget cuts, which has led municipalities to subcontract,
privatize, et cetera in order to reduce their budgets. He pointed
out that in rural areas, in particular, municipalities have
contracted with nonprofit organizations that seem to be taking on
more responsibilities of the municipality. However, those
nonprofits are not eligible to join the JIA pool. Therefore, HB
404 allows those nonprofit organizations, Native associations and
Native village councils to benefit from any benefits that may be
achieved by joining the AML/JIA insurance pool. Representative
Davis noted that the idea for this legislation was brought to his
attention by AML/JIA and thus he deferred any questions to Mr.
Smith, AML/JIA.
CO-CHAIRMAN HARRIS noted that the Alaska Independent Insurance
Agents and Brokers, Inc., (AIIAB) oppose HB 404. He asked if that
group had spoken with Representative Davis in regard to their
opposition.
REPRESENTATIVE DAVIS replied no. He said that he believes it is
obvious why the AIIAB oppose HB 404 as they probably ensure some of
these organizations to some degree now. Should HB 404 pass, there
is the possibility that this group would lose some business.
CO-CHAIRMAN HARRIS asked if there have been instances in which
people, who would now be covered under HB 404, did not have
insurance because they could not afford it.
REPRESENTATIVE DAVIS answered that he was not familiar with the
details of the nonprofits.
REPRESENTATIVE JOULE asked Representative Davis if he had seen the
amendment [that is included in the committee packet].
REPRESENTATIVE DAVIS replied yes and commented that it is a good
amendment. He explained that under HB 404 as written, should a
nonprofit that becomes a member of the pool default or face a large
claim, the nonprofit does not have any taxing authority to recoup
their specific responsibilities. Since the nonprofits do not have
taxing authority, they may not have the money to pay the claim.
Therefore, this legislation [amendment] creates a co-signer along
with their claim so that a municipality or a taxing authority is
held jointly responsible.
Number 0593
KEVIN SMITH, Risk Manager, Alaska Municipal League's Joint
Insurance Association, noted his support of HB 404. As
Representative Davis noted earlier, 15 years ago market conditions
were different; that market was referred to as a hard market by the
industry as it was expensive for public entities nationwide to
obtain insurance. That time period spawned the pooling concept,
which is a group self-insurance program for entities that were too
small to maintain self-insurance by themselves. At that time "we"
[AML/JIA] considered nonprofits, but the legislature was a bit
skittish as the pooling concept was fairly new. Therefore, the
legislature decided to hold to a safety valve of an accessible
program which means that any entity in a joint insurance
arrangement would have to have a tax base, in the event of a
failure of the overall program.
MR. SMITH acknowledged that in the last 15 years the market has
changed and is not so hard. Furthermore, Alaska's economy has
changed in regard to how local government services are funded.
There have also been changes in the pooling environment as 70
percent of public entities nationwide are in some sort of pooling
arrangement for their primary protection. To date none of these
programs have "gone bust." In fact, half the programs nationwide
do not have a tax accessible sort of provision in their state
statute. As Representative Davis mentioned, nonprofits and Native
village councils and associations have experienced changes as well.
He explained that as more municipalities are privatizing,
nonprofits are picking up [services] such as animal control,
clinics, hospitals, senior centers and various other public
services that are traditionally the purview of a local government
agency. Mr. Smith said that AML and JIA felt that this looks like
a trend and there will be an increasing role of the nonprofits and
Native village councils in Alaska. Therefore, in order to stay
stable and maintain market share it would be to the cities', the
schools', the nonprofits' and the [Native] village councils'
advantage to be able to all pool together.
Number 0858
MR. SMITH turned to Co-Chairman Harris' question regarding whether
these entities are having difficulty finding insurance. He
informed the committee that in 1994 "we" [JIA] began getting phone
calls regularly from nonprofits and Native village councils looking
for insurance. He noted that this occurred at the same time five
municipalities dissolved and another 11 were considering dissolving
because they were not able to make it with the amount of flat state
shared revenue they were receiving. Since then there have been
some creative relationships between the nonprofits and the tribal
entities and local governments such as the Quinhagak agreement.
Additionally, in the absence of a borough or a municipality there
are nonprofits that are performing de facto municipal services.
For example, in 1994 the Egegik Improvement Corporation was
essentially the de facto municipal government for the area.
Although he did not believe there are a great number of nonprofits
that cannot obtain insurance today, "we" [JIA] still receive about
half a dozen calls per month from such entities seeking coverage.
