Legislature(2011 - 2012)BARNES 124

02/21/2011 03:15 PM House LABOR & COMMERCE


Download Mp3. <- Right click and save file as

Audio Topic
03:21:55 PM Start
03:22:09 PM HB164
04:36:28 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 164 INSURANCE: HEALTH CARE & OTHER TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                       February 21, 2011                                                                                        
                           3:21 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Craig Johnson, Vice Chair                                                                                        
Representative Dan Saddler                                                                                                      
Representative Paul Seaton                                                                                                      
Representative Lindsey Holmes                                                                                                   
Representative Bob Miller                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Steve Thompson                                                                                                   
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
 HOUSE BILL NO.  164, "An Act relating to  insurance; relating to                                                               
health care insurance, exemption  of certain insurers, reporting,                                                               
notice,   and    record-keeping   requirements    for   insurers,                                                               
biographical   affidavits,  qualifications   of  alien   insurers                                                               
assuming  ceded  insurance,   risk-based  capital  for  insurers,                                                               
insurance holding companies,  licensing, federal requirements for                                                               
nonadmitted insurers,  surplus lines insurance,  insurance fraud,                                                               
life insurance  policies and annuity  contracts, rate  filings by                                                               
health  care  insurers,   long-term  care  insurance,  automobile                                                               
service corporations, guaranty fund  deposits of a title insurer,                                                               
joint  title plants,  delinquency proceedings,  fraternal benefit                                                               
societies, multiple  employer welfare arrangements,  hospital and                                                               
medical    service   corporations,    and   health    maintenance                                                               
organizations; and providing for an effective date."                                                                            
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                              
BILL: HB 164                                                                                                                  
SHORT TITLE: INSURANCE:  HEALTH CARE & OTHER                                                                                    
SPONSOR(s): LABOR & COMMERCE                                                                                                    
                                                                                                                                
02/18/11       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/18/11       (H)       L&C, FIN                                                                                               
02/21/11       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
LINDA HALL, Director                                                                                                            
Division of Insurance                                                                                                           
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Presented a section-by-section  analysis of                                                             
HB  164 and  answered questions  during the  discussion of  on HB
164.                                                                                                                            
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:21:55 PM                                                                                                                    
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee meeting  to order at  3:21 p.m.  Representatives Olson,                                                               
Seaton, Johnson, Saddler, Holmes, and  Miller were present at the                                                               
call to order.                                                                                                                  
                                                                                                                                
             HB 164-INSURANCE: HEALTH CARE & OTHER                                                                          
                                                                                                                              
3:22:09 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  announced that the  only order of business  would be                                                               
HOUSE BILL  NO. 164, "An  Act relating to insurance;  relating to                                                               
health care insurance, exemption  of certain insurers, reporting,                                                               
notice,   and    record-keeping   requirements    for   insurers,                                                               
biographical   affidavits,  qualifications   of  alien   insurers                                                               
assuming  ceded  insurance,   risk-based  capital  for  insurers,                                                               
insurance holding companies,  licensing, federal requirements for                                                               
nonadmitted insurers,  surplus lines insurance,  insurance fraud,                                                               
life insurance  policies and annuity  contracts, rate  filings by                                                               
health  care  insurers,   long-term  care  insurance,  automobile                                                               
service corporations, guaranty fund  deposits of a title insurer,                                                               
joint  title plants,  delinquency proceedings,  fraternal benefit                                                               
societies, multiple  employer welfare arrangements,  hospital and                                                               
medical    service   corporations,    and   health    maintenance                                                               
organizations; and providing for an effective date."                                                                            
                                                                                                                                
3:22:57 PM                                                                                                                    
                                                                                                                                
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce, Community  & Economic  Development (DCCED)  referred to                                                               
member  binders   that  contain  sections  which   may  help  the                                                               
committee as she reviews this complex bill.                                                                                     
                                                                                                                                
