Legislature(2005 - 2006)CAPITOL 17
03/21/2005 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB203 | |
| HB216 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 203 | TELECONFERENCED | |
| *+ | HB 216 | TELECONFERENCED | |
| += | HB 180 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 21, 2005
3:37 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Pete Kott
Representative Gabrielle LeDoux
Representative Bob Lynn
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
Representative Norman Rokeberg
COMMITTEE CALENDAR
HOUSE BILL NO. 203
"An Act relating to a motor vehicle dealer's selling certain
motor vehicles as new model motor vehicles or as new model motor
vehicles having a manufacturer's warranty."
- HEARD AND HELD
HOUSE BILL NO. 216
"An Act relating to insurance rate-making and form filing."
- HEARD AND HELD
HOUSE BILL NO. 180
"An Act relating to a special deposit for workers' compensation
and employers' liability insurers; relating to assigned risk
pools; relating to workers' compensation insurers; stating the
intent of the legislature, and setting out limitations,
concerning the interpretation, construction, and implementation
of workers' compensation laws; relating to the Alaska Workers'
Compensation Board; establishing a division of workers'
compensation within the Department of Labor and Workforce
Development, assigning certain Alaska Workers' Compensation
Board functions to the division and the department, and
authorizing the board to delegate administrative and enforcement
duties to the division; establishing a Workers' Compensation
Appeals Commission; providing for workers' compensation hearing
officers in workers' compensation proceedings; relating to
workers' compensation medical benefits and to charges for and
payment of fees for the medical benefits; relating to agreements
that discharge workers' compensation liability; relating to
workers' compensation awards; relating to reemployment benefits
and job dislocation benefits; relating to coordination of
workers' compensation and certain disability benefits; relating
to division of workers' compensation records; relating to
release of treatment records; relating to an employer's failure
to insure and keep insured or provide security; providing for
appeals from compensation orders; relating to workers'
compensation proceedings; providing for supreme court
jurisdiction of appeals from the Workers' Compensation Appeals
Commission; providing for a maximum amount for the cost-of-
living adjustment for workers' compensation benefits; relating
to attorney fees; providing for the department to enter into
contracts with nonprofit organizations to provide information
services and legal representation to injured employees;
providing for administrative penalties for employers uninsured
or without adequate security for workers' compensation; relating
to fraudulent acts or false or misleading statements in workers'
compensation and penalties for the acts or statements; providing
for members of a limited liability company to be included as an
employee for purposes of workers' compensation; establishing a
workers' compensation benefits guaranty fund; relating to the
second injury fund; making conforming amendments; providing for
a study and report by the medical services review committee; and
providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 203
SHORT TITLE: MOTOR VEHICLE DEALER SALES
SPONSOR(s): REPRESENTATIVE(s) ANDERSON
03/04/05 (H) READ THE FIRST TIME - REFERRALS
03/04/05 (H) L&C, FIN
03/18/05 (H) L&C AT 3:15 PM CAPITOL 17
03/18/05 (H) <Bill Hearing Postponed to Mon.
3/21/05>
03/21/05 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 216
SHORT TITLE: PROPERTY/CASUALTY INSURANCE REGULATION
SPONSOR(s): LABOR & COMMERCE
03/09/05 (H) READ THE FIRST TIME - REFERRALS
03/09/05 (H) L&C, FIN
03/18/05 (H) L&C AT 3:15 PM CAPITOL 17
03/18/05 (H) <Bill Hearing Postponed to Mon.
3/21/05>
03/21/05 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
JON BITTNER, Staff
to Representative Anderson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 203 on behalf of
Representative Anderson, sponsor.
STEVEN ALLWINE
Alaska Auto Dealers Association
Juneau, Alaska
POSITION STATEMENT: Presented information and answered
questions regarding HB 203. Testified in support of HB 203.
JOSH APPLEBEE, Staff
to Representative Anderson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 216 on behalf of
Representative Anderson, sponsor.