Without HB 404 or some coverage of some kind, a number of the
nonprofits and the Native village councils will go bare. Mr. Smith
commented that every citizen in the state needs some protection in
the event that something goes wrong. By providing a cost effective
tool for these organizations that are providing these public
services, it [HB 404] provides an alternative to going bare.
MR. SMITH moved on to the tax base issue. He reiterated that the
accessible provision is a safety valve that was put in 15 years ago
when it was unknown how pooling was going to work. Although
municipalities in Alaska have taxing authority, many of the state's
municipalities do not have a tax base. For example, the City of
Platinum, which is a member of [JIA], has 43 residents and a city
payroll of $37,500 and its property values total $23,500. He said
that many nonprofits would have deeper pockets than the City of
Platinum. Mr. Smith stated that the pool is financially stable and
structured in a way that it cannot go broke with the regulations in
place. The regulations involve annual actuarial reviews to ensure
adequate loss reserves and independent audits to ensure the books
are straight, both of which have allowed the [JIA] to return
millions of dollars to the members owning the organization. He
noted that JIA's board of directors are the stakeholders, which are
largely comprised of member entities. Mr. Smith believes that JIA
has adequate oversight and there is some tax base.
MR. SMITH noted his support of the amendment, which would require
some taxable entity in the pool in order to provide stability.
Number 1226
REPRESENTATIVE DYSON asked if this pool is self-insurance.
MR. SMITH explained that the pool is a self-insured entity, but the
pool purchases insurance over and above self-insured retention
(SIR). In the case of the AML's pool, JIA, it has a $25 million
SIR with another $10 million of excess insurance. In further
response to Representative Dyson, Mr. Smith explained that the pool
obtains enough money to operate through the collection of premiums
adequate to cover the cost of losses and the cost of
administration, including training, loss control services, risk
management services, et cetera. Any money left after the year
closes is returned to the membership. He reiterated that the pool
is not a for-profit business.
REPRESENTATIVE DYSON surmised, then, that these new entities, many
of which are small, that may qualify will have to be able to pay
their share in order to participate in the pool.
MR. SMITH replied yes. In further response to Representative
Dyson, Mr. Smith indicated agreement that the opposition from the
AIIAB may be due to their view that [the JIA pool] would be
competition for coverage that they are selling to some of these
entities [that would enter the pool].
Number 1377
REPRESENTATIVE DYSON remarked that he was disappointed that the
Minto case did not make it to court and that the sovereign immunity
issue was not settled in court. "Indeed, you'all, if you had a
huge claim from a Native corporation you'all would not refuse to
pay based on sovereign immunity because you have a different mind
set. Right?"
MR. SMITH said that is true. He understood Representative Dyson to
be referring to the McCorick(ph) helicopter accident in which there
was some dispute as to whether there was workers' compensation
coverage for the pilot and the chairman of the corporation.
Ultimately, the commercial insurance company chose to "hang its
hat" on the sovereign immunity issue. He noted that this settled
last week. Mr. Smith said that as a part of doing business with
[AML/JIA], sovereign immunity must be waived. If an entity has
sovereign immunity there is no reason to purchase insurance.
MR. SMITH answered yes, in regard to whether [JIA's] backup
insurance company would honor its obligation to pay. He specified
that in this instance, [JIA] manages the program and has a "treaty"
with the insurance company. He said that [JIA's] philosophy has
always been to look for coverage wherever possible.
Number 1538
REPRESENTATIVE DYSON related his understanding then that any Native
tribal council coming to JIA for coverage would be "foreswearing
playing the sovereign immunity card." He asked if Mr. Smith knew
of any groups in Alaska who are pursuing sovereign immunity as
their protection.
MR. SMITH responded that he was not aware of any entities actively
pursuing sovereign immunity. He reiterated that in order to enter
this program, he believes that [JIA] would require, at least in the
internal documents, that the entity waive sovereign immunity. The
program wants to collect premiums in order to cover losses if they
were to occur.
REPRESENTATIVE DYSON requested that if such a trend [of pursuing
sovereign immunity] began, he would like to know.
REPRESENTATIVE MURKOWSKI commented that she may disagree with the
simple answer of these entities signing a waiver. She believes
that is the issue that will be grappled with. She noted that JIA
has some 141 participants in the program currently and inquired as
to what Mr. Smith anticipated of the pool if HB 404 were to pass.