3:24:33 PM                                                                                                                    
                                                                                                                                
MS. HALL  referred to the  section-by-section analysis of  HB 164                                                               
and  offered  to  point  out  changes from  existing  law.    She                                                               
explained that Section 1 would  apply to entities not required to                                                               
be licensed under Alaska Statute (AS) 21.                                                                                       
                                                                                                                                
3:26:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  whether this  provision would  also                                                               
apply to health insurance sold by another state.                                                                                
                                                                                                                                
MS. HALL answered that it has  a relationship.  This provision is                                                               
intended to apply to a  large employer headquartered in Texas who                                                               
purchases a group health insurance  policy for five people to not                                                               
have   to  submit   to  the   entire  certificate   of  authority                                                               
application  process.   She stipulated  that the  policy must  be                                                               
sold in  Texas and cannot  be marketed in Alaska.   Additionally,                                                               
the company  would be limited to  $50,000 in premium sales.   She                                                               
offered  her  belief  that  this   provision  was  not  generally                                                               
applicable to health insurance sold by another state.                                                                           
                                                                                                                                
MS. HALL  stated that Sections  2-21 of  HB 164 would  modify the                                                               
insurance terminology, including changing  the term "managed care                                                               
entity" to "health care insurer," she said.                                                                                     
                                                                                                                                
3:29:25 PM                                                                                                                    
                                                                                                                                
MS. HALL turned to the  tab titled, "Financial Tab," which refers                                                               
to pages  15-23 of the  bill.  These financial  updates represent                                                               
the most  technical part of  the bill.   She related  the primary                                                               
mission  of   the  Division  of   Insurance  (DOI)   is  solvency                                                               
oversight.  An insurance policy is  a promise to pay, she stated.                                                               
The state's regulation  over the industry really  does not matter                                                               
if  funds  are not  available  to  pay  claims,  she said.    She                                                               
emphasized   consumer  protection   relates  first   to  solvency                                                               
oversight.   She  pointed out  some provisions  in the  financial                                                               
section  are  quite  technical   and  others  are  quite  simple.                                                               
Proposed Section 24  would require the DOI  to collect electronic                                                               
mailing  addresses   and  file  biographical  affidavits.     She                                                               
highlighted  the   more  critical   pieces  pertain   to  records                                                               
maintenance, such as the requirement  of insurers to keep records                                                               
according to  the state's requirement  or according to  the state                                                               
of domicile's statutes, whichever is  longer.  She explained that                                                               
during  the complaint  process, the  DOI must  be able  to obtain                                                               
records from  the insurer, such  as why  they denied a  claim and                                                               
what the policy said at the  time it was sold.  She characterized                                                               
these  changes   as  a  strengthening   of  the   state's  record                                                               
maintenance  requirements.   A section  on reinsurance,  which is                                                               
insurance  that insurance  companies buy  to protect  themselves,                                                               
generally carries a  large deductible and provides  a layering of                                                               
the  portion of  the risk.    She reported  that the  reinsurance                                                               
marketplace  is  changing.    Some  of  the  companies  domiciled                                                               
outside the U.S. keep trust funds  in the U.S. for the benefit of                                                               
policyholders.   She  clarified  that this  language changes  the                                                               
percentage  of   insurance  the  companies  must   keep  fir  all                                                               
policyholders.   She noted this  is referred  to as ceding.   She                                                               
clarified the ceding  provision only pertains to  the portion the                                                               
companies take  on with respect  to the insurance  company rather                                                               
that  the amount  of the  full  policy. She  commented that  some                                                               
states such  as New York and  Florida have made changes  in their                                                               
laws and are  no longer requiring a 100 percent  trust fund.  She                                                               
recapped that some  of the model laws  for regulating reinsurance                                                               
have  changed and  Alaska  is updating  its  statutes to  reflect                                                               
these changes.                                                                                                                  
                                                                                                                                