JOHN GEORGE
Property and Casualty Insurance Association of America
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 216.
SARAH MCNAIR-GROVE, Property and Casualty Actuary
Division of Insurance
Department of Commerce, Community, & Economic Development
(DCCED)
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding HB 216.
ACTION NARRATIVE
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:37:06 PM. Representatives
Guttenberg, Crawford, and Anderson were present at the call to
order. Representatives Kott, Lynn, and LeDoux arrived as the
meeting was in progress.
CHAIR ANDERSON noted that the teleconference equipment was not
operational, and therefore HB 180 would not be heard at this
meeting.
HB 203-MOTOR VEHICLE DEALER SALES
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 203, "An Act relating to a motor vehicle
dealer's selling certain motor vehicles as new model motor
vehicles or as new model motor vehicles having a manufacturer's
warranty."
JON BITTNER, Staff to Representative Anderson, Alaska State
Legislature, presented HB 203 on behalf of Representative
Anderson, sponsor. He explained:
House Bill 203 revisits statutory language proposed in
the previous legislature in House Bill 272. House
Bill 272 was an extensive bill that dealt with many
aspects of motor vehicle sales. The language in HB
203 was removed from House Bill 272 after it became
obvious there was a need for further discussion with
the affected parties. The sponsor of HB 203 as well
as the sponsor of the Senate companion bill, SB 138,
are currently working on hammering out a compromise
regarding the exact language of this bill with the
interested parties.
MR. BITTNER continued:
You'll notice that the sponsor statement in the
sectional analysis of your bill packets refer to a
committee substitute to HB 203; I apologize for any
confusion this may have caused. The Senate introduced
a committee substitute to the companion bill last week
in [Senate Labor and Commerce Standing Committee], and
I was working off of that version. Later there was
concern about the new language and it was decided that
we should wait until the various parties involved come
to a consensus before we introduce a committee
substitute. ...
What the sponsor is trying to achieve here is amiable
and equitable compromise between new and used car
dealerships that affects the highest amount of
consumer protection as well as allowing a reasonable
amount of flexibility to dealers so that they are not
unnecessarily burdened. House Bill 203 will amend AS
08.66.015 to modify the circumstances under which car
dealers can sell motor vehicles as new or current
models. Our goal here is to determine a standard for
what defines a new motor vehicle so that cars which
have been previously owned will not be sold to
consumers as a new vehicle. The sponsor feels that
both the consumers' and the dealers' needs can be
addressed in a future version of HB 203 and look
forward to being able to return to this committee with
a product that is both affective and fair.
3:40:30 PM
REPRESENTATIVE GUTTENBERG pointed out that the sponsor statement
says that a new vehicle must retain a manufacturer's certificate
of origin and the manufacturer's warranty, and the dealer must
have the current sales and service agreement with the
manufacture of the vehicle. He asked if all dealers are going
to be able to get a manufacturer's sales and service agreement.
MR. BITTNER replied that other witnesses present who will be
able to answer that question.
3:41:51 PM
STEVEN ALLWINE, Alaska Auto Dealers Association, noted that he
is also a local automobile dealer. He stated:
This [bill] is not as much about new car dealers as
used car dealers; this is about people who, in a lot
of respects, might create a situation where a consumer
doesn't know if they are buying a new car or a used
car, and whether in fact there is a warranty or there
is no warranty on that vehicle. There are ways that
you can circumvent the system and purchase a vehicle
that is new and then subsequently manufacture a used
car. ... If you have a situation where you have a
connection with a rental car company, you can go in to
that rental car company, make an arrangement, extract
their inventory that they have ordered from the
factory under some very specific incentives, and in
fact come up with a price differential that is
different than a new car dealer will.
3:43:25 PM
MR. ALLWINE continued:
This also works if you go across country because
manufacturers place incentives in different markets to
varying degrees. So you, in a given situation, can go
to the East Coast and buy a car from a dealer and
bring it to this part of the world and effectively
have purchased that car for less money than the dealer
in the State of Alaska ... would purchase the car for.
