Legislature(1999 - 2000)
03/21/2000 08:10 AM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.