3:33:09 PM                                                                                                                    
                                                                                                                                
MS.  HALL referred  to  proposed  Section 29  of  the bill  which                                                               
pertains to  a "company  action level event"  for a  property and                                                               
casualty insurer  or health organization.   This  means something                                                               
happened to cause  the state's regulators to  more closely review                                                               
the action which would likely  require additional reporting.  The                                                               
proposed  change  would  increase   the  capital  amount  that  a                                                               
property and  casualty insurer or  health organization  must have                                                               
when  that  happens.    Previously,   when  the  insurer's  total                                                               
adjusted capital  fell below 250  percent, the DOI  would require                                                               
additional reporting.   That threshold has been  increased to 300                                                               
percent.   This percentage  point would trigger  when the  DOI to                                                               
review the reserves and overall  solvency issues.  "So increasing                                                               
means it's  a tighter regulation.   We're  upping the ante  so to                                                               
speak," she  said.   In response  to Representative  Saddler, she                                                               
responded  that proposed  Section  29 refers  to  the risk  based                                                               
capital,  which is  the capital  and surplus  requirements of  an                                                               
insurer.  This would represent  the insurer's surplus capital and                                                               
how  much  relates to  what  the  insurer  has obligated  to  pay                                                               
policyholders.   She reiterated that  current when  the insurer's                                                               
total  adjusted capital  fell  below 250  percent  the DOI  would                                                               
perform  a  more   rigid  examination.    Under   this  bill  the                                                               
percentage would be increased to 300 percent.                                                                                   
                                                                                                                                
3:35:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked whether  that means  capital assets                                                               
and reserves must equal 300 percent of the claims or the risk.                                                                  
                                                                                                                                
MS. HALL  clarified that  this provision pertains  to risk.   She                                                               
elaborated that it would depend on  the type of policy or type of                                                               
exposure and  whether the insurance  is for automobiles  or large                                                               
commercial buildings since the firm  would have a different level                                                               
of exposure for  any one risk.  She characterized  the risk based                                                               
capital process as a complex formula.                                                                                           
                                                                                                                                
REPRESENTATIVE SADDLER asked whether  it is analogous to reserves                                                               
for a bank.                                                                                                                     
                                                                                                                                
MS.  HALL answered  that the  terminology has  also changed  over                                                               
time.  It  has changed from the amount of  capital an insurer had                                                               
to the  number of policies  it had  written to a  more subjective                                                               
analysis of the  risk the insurer takes.  If  an insurer writes a                                                               
substantial  number of  policies for  earthquake insurance,  even                                                               
though  the   earthquake  event  happens  less   frequently,  the                                                               
insurer's exposure  is much greater  than if the insurer  were to                                                               
write all auto  policies.  She equated the analysis  as more of a                                                               
subjective analysis performed to better assess the full risk.                                                                   
                                                                                                                                
REPRESENTATIVE  SADDLER related  his  understanding that  raising                                                               
the threshold would require greater documentation.                                                                              
                                                                                                                                
3:36:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  for clarification  on the  current                                                               
requirement for recordkeeping.                                                                                                  
                                                                                                                                
MS.  HALL  answered that  five  years  retention for  records  is                                                               
typical but  certain records  have other  requirements, including                                                               
that original  contracts must be kept  for as long as  the policy                                                               
is  in force.    She  recalled an  incident  related  to a  legal                                                               
annuity claim in  which neither the consumer nor  the company had                                                               
a copy  of the original  contract on file.   It was  difficult to                                                               
sort out  whether the Alaska  regulations had been adhered  to so                                                               
these  changes   will  help  ensure  the   original  records  are                                                               
available.                                                                                                                      
                                                                                                                                
CHAIR  OLSON   recalled  medical  malpractice  records   must  be                                                               
retained  substantially  longer,  in  excess  of  18  years,  and                                                               
earthquake policies are only retained for one year.                                                                             
                                                                                                                                
MS. HALL pointed  out that the retention time can  also depend on                                                               
whether the  policy is renewed with  a different company or  if a                                                               
completely different policy issued.   In those instances it would                                                               
not be necessary to keep the old policy, she said.                                                                              
                                                                                                                                
3:38:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER   asked  for  further   clarification  on                                                               
"ceding" insurers and how it would apply to reinsurance.                                                                        
                                                                                                                                