... The kink is in those situations, that vehicle may
no longer be a new car. It may not have warranty or
the warranty may have already started and expired. In
certain situations, if you buy what they call a gray
market vehicle, that vehicle potentially could have no
warranty on it.
3:44:21 PM
MR. ALLWINE stated:
So the issue isn't always whether it's used car
dealers or new car dealers; the issue is what does a
customer perceive when they walk in and look at a car.
And if you walk in and look at a car, even if it's on
a used car dealer's lot, and that car is a current
model, 2005, and it has 2,200 miles on it, I don't
care what the salesman tells you, you're perception is
going to be that that's a new vehicle. And that may
be a problem to the consumer in the long run. And new
car dealers, unfortunately, are the people who have to
handle those problems when they come up.
The current statute that's on the books now needs to
be changed for one very important reasons: the statute
was done in 1993 and it was to preclude brokers from
creating the image that they were new car dealers and
holding their vehicles out as new cars. We have found
over time that what has happened is the statute was
written wrong and so essentially, [as a Chrysler
dealer] if I take in a 2005 Ford right now, I am out
of compliance.
MR. ALLWINE urged the committee to review the committee
substitute from the Senate, and to address this issue.
3:46:04 PM
REPRESENTATIVE GUTTENBERG commented that rather than going state
by state, a better recourse would be to simply go to the
manufacturer.
MR. ALLWINE noted that he sits on the Dodge Dealer Council for
the Western Business Center which has approached manufacturers
with this request, but the manufacturer's say that they cannot
do that right now.
REPRESENTATIVE LYNN asked if this topic had anything to do with
"the old Canadian car issue."
MR. ALLWINE replied that it does not. He said, "It has to do
with automobile retailers circumventing the law, going into a
gray area, and creating a vehicle that in the normal consumer's
mind would represent a new car, when in reality it may not be."
REPRESENTATIVE LYNN asked if this had anything to do with gray
market cars coming from Europe.
MR. ALLWINE replied that it can, but "we have the ability under
the current statute to do it within the country; we don't have
to go ... other places to do it."
3:48:44 PM
REPRESENTATIVE CRAWFORD commented that because of the change of
the value of the U.S. dollar to the Canadian dollar, "some of
that has corrected itself over the last couple of years."
MR. ALLWINE responded, "That is correct but that also works the
other way because this issue has come up where dealers in the
southern states were marketing into Mexico." He noted that the
statute still needs to be corrected, however.
REPRESENTATIVE GUTTENBERG asked if there are any new car dealers
that don't offer the manufacturer's warranty.
MR. ALLWINE replied that if an individual buys a car through a
new car dealer, the manufacturer's warranty will be on that new
car because the manufacturer is required to warranty the
vehicle. He continued, "There are given circumstances if you
are a subsequent owner where in reality that warranty may cease
to exist."
REPRESENTATIVE GUTTENBERG remarked that he bought a new car this
year, but the warranty was not with the same company that is the
manufacturer.
3:50:57 PM
MR. ALLWINE commented that this was a service contract. He
explained that when an individual purchases a new vehicle from a
new car dealer, the warranty is from the manufacturer. Any
subsequent coverages that the individual purchases are service
contract coverages. He continued, "That's part of the issue we
have here; it is conceivable that you can walk into a ...
retailer's lot, look at a vehicle with [2,000-3,000] miles on it
that's 60 or 90 days old, and it does not have a manufacturer's
warranty. But you think that that's a new vehicle." He
reiterated that a new car should have a manufacturer's warranty,
and if it doesn't have one, it's not a new vehicle.
CHAIR ANDERSON stated that HB 203 would be held over.
HB 216-PROPERTY/CASUALTY INSURANCE REGULATION
3:52:55 PM
CHAIR ANDERSON announced that the next order of business would
be HOUSE BILL NO. 216, "An Act relating to insurance rate-making
and form filing."