She posed a situation in which the pool doubles and there are
entities that really do not have a tax base and after making the
initial premium go "belly up." How much could the program take on;
how big can the program go?
MR. SMITH commented that he believes the initial expansion would be
fairly slow. He noted that they would be interested in employing
some strict underwriting criteria to ensure that there are fairly
sophisticated communities that are good risks. He anticipated
bringing on small, largely volunteer operations. For example, the
Homer Friends of the Animals perform the animal control for the
City of Homer. Most of the workers are volunteers and need some
workers compensation, but their total payroll is very small.
"While we may bring in large numbers ultimately, in terms of the
actual dollar volume and the risk involved, we're expecting that to
be relatively low." Given the structure that we have, a $25
million exposure per loss with the $10 million excess being covered
by someone else, he predicted that the program could expand to
twice the current size, in terms of the premium volume, and remain
solid.
Number 1775
REPRESENTATIVE HALCRO inquired as to how Mr. Smith would describe
the financial footing of the JIA presently.
MR. SMITH answered that the financial footing of the JIA currently
exceeds all the national standards for pooling arrangements. He
informed the committee that JIA has roughly $16 million in
corporate assets, which includes the building JIA owns and uses in
Anchorage as well as money set aside for loss reserves and a
surplus. Therefore, he characterized JIA's current financial
situation as one of the best in the country.
REPRESENTATIVE HALCRO directed Mr. Smith's attention to a letter
that he sent to the House Labor & Commerce Committee about HB 378.
Representative Halcro quoted the following from the letter, "Unless
there is an increase in services, the JIA sees no reason to cost
shift from the private industry to the public sector at a time when
local government entities are struggling for their survival. ...
In summary, the JIA would encourage you to exclude public entities
from the provisions of this bill. The cost shifting from the
private industry to the public sector could not come at a worse
time." That statement seems to be at odds with Mr. Smith's
previous statement that JIA is on solid financial ground.
Therefore, Representative Halcro inquired as to the JIA's financial
situation.
MR. SMITH remarked that he believes that this is comparing apples
to oranges. He stated that AML/JIA is sound; however, municipal
government in general is struggling. Since JIA is not a for-profit
business, this $16 million in corporate assets belongs to the 141
members of the AML/JIA. He pointed out that the change in law
considered in HB 378 would impose additional costs on
municipalities at a time when public sector finance is a real
challenge.
REPRESENTATIVE HALCRO disagreed that the discussion is comparing
apples to oranges. According to the JIA's position paper on HB
404, "Since the AML/JIA is never exposed to more than $250,000 on
any loss it would take more large losses in a single year than we
have experienced in the past 12 years total to exhaust the
financial resources of the organization." Representative Halcro
asked if the JIA should be required to compete by the same rules as
other commercial carriers if JIA is going to expand its pool to
good risk.
MR. SMITH said he believes that is the key policy question. If the
desire is to provide public services at a time when Alaskans demand
public services be delivered as cost effectively and efficiently as
possible, then he believes the tools should be provided to do so.
He did not believe it is difficult to see the difference between an
insurance company, which is in business trying to make money, and
a municipal government, which is the business of providing public
services in which profit is not the motive. Mr. Smith maintained
that the two are an apples to oranges comparison.
REPRESENTATIVE HALCRO commented that the same discussion is being
heard in the House Labor & Commerce Committee in regard to CFAB.
He informed the committee that Commercial Fishing and Agriculture
Bank (CFAB) was established 20 years ago for a very specific reason
and now it wants to reduce its risk, broaden its asset base and
move into tourism. However, the commercial bankers point out that
CFAB was originally established to help commercial fishermen and
agriculture to which the commercial bankers agreed. He asked if
Mr. Smith could understand the opposition.
MR. SMITH replied yes.
Number 2127
REPRESENTATIVE DYSON related his understanding that the existing
pool members would subsidize the new smaller members.
MR. SMITH replied no. He explained that JIA is looking at how to
set rates that are adequate to cover the risk for each member on an
individual basis as well as for the pool as a whole. Therefore, he
felt that there would be collection of a premium that is more than
adequate to cover most of the losses. In the event that JIA
experiences more losses than it has in total over the past 12
years, those entities [municipalities] with the tax base would have
to "foot the bill." He noted that a bill can be submitted to some
of the nonprofits and some of the other entities as well. He
pointed out that because the JIA board is created by the
membership, it is the membership and it is at the board's direction
that this avenue is pursued. Therefore, the municipalities within
this program seem to be supportive of this approach, which should
be evidenced by letters of support in the packet.