MS. HALL related a scenario  in which insurance company "A" whose                                                               
main  domicile is  Alaska, is  considered  the domestic  insurer.                                                               
Any company  whose headquarters is  located outside  Alaska would                                                               
be referred  to as  a "foreign" insurer.   When  its headquarters                                                               
are  located in  another  country the  company  is considered  an                                                               
"alien" insurer.   Many reinsurers are  headquartered outside the                                                               
U.S.,  she  said.   Insurance  company  "A" would  only  purchase                                                               
insurance  from  a foreign  insurer  or  an alien  insurer  since                                                               
Alaska does  not have  any reinsurance  companies located  in the                                                               
state.    She   characterized  this  process  as   similar  to  a                                                               
deductible and whichever portion  is reinsured, company "A" would                                                               
be  considered  the "ceding"  insurer.    Therefore, company  "A"                                                               
would be ceding part of its risk to another company, she said.                                                                  
                                                                                                                                
MS.  HALL related  that proposed  Section 34  contains the  final                                                               
change under  the financial  tab.    This  changes the  date from                                                               
April  1  to May  1  to  allow insurers  more  time  to file  the                                                               
extensive   financial  documents.     She   recalled  that   this                                                               
suggestion was offered during the DOI's accreditation review.                                                                   
                                                                                                                                
3:41:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON referred  to  page 22,  to the  definition                                                               
section  of HB  164.   He  asked whether  it is  clear that  this                                                               
refers to  a health care insurer  or if it needs  to be clarified                                                               
that a "managed care entity" includes a "health care entity."                                                                   
                                                                                                                                
MS. HALL responded these proposed  sections ensure that a company                                                               
who is  a health or life  insurer must file a  risk-based capital                                                               
report.  She added that this  provision is not really part of the                                                               
definition.   She  offered  her belief  that  the other  sections                                                               
adequately define the terms, but  she offered to review this with                                                               
her legal staff.                                                                                                                
                                                                                                                                
3:42:50 PM                                                                                                                    
                                                                                                                                
MS. HALL  referred to  the next tab  in members'  binders labeled                                                               
"Licensing."  She  explained that the Alaska  statutes (AS) 21.27                                                               
refer to agent  licensing and updates the  DOI's antiquated agent                                                               
licensing  structure.   She related  that pages  23-27 of  HB 164                                                               
help  to  streamline the  process.    Proposed Section  35  would                                                               
delete  the term  "individual  in  a firm"  and  replace it  with                                                               
"individual license."   She stated that the effect  is to provide                                                               
portability to the  individual license will to  allow the license                                                               
to follow an agent when the  person changes firms.  Currently, if                                                               
an individual  license and changes  firms, the agent  must cancel                                                               
his/her license and  reapply for a new license within  30 days or                                                               
incur fines.   These  changes should  streamline the  process for                                                               
agents  and  for the  DOI.    She  pointed out  that  substantial                                                               
paperwork  is involved  to process  an individual  agent changing                                                               
firms.  These provisions establish  an employment contract, which                                                               
indicates  that the  firm's company  appointment  extends to  any                                                               
individual  working for  the firm.   The  individual may  use the                                                               
fiduciary  accounts   of  the  firm   and  his/her   records  are                                                               
considered records  of the firm.   Thus, the DOI would  require a                                                               
contract  to  outline   specific  terms.    The   firm  would  be                                                               
responsible  for its  agents.   The compliance  officer would  be                                                               
responsible to  make sure everyone  working for the  firm follows                                                               
Alaska laws. She  characterized the provision as  the DOI seeking                                                               
accountability and efficiency.   She offered her  belief that the                                                               
current  licensing  fee  structure   is  incredibly  complex  and                                                               
estimated  that the  DOI refunds  100 or  more overpayments  each                                                               
year to agents.                                                                                                                 
                                                                                                                                