JOSH APPLEBEE, Staff to Representative Anderson, Alaska State
Legislature, presented HB 216 on behalf of Representative
Anderson, sponsor. He stated that HB 216 is the result of
discussion between agents, companies, and legislators. He
indicated that they would be offering summations of the bill as
are related to their own interests. The bill, he said is end
product of several meetings and a model created by National
Conference of Insurance Legislators (ENCOIL) was used for many
aspects of the bill, though many aspects were not used. HB 216,
he said, would be consistent with ENCOIL's end goal of
modernizing state insurance regulation. This bill will create a
more dynamic, more competitive insurance market in Alaska, and
will benefit local consumers.
CHAIR ANDERSON stated that when the Governor was running for
election this was his focus as well.
REPRESENTATIVE ROKEBERG asked if this was the same bill that was
heard in the last legislature.
CHAIR ANDERSON answered that it was not.
REPRESENTATIVE CRAWFORD stated that the title is really broad
and asked if the committee could narrow it down so that it is
more specific.
REPRESENTATIVE GUTTENBERG stated that with all due respect, he
wanted to know if this was done by legal research.
MR. APPLEBEE stated that this was done by a lawyer outside the
legislature.
REPRESENTATIVE GUTTENBERG indicated that there is no reference
here and then indicated that it is always nice to know who this
person might be, since the document is obviously one that took a
lot of effort.
REPRESENTATIVE ROKEBERG agreed that in proper legislative
manner, it should be disclosed in the document.
CHAIR ANDERSON agreed that he would do this in the future.
3:58:25 PM
JOHN GEORGE, Property and Casualty Insurance Association of
America, stated that there are things that need to be
modernized, and then stated that he speaks for the entire
insurance industry when says that they have been working on this
legislation for at least 9 months. The end result was to
produce modernized, improved regulation and build markets. He
pointed out that a current problem he saw was that there were
only 3 or 4 major companies operating in the state of Alaska,
and that if one or more companies left the state, it would
really jeopardize the market. He stated that they encourage
more competition and split up the businesses. He ended by
stating that the sectional analysis was done by an analyst from
the Property Casualty Association of America. He hesitated and
said that there is a little concern that it is very technical
and explaining this will be a difficult thing to do but the
concept is fairly easy to grasp.
MR. GEORGE, referring to a statement being handed out by Josh
Applebee, stated that it was similar to the one read by the
sponsor at the beginning and it does express his groups
concerns.
4:00:34 PM
MR. GEORGE indicated that they had been working diligently with
the Division of Insurance and they had a CS almost ready but it
was not ready today. He ended by stating that he would get to
the technical stuff later on.
4:01:18 PM
MR. GEORGE stated that a good deal of the problems with this
bill is in the drafting of the bill. He said that insurance is
not an easy thing to draft and that he was encouraged that they
did a great job getting this out. The result was one that will
improve competition, builds new markets, and gives the division
adequate regulatory authority to increase efficiency and it
eliminates the redundant work. It also requires insurers to
certify compliance and allows the division to concentrate on
things that are more important. It follows the ENCOIL model
created by the National Conference of Insurance Legislative
group. He indicated that the law that they follow is the same
law that was put into place in 1973, and it does not fit with
modern times. It is time for modernization.
CHAIR ANDERSON asked if he could simplify the technical aspects
of the bill and write it up for the committee.
REPRESENTATIVE ROKEBERG asked if he could explain flex rating
and why it is beneficial to consumers. He then asked if you
have decreased rates and if you have to have prior approval to
lower rates with this type of rating.
4:04:33 PM
MR. GEORGE answered that flex ratings allow rates to increase or
decrease in a narrow band. Within this narrow band, the rate
that has been filed goes up and down based on market conditions.
He stated that if an agent wants to outside this band, he or she
would have to offer a new filing and go through the approval
process again. This process, he said, does allow the rates to
decrease. He then revealed that rate regulation came about
because of the vigorous competition in the early days of
underwriting and the fact that this led to insolvency in many
instances due to inadequate rates, which could not cover the
losses. This fact, he said, is overlooked, when price gouging
and rate hikes are blamed for market behavior. He then stated
that the current market is vastly competitive, especially with
the internet being the prime source for insurance information.