REPRESENTATIVE DYSON asked if the existing large municipal members'
rates would increase as a result of including many new members.
MR. SMITH replied no and commented that he expected the opposite to
occur. He explained, "The larger number of entities that you can
make, the law of large numbers makes the amount of losses more
predictable. Again, because there is an actuarial review to review
the overall health of the pool and each individual member, Mr.
Smith expected that the overall health of the pool would increase
and thus drive rates down.
REPRESENTATIVE DYSON asked if all of the AML participants have had
a chance to express their views on HB 404. Can it be assumed that
by-and-large the AML membership is in agreement?
MR. SMITH answered yes and noted that the AML has supported this in
its policy statement for several years and thus is, in large part,
supported by municipalities.
Number 2317
REPRESENTATIVE DYSON moved that the committee adopt Amendment 1,
which reads as follows:
Page 2, line 3:
Delete ";"
Insert "and at least one entity described
under (1) - (4) of this subsection
participates in the cooperative agreement:"
There being no objection, it was so ordered and Amendment 1 was
adopted.
Number 2355
SUSAN SPINDLER, Brady & Company, testified via teleconference from
Anchorage. Ms. Spindler turned to the sponsor statement which
states that these entities that would like to enter into this
arrangement are having problems purchasing cost effective
insurance. She disagreed with that statement. She noted that she
has been a member of the insurance industry for almost 20 years and
that Brady & Company insures a number of these entities for which
she did not find it difficult to obtain insurance. There are a
number of nonprofit insurance programs available which provide all
insurance lines at very competitive rates. With regard to the
earlier statement that the independent insurance agents are
concerned because this [expansion] would cut into their
competition, Ms. Spindler said, "Somebody made a statement to me
that they felt that perhaps, the JIA may be also expanding for the
same reason of competition to expand their base for insurance. So,
it could also be competition on their [JIA's] standpoint ... so, I
think that works both ways."
CO-CHAIRMAN HARRIS requested that Mr. Lohr, Division of Insurance,
comment on the amendment and the opposition letter from the AIIAB.
Number 2513
BOB LOHR, Director, Division of Insurance, Department of Community
& Economic Development, stated that he believes the amendment goes
to the right direction in terms of trying to attempt a connection
of financial responsibility to a tax base, which addresses the
concern of the legislature when it originally adopted the JIA
legislation years ago. With regard to HB 404 as a whole, the
division opposes HB 404 and believes it to be unnecessary at this
time.
MR. LOHR informed the committee that most of his career was spent
with nonprofit corporations. He did recall the aforementioned
liquidity crisis and the crunch that can place on a budget. He
explained that essentially there would be fixed funds for grant or
contract with one component of expense that is expanding, which can
cause some serious internal repercussions. However, Mr. Lohr said
that his information says that there is nothing approaching such a
situation. The availability of coverage now is quite widespread
from the admitted market, which is insurance provided through
licensed brokers and agents from companies that are licensed to do
business in Alaska. When someone is admitted to the Alaska
insurance market, they are actively regulated by the division.
MR. LOHR turned to the JIA. He referred to AS 21.76.020 which
provides that "A joint insurance arrangement may not be considered
insurance for the purpose of any other law of the state and is not
subject to regulations adopted by the director." Therefore, the
JIA arrangements are not subject to the same regulatory scrutiny
that any other insurance company, agent or broker in the state
would be subjected to. He acknowledged that there are some
exceptions such as high risks that the admitted market cannot write
or is unwilling to write because of the risk or the uniqueness. In
such cases, surplus lines are an option. He explained that surplus
lines is coverage that is provided by entities that are not
admitted to the Alaska market. If, after three efforts, an agent
or broker finds that coverage is simply not available, he/she could
turn to the surplus lines market in which case the customer of the
insurance would understand completely that [the surplus lines
market] is not subject to the division's jurisdiction. Therefore,
there would be increased risks with such coverage.
MR. LOHR expressed concern with the level playing field as it is
the public policy to require insurance companies, agents and
brokers to be subject to regulation of the state. Therefore, the
division would be concerned with alternatives to that which allow
others into the field without the same degree of regulation because
that may provide a competitive advantage. Mr. Lohr said,
"Competing equally for a customer may simply not be appropriate to
give one the advantage of less regulation, possible lower solvency
requirements and lower costs, in terms of the cost of compliance
with regulation.... That could be a competitive factor."