3:45:26 PM                                                                                                                    
                                                                                                                                
MS. HALL  pointed out that  proposed Section 38 would  remove the                                                               
requirement  for  nonresidents  to  submit  fingerprints.    This                                                               
change is  necessary to  comply with  the requirements  under the                                                               
federal  Gramm-Leach-Bliley Act  and national  uniformity license                                                               
standards.     She  explained  the  DOI   has  not  fingerprinted                                                               
nonresidents by  policy for  a considerable  time.   The national                                                               
standard  requires  that  each state  will  fingerprint  its  own                                                               
residents and perform background checks  as part of the licensing                                                               
process.   A  federal law  requires felons  to submit  additional                                                               
paperwork.   This  change prevents  duplication for  those agents                                                               
obtaining registration  in 25  states.   This change  would place                                                               
the responsibility  on the  regulator in the  state in  which the                                                               
agent resides.                                                                                                                  
                                                                                                                                
3:47:24 PM                                                                                                                    
                                                                                                                                
MS. HALL turned  to the tab in members'  binders labeled "Surplus                                                               
Lines."   She offered her  belief that  this section is  the most                                                               
important  section  of  the  bill.    She  explained  that  these                                                               
provisions   pertain  to   another  type   of  insurance   called                                                               
"admitted" insurance  covered by  guarantee associations.   "Non-                                                               
admitted   insurers"   or   "surplus  lines   insurers"   operate                                                               
differently.   Typically, "surplus  lines insurers"  are insurers                                                               
that may not  do sufficient business in a state  to submit to the                                                               
paperwork to  become admitted  insurers.   She offered  that most                                                               
earthquake  insurance is  written  in the  surplus lines  market.                                                               
Several homeowner  companies write earthquake insurance  which is                                                               
the  only admitted  market that  writes earthquake  coverage, but                                                               
the  market is  fairly  limited.   Many  large financially  sound                                                               
companies  write in  this matter.    In June  2010, the  Congress                                                               
passed the  Nonadmitted and Reinsurance Reform  Act which changed                                                               
the  way the  surplus  lines market  is taxed.    The state  must                                                               
change its statute or its  ability to collect and receive revenue                                                               
on  surplus lines  coverage in  Alaska will  be restricted.   She                                                               
emphasized  its importance.   This  concept establishes  the home                                                               
state for the  company's principal place of business.   The "home                                                               
state" would  be the only state  that can do certain  things such                                                               
as collect  premium tax, have  authority over how  agents conduct                                                               
business,  or authority  over  alien insurers.    She offered  to                                                               
discuss this in more detail, if needed.                                                                                         
                                                                                                                                
3:50:51 PM                                                                                                                    
                                                                                                                                
MS. HALL  stateded that much  discussion has  occurred nationally                                                               
on the  best way to implement  changes in the federal  act, which                                                               
has a fairly narrow timeline  since the act will become effective                                                               
less than  a year after it  has been signed.   She reiterated the                                                               
critical nature to  implement the federal changes.   The National                                                               
Association  of  Insurance  Commissioners (NAIC)  has  created  a                                                               
clearinghouse concept.   This bill would  establish the authority                                                               
to allow  the DOI's  director to  participate in  a clearinghouse                                                               
between  states.   The  clearinghouse  would  collect a  tax  and                                                               
allocate taxes on multi-state risk  using an allocation schedule.                                                               
Each  state would  decide  whether to  participate.   Some  small                                                               
states expressed  concern that  the some  states would  either be                                                               
winner states  or donor states.   Louisiana has viewed  itself as                                                               
state as a  donor state since major oil companies,  who are Texas                                                               
companies,  perform some  business  in Louisiana  but only  Texas                                                               
would be able to tax those risks.                                                                                               
                                                                                                                                