REPRESENTATIVE ROKEBERG affirmed that under current law you have
to have prior approval to lower the rates.
MR. GEORGE answered that yes, any change requires prior approval
which can take 60 to 90 days.
4:06:18 PM
REPRESENTATIVE ROKEBERG stated that his review of the file did
not show what flex rating is and did not graphically show how it
works so that people outside the committee (on the floor of the
legislature) would more easily grasp the concept. He then asked
if there were any illustrations that could be supplied to do
this.
4:06:51 PM
REPRESENTATIVE LYNN asked why a lower limit would exist.
MR. GEORGE answered that you come up with 'the' rate based on
several factors and statistics. If these variables change then
the rate goes up or down. A minor change that stays within the
narrow rate band would take administrative action to correct.
However, if it is a drastic change, one that pushes the rate
outside the rate band, then the agent would have to take another
look and determine why the change was occurring and a review and
an additional rate filing must take place.
REPRESENTATIVE LYNN indicated that being concerned with low
rates is hard to be concerned with, since most people are more
worried about higher rates.
4:08:12 PM
MR. GEORGE asserted that the problem with low rates is primarily
due to the rate of competition between the various companies.
When they charge a rate that is too low, they cannot deal with a
sudden loss brought on by a big claim.
4:08:56 PM
REPRESENTATIVE LEDOUX asked if there was some other way that the
insurance commissioner can determine solvency of a company
rather than having a regulation on rates.
4:09:18 PM
MR. GEORGE answered that yes, there were things in place that
would be determining factors. The amount they charge,
investments, loss history and other things are important factors
in determining solvency. These are questions that need to be
directed towards the Division of Insurance.
4:09:37 PM
REPRESENTATIVE GUTTENBERG, referring to line 9 on page 1, asked
why the section on inland marine risk separate from the rest of
the bill.
SARAH MCNAIR-GROVE, Property and Casualty Actuary, Division of
Insurance, Department of Commerce, Community, & Economic
Development (DCCED), asserted that inland marine industry is
separated out because the risks can vary quite a bit and there
is no averaging here since it's not homogenous. The nature of
the industry- taking cargo from one point to another has its own
type of risks and for this reason they are separated and treated
differently. She then defined inland marine by saying that it
refers to certain transportation risks taking cargo from one
point to another, from harbor to inland destinations.
CHAIR ANDERSON indicated that he wanted to hold the bill. He
then asked Ms. McNair-Grove to begin her analysis of the bill.
MS. MCNAIR-GROVE began her analysis by first stating they have
come up with something good, having gone through several
meetings with industry. She stated that the rating standards
have stayed the same, as well as the consumer protections that
are in our current law. The big change is the process in which
they put rates into effect and in place for the consumer.
4:12:38 PM
REPRESENTATIVE ROKEBERG asked what types of insurance coverage
are we talking about here.
MS. MCNAIR-GROVE answered that the bill deals primarily with
property and casualty rates, which include personal and
commercial auto, homeowners, umbrella, workers compensation, and
finally fire and property coverage. This is all found in
Chapter 39 of the insurance statute code. This new bill changes
the way that policies are expressed in forms.
MR. GEORGE stated that there are some flexibilities here and
this is not subject to flex ratings.
REPRESENTATIVE ROKEBERG asked what other reforms were in the
bill.
4:14:23 PM
MS. MCNAIR-GROVE announced that there are three different
process by which ratings are gained. One includes prior
approval, which deal with high risk, workers compensation,
assigned risk, and medical malpractice. The second process is
the flex rating. This is plus or minus 10 percent accumulative
over the past year. If the claim is within that range, the
company still has to file but can implement it on the day that
the Division of Insurance receives the filing. It still goes
through a review.