CO-CHAIRMAN HARRIS inquired as to the thought behind the
legislature not requiring the JIA to have oversight from the
division as the private insurance companies do. He asked if it was
because the JIA is dealing with public entities only.
MR. LOHR specified that his understanding from that era is very
anecdotal. However, the oral tradition within the division is that
the then director of the division did not want to have authority
over this entity [JIA] due to a perceived political clout that the
entity might have as well as whether there would be evenhanded
regulation would be applied. At the time, it was determined best
to not have the responsibility to regulate without the appropriate
authority. Therefore, the division requested that it not be given
authority over the JIA. He noted that he was not sure whether
there were other factors in that discussion.
Number 2795
MICHAEL COMBS, Combs Insurance Agency, testified via teleconference
from the Mat-Su Valley. He noted that he also sits on the Board of
Directors for the Alaska Independent Insurance Agents and Brokers,
Inc. He noted that the AIIAB position paper notes their opposition
to HB 404 as presented. Currently, there is not fair competition
between the JIA and the private sector industry. Mr. Combs said
that the AIIAB hoped that if HB 404 passes, the amendment offered
by the AIIAB would be adopted. That amendment would bring the JIA
under the insurance regulations by amending AS 21.76.020 to read,
"A joint insurance arrangement is considered insurance for the
purpose of the state and is subject to the regulations adopted by
the director." If the JIA is financially sound and regulated
within its ranks, then the JIA should have no difficulties in
meeting the requirements of the Division of Insurance. With regard
to the liquidity crisis of the 1980s, Mr. Combs said that crisis
never really occurred in Alaska. However, AML still convinced the
legislature that without AS 21.76 all municipalities would be
without insurance. "The JIA wanted to be free of regulatory
oversight as the members would obviously be very sophisticated and
would be able to provide sufficient oversight to their own
programs." Mr. Combs pointed out that AS 21.76 provides for a
total exemption of all other insurance laws, including financial
solvency, unfair trade practices, unfair claims practices and
policy format. Therefore, the premium generated from JIA is also
exempt from the premium tax, which is paid by the rest of the
insurance industry. He said that this exemption has cost the state
in excess of $1.25 million in uncollected premium tax since the JIA
inception. The premium tax is one of the leading income producers
to the state general fund.
MR. COMBS turned to the proposed expansion of the JIA which would
include all the Native villages and associations as well as all
nonprofit corporations in Alaska. In order to be eligible to be a
member of the JIA, one must satisfy only two requirements of AS
29.35.010 which are the ability "(11) to borrow money and issue
evidences of indebtedness" and "(14) to sue and be sued". Every
corporation, nonprofit or for-profit, has those abilities. These
nonprofits would include local churches, Boy Scout troops, Moose
Lodges and Little League programs. In the 1980s the JIA was
established to address the "trumped up" insurance crisis for
municipalities. Mr. Combs asked, "Tell me, where is the insurance
crisis for your local church? How much additional insurance
business do you want exempt from all insurance laws? Who is going
to protect the Little League programs if the JIA fails? Who wants
to assess these small innocent programs out of existence?"
Currently, the JIA enjoys a great advantage over all admitted
insurance companies as no regulation or premium tax provides the
JIA with a 6 percent pricing advantage over private counterparts.
Therefore, Mr. Combs requested that if approval of HB 404 is being
considered, the JIA exemptions should be provided to the rest of
the insurance industry or the aforementioned revisions to AS
21.76.020 should be adopted.
TAPE 00-17, SIDE B
MR. COMBS, in response to Representative Dyson, said that the AIIAB
does have a representative [lobbyist].
REPRESENTATIVE DYSON commented that the points raised by Mr. Combs
would probably be most appropriate in the House Labor & Commerce
Committee, which is the next committee of referral for HB 404. He
encouraged Mr. Combs to have the association and its representative
to be very active with HB 404 as it moves through the process.
Number 2943
CO-CHAIRMAN HARRIS asked if the amendment proposed by the AIIAB
would be one that the sponsor could support.
DEB DAVIDSON, Staff to Representative Davis, Alaska State
Legislature, said that she did not believe the sponsor could
support that amendment. She noted that Representative Davis has
not seen this amendment as he only saw the opposition letter this
morning. She believes that Representative Davis would feel, as
would the AML/JIA, that serving the public purpose under its
current self-policing would be adequate. She said that she
hesitated to speak too firmly on Representative Davis' opinion.