MS. HALL related a scenario in  which a company, such as Princess                                                               
Cruises, own  properties and  lodges in  Alaska.   However, since                                                               
Alaska is not  its principal place of doing business  it would no                                                               
longer be able  to collect premium tax on the  Princess Lodges in                                                               
the  event its  coverage was  placed in  a surplus  lines market.                                                               
She stressed the scenario represents  an example since she has no                                                               
idea  of Princess  Cruise's insurance  coverage.   Unless  Alaska                                                               
joins  with a  group of  other states,  and all  states agree  to                                                               
collect the tax and allocate it  to the states where the risk is,                                                               
Alaska  would  lose  money.  She   related  that  she  has  rough                                                               
estimates from  the state's tax  auditor that showed that  of the                                                               
roughly  $50 million  the state  collects only  about $3  million                                                               
falls under the surplus lines insurer category.                                                                                 
                                                                                                                                
3:53:29 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON pointed  out that  the  DOI provides  income to  the                                                               
state.                                                                                                                          
                                                                                                                                
MS.  HALL  acknowledged  that  the DOI's  $7  million  budget  is                                                               
significantly less than the amount of funds it collects.                                                                        
                                                                                                                                
MS. HALL estimated that approximately  $500,000 would be impacted                                                               
by  the federal  changes to  the  surplus lines  insurance.   She                                                               
offered  her belief  that $500,000  is  still meaningful  revenue                                                               
which the  DOI would  like to  track and  collect.   She remarked                                                               
that the figure represents a  very rough estimate since the state                                                               
does not  currently track  of "home  state" since  that is  not a                                                               
concept currently in Alaska's statutes.                                                                                         
                                                                                                                                
3:54:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  for  clarification  on  the  term                                                               
"admitted."                                                                                                                     
                                                                                                                                
MS.  HALL answered  that the  term  would mean  "admitted" to  do                                                               
business  in Alaska.   She  explained that  currently only  seven                                                               
insurance companies  are domiciled in  Alaska and list  Alaska as                                                               
the  primary regulator  while approximately  2,000 companies  are                                                               
licensed to  conduct insurance business  in Alaska but  Alaska is                                                               
not their principal place of business.                                                                                          
                                                                                                                                
3:55:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked whether  being domiciled  in Alaska                                                               
and admitted to do business in Alaska is one and the same.                                                                      
                                                                                                                                
MS.  HALL answered  basically yes.    She explained  that once  a                                                               
company has  obtained a  certificate of authority  it is  free to                                                               
sell  insurance   and  is  subject   to  Alaska's   statutes  and                                                               
regulations.   Alaska would  just not  be its  primary regulator.                                                               
She  acknowledged that  the DOI  performs  financial analysis  of                                                               
these companies.                                                                                                                
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  whether  the  foreign  and  alien                                                               
companies would fall into the nonadmitted category.                                                                             
                                                                                                                                
MS. HALL recalled  that about 7 of 2,000  companies are domiciled                                                               
in Alaska.   The rest  are designated as foreign  companies since                                                               
they are headquartered in some  other state.  In further response                                                               
to  Representative   Saddler,  she  explained   that  nonadmitted                                                               
companies do  not have a  certificate of authority to  operate in                                                               
Alaska.   The nonadmitted  companies do not  file forms  or rates                                                               
and are  not guaranteed  by the  Guarantee Fund.  Those companies                                                               
would be companies that are  authorized to do business in Alaska.                                                               
They apply  to be on  the list of  authorized insurers.   The DOI                                                               
maintains a list of authorized  insurers and performs a financial                                                               
review, but  not to  the same detail.   Again,  the "nonadmitted"                                                               
companies  are ones  that  are not  guaranteed  by the  Guarantee                                                               
Funds and do  not file forms.  The DOI  considers these companies                                                               
to be authorized  and financially able to  meet their obligations                                                               
so the state authorizes them to conduct business in Alaska.                                                                     
                                                                                                                                
CHAIR  OLSON   pointed  out  that  another   insurance  class  of                                                               
providers  considered  "alien   companies"  which  are  typically                                                               
offshore  companies.     He  clarified  that   foreign  companies                                                               
typically  refer   to  the  Lower  48   companies  whereas  alien                                                               
companies fall  into another  class and  are typically  ones that                                                               
are located in Bermuda, London, or other European countries.                                                                    
                                                                                                                                