REPRESENTATIVE CRAWFORD, referring to the flex rating and the 10
percent range within, asked if one could can stack the 10
percent changes inside of one year, and if there was a limit to
how many you could claim.
MS. MCNAIR-GROVE answered affirmatively that yes, it is stacked
here. In a one-year period, if the cumulative rate effect is
+/- 10 percent then you can do the flex rating. However, if the
cumulative rate effect falls outside this range, then it falls
under a third filing process. This third filing process is
called the "file in use". This consists of a 15-30 day review
period and it is not disapproved of in that time, it is passed
and becomes effective.
REPRESENTATIVE LEDOUX asked if the applicants generally are
making the rates go up or down.
MS. MCNAIR-GROVE in the past couple of months we have been in
hard market, and that has made the rates go up but generally you
see both.
4:17:13 PM
REPRESENTATIVE ROKEBERG stated that he did not understand
whether it is ten percent of the base or is a cumulative thing.
MS. MCNAIR-GROVE stated it is plus or minus ten percent of the
insurers existing rates.
REPRESENTATIVE ROKEBERG, referring to the stacking of the
timeframe, asked how this was limited and to what type of time
frame was it limited.
4:18:00 PM
MS. MCNAIR-GROVE, referring to page four, line 27, Section
21.39.210, she reads from the following:
Sec.21.39.210. Flex-rating. (a) Except for workers'
compensation, medical malpractice, and assigned risk plan
rates, an insurer's rate level increase or decrease
may take effect without prior approval if the cumulative
rate level change for all coverage's combined, calculated
from the effective date to 12 months before the
effective date, is not greater than 10 percent.
MS. MCNAIR-GROVE explained that one would look at the effective
date of the filing, and the previous filings made in the
previous 12 months and if the combination of these is not
greater than +/- 10 percent, then it falls under the flex
rating.
CHAIR ANDERSON interjected and asked if this is this going to
change in the upcoming CS.
MS. MCNAIR-GROVE answered that it would not be changed.
REPRESENTATIVE ROKEBERG asked if this is typical of other states
in the nation and similar to what ENCOIL was recommending.
MS. MCNAIR-GROVE answered that it varies by state by percent,
where some states are at +/- 5 percent and others are as high as
+/- 15 percent. I can get this information for you as well.
REPRESENTATIVE ROKEBERG stated that this would be helpful, since
that seems to be a really big band. It would be very
interesting to know what the typical rate changes have been, and
how much time it takes to get a rate approved in the state of
Alaska.
4:20:41 PM
REPRESENTATIVE GUTTENBERG stated that this very much like a
urban legends that if you receive a form from the insurance
company in the mail, you can scratch off or change a number or
phrase and when you send this back, it becomes an effective
change on the policy. He then asked what the legalities of this
would be.
MS. MCNAIR-GROVE answered that she was not aware of this but the
statute says that proper forms that have been approved by the
Division of Insurance must be used and that any policy change
not done on this forms is not legal and not supposed to be
recognized.
REPRESENTATIVE LEDOUX since there is obviously more than one
company, she asked what is the rational behind having to go the
regulatory people, and getting rate hikes approved. She likened
it to going to the store and buying apples.
MS. MCNAIR-GROVE stated that insurance is a promise and that is
different from other market items. She then indicated that you
are buying something today that will cover something in the
future. She explained that you have to estimate the costs since
you cannot always predict what the cost of an accident will be.
She then said that one of the historical reasons for rate
reviews are historical cases involving antitrust law reviews and
company insolvencies. This was one of the mechanisms that are
used to make sure that the insurance company is there for you
when you need them.
REPRESENTATIVE LEDOUX asked what the rational was behind capping
the rate and then asked why the free market doesn't govern this.
4:23:45 PM
MS. MCNAIR-GROVE stated that there should free competition in
the market and that the market should be able to run itself.
However, she indicated that nominal competition cannot always be
present here in Alaska and create the amount of competition that
is needed for price control.
[HB 216 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:24:39 PM.
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