CO-CHAIRMAN HARRIS noted that he sits on the House Labor & Commerce
Committee, where this issue [the AIIAB amendment] could be a deal
killer. He inquired as to why the JIA could not support the
amendment proposed by the AIIAB.
MR. SMITH agreed that this [the AIIAB amendment] could be a deal
killer. He said that making the risk financing mechanism as
efficient and cost effective as possible for public entities and
service providers is an appropriate response for trying to deliver
the services to Alaskans in a cost effective manner. He did not
believe regulation by the Division of Insurance would make the JIA
any more financially solvent or serve the greater public good.
Therefore, Mr. Smith announced strong opposition to the amendment
proposed by the AIIAB.
REPRESENTATIVE DYSON commented that if the private carriers are
easily able to ensure all the municipalities and boroughs, perhaps
the enabling legislation for the entire program should be reviewed.
He announced that he would not vote to hold HB 404 in committee,
but would recommend amending HB 404 as a way to encourage the next
committee of referral to have this discussion.
REPRESENTATIVE JOULE inquired as to who performs the audits and
reviews of the JIA.
MR. SMITH explained that the actuarial review is performed by
someone who is certified by the American Academy of Actuaries.
Then an independent auditor reviews the books and an annual report
is compiled and filed with the Division of Insurance as well as the
Legislative Budget and Audit Committee. Mr. Smith specified that
JIA utilizes Armtech(ph), a third party administrator (TPA) in
California, to perform much of the JIA's actuarial work. He
further specified that much of the auditing is performed by Pete
Marwick(ph) with KPMG.
Number 2671
EILEEN TERWILLIGER, Executive Director, Alaska Municipal League
Joint Insurance Association, testified via teleconference from
Anchorage. She thanked Mr. Smith for his earlier comments
regarding AML/JIA as a solid organization and how its mission to
help local governments and school districts find coverage and
services is a successful program. These nonprofits and Native
village governments want more than just the coverage; they want
services from the JIA as well. This program provides one of the
leading coverages available in the state to municipal governments.
Furthermore, this program is an exemplary provider of services that
range from contract review to education to training to onsite loss
control assistance and risk management assistance. These services
are provided at a level which is not provided by any commercial
provider that she is aware of. Furthermore, these services are
provided at no additional cost.
MS. TERWILLIGER informed the committee that approximately 25
percent of the 141 participants work with brokers in the state for
which the JIA has good working relationships. Those relationships
with the brokers are valued and the JIA supports their partnership
with its business. The JIA is not in competition with the brokers
themselves. She said that the brokers view the JIA as a product,
an alternative source to coverage. Brokers support JIA because
they know that their clients can receive quality coverage through
a financially sound organization as well as being eligible for
dividends. She explained that a dividend is money returned from
premiums, in the event that losses are less than what is necessary
to charge for premiums. To date, the JIA has been able to return
$2.1 million of member's ownership benefits back to the members.
She noted that in addition to the studies mentioned by Mr. Smith,
the JIA undergoes four studies in order to determine the
organization's financial solvency and reserves for loss
sufficiency. Furthermore, the JIA has an independent third party
audit all of the JIA's claims files. There is also a rate study
that is performed every two years in which an actuary reviews the
JIA rates and makes adjustments. She noted that since the
beginning the rates have only decreased, which can be attributed to
the strength of the program. Ms. Terwilliger assured the brokers
that this [HB 404] should not be of concern to them as the JIA
still abides by its strong partnership with its brokers.
CO-CHAIRMAN MORGAN asked if there was anyone else present to
testify. There being no one, public testimony was closed.
Number 2444
REPRESENTATIVE DYSON moved to report HB 404 as amended out of
committee with individual recommendations and no fiscal note at
present.
CO-CHAIRMAN MORGAN announced his understanding that the fiscal note
for HB 404 would be zero.
BILL LAWRENCE, Staff to Representative Morgan, Alaska State
Legislature, interjected that with the industry amendment, the
fiscal note would probably remain zero. However, he noted that
[the impact of the amendment on the fiscal note] had not yet been
analyzed.
CO-CHAIRMAN MORGAN asked if there were any objections to reporting
HB 404 as amended from committee. There being no objection, it was
so ordered and CSHB 404(CRA) was reported from committee.
ADJOURNMENT
There being no further business before the committee, the House
Community & Regional Affairs Standing Committee meeting was
adjourned at 9:13 a.m.
| Document Name | Date/Time | Subjects |
|---|