3:57:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SADDLER  related   that  he   was  unsure   what                                                               
nonadmitted companies can and cannot  do but offered to study the                                                               
matter outside of the committee.                                                                                                
                                                                                                                                
MS. HALL  pointed out that  Chair Olson was previously  a surplus                                                               
lines broker as was Ms. Hall.                                                                                                   
                                                                                                                                
3:58:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON asked for  clarification on the employment                                                               
contract,  and  whether an  insurance  employee  with a  contract                                                               
would diminish any responsibilities of the company.                                                                             
                                                                                                                                
MS. HALL answered  that she does not believe so.    She explained                                                               
that both the employer and employee  are bound by the statutes to                                                               
transact insurance, to have a license,  to comply with all of the                                                               
requirements set  in statute.   The bill  is not intended  in any                                                               
way to  relieve anyone's obligation.   She thought that  the bill                                                               
may place  a greater burden  on employer to ensure  its employees                                                               
are  following  the  statutes  and to  identify  the  reason  the                                                               
compliance officer is involved.                                                                                                 
                                                                                                                                
REPRESENTATIVE  JOHNSON  commented  he  wanted  to  be  sure  the                                                               
proposed changes did not contract away certain obligations.                                                                     
                                                                                                                                
MS. HALL agreed  that such action would not be  acceptable to DOI                                                               
either.                                                                                                                         
                                                                                                                                
REPRESENTATIVE JOHNSON related a scenario  in which a rogue agent                                                               
does  something.   He wanted  to ensure  that the  agent's action                                                               
does not relieve company from fulfilling its obligation.                                                                        
                                                                                                                                
MS. HALL agreed it would not.                                                                                                   
                                                                                                                                
4:00:55 PM                                                                                                                    
                                                                                                                                
MS.  HALL  referred to  the  tab  in members'  binders,  labeled,                                                               
"Health and Long  Term Care" which covers pages 37-50  of HB 164.                                                               
She offered that this section  contains numerous updates, none of                                                               
which pertains to  federal health care reform.   She related that                                                               
the first few  sections, in particular, AS 21.36,  pertain to the                                                               
trade practices  and fraud.   Proposed  Section 58  would provide                                                               
consumer protection  since it would  require insurers  to provide                                                               
adequate notice of 45 days to  consumers of any changes in health                                                               
insurance contract provisions, premiums,  or coverage.  Generally                                                               
the DOI  has these  types of requirements  in homeowner  and auto                                                               
insurance premiums  but has  not had  specific notice  for health                                                               
care premiums.    She recalled  a recent issue in  which a 30-day                                                               
notice could be given midstream.   She highlighted those types of                                                               
issues can adversely affect someone  who is pregnant in the event                                                               
that  the  company provides  midstream  notice  that it  will  no                                                               
longer  be covering  pregnancy.   She  recalled such  a case  and                                                               
reported the issue was satisfactorily resolved.                                                                                 
                                                                                                                                
4:03:04 PM                                                                                                                    
                                                                                                                                
MS. HALL drew attention to  changes in proposed Section 59, which                                                               
she  pointed out  as important,  but does  would also  pertain to                                                               
long-term care  or health insurance.   She related a  scenario in                                                               
which a "rogue agent" created  a serious situation.  She referred                                                               
to proposed  Section 59 (p) (4)  of HB 164.   She identified this                                                               
paragraph as  language being removed  from the criminal  code and                                                               
placed  directly into  the insurance  code felony  section.   She                                                               
explained  that AS  11.46 pertains  to  intent to  defraud.   The                                                               
language  in question  basically  states that  someone commits  a                                                               
felony if they knowingly issue  a forged certificate of insurance                                                               
or  other document  relating  to insurance.    She explained  the                                                               
"rogue agent" situation as one in  which an agent had not renewed                                                               
his/her license,  but issued certificates of  coverage.  However,                                                               
the  agent  did  not  collect  any  money  or  ever  "place"  the                                                               
coverage.  This came to the attention  of the DOI when a tour bus                                                               
operator, who  had a  certificate of  insurance and  operated two                                                               
tour buses,  simply assumed the  buses were covered.   She stated                                                               
the  tour operator  was not  insured and  had never  been billed.                                                               
The  tour operator  pointed to  the certificate  of insurance  as                                                               
proof  of insurance.    The DOI  did not  have  the authority  to                                                               
prosecute the "rogue agent."   The DOI found the agent's behavior                                                               
egregious  and  a  violation of  the  agent's  responsibility  to                                                               
clients.  She  reported that the DOI needs the  authority to stop                                                               
that type  of behavior.   Currently,  the DOI  does not  have the                                                               
ability to  do so.   In response  to Representative  Johnson, she                                                               
agreed it couldn't be retroactive.                                                                                              
                                                                                                                                
4:07:05 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  recalled  the  agent's   license  was  revoked  and                                                               
although  the agent  did not  renew the  license, the  revocation                                                               
provision would ensure the agent's license could not be renewed                                                                 
                                                                                                                                
MS. HALL related  that the agent operated in  Southeast Alaska in                                                               
a  small  community.    She   characterized  the  incident  as  a                                                               
difficult situation.                                                                                                            
                                                                                                                                
MS. HALL referred to proposed  Section 60, which provides a "free                                                               
look" and  requires insurers to  give consumers at least  10 days                                                               
to return a policy and receive a refund of the premium.                                                                         
                                                                                                                                
MS.  HALL  referred to  proposed  Section  61, which  relates  to                                                               
insurance  rates.    This  would   require  all  health  insurers                                                               
transacting  health insurance  to  file prior  approval of  their                                                               
rates  with  the  division.   Currently,  hospitals  and  medical                                                               
corporations  which in  Alaska is  primarily  Premera Blue  Cross                                                               
file  rates for  approval.   The  rest of  market  has a  general                                                               
rating  standard  that indicates  rates  cannot  be excessive  or                                                               
unfairly discriminatory.                                                                                                        
                                                                                                                                
4:10:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON referred  to proposed Section 58  of HB 164                                                               
which   requires  45   days  notice   for  individual   insurance                                                               
contracts.  He  then asked for clarification  in proposed Section                                                               
61, which requires 60 days notice for premium rate changes.                                                                     
                                                                                                                                
MS. HALL answered the insurer  must give consumers 45 days notice                                                               
of rate  changes but  the insurer  must file  with the  agency 60                                                               
days  in   advance  of  any   rate  changes.    In   response  to                                                               
Representative  Seaton,  she explained  that  the  45 day  notice                                                               
matches  the  DOI's other  statutes  with  respect to  notice  of                                                               
cancellation   provisions.      She  offered   her   belief   the                                                               
cancellation  standards  are uniform,  but  the  filing with  DOI                                                               
represents a different standard.                                                                                                
                                                                                                                                
4:11:37 PM                                                                                                                    
                                                                                                                                
MS. HALL referred  to proposed changes to AS  21.53, which relate                                                               
to  changes  to  the  long-term care  insurance  statutes.    She                                                               
pointed  out  that these  statutes  are  20  years old  and  need                                                               
updating.    Long-term care  insurance  has  changed during  this                                                               
time.  In addition to bringing  the laws up to date, adopting the                                                               
current National  Association of Insurance  Commissioner's (NAIC)                                                               
Long-Term  Care model  provisions  will allow  insurers to  offer                                                               
long term  care policies in  Alaska that comply with  the federal                                                               
long-term  care  partnership  policy requirements.    This  would                                                               
allow future  state participation  in the federal  long-term care                                                               
partnership  program,  if the  state  chooses  to  do so.    Last                                                               
legislature, a bill  was introduced that would  have elected this                                                               
option but it did not  pass.  Alaska currently approves long-term                                                               
care forms,  but these  changes would  also provide  authority to                                                               
approve  long-term  care   rates.    She  related   that  in  her                                                               
experience the  largest number of rate  complaints surround long-                                                               
term care.   Someone may  have had a  policy for 10-15  years but                                                               
the  premium becomes  exorbitantly  expensive and  people can  no                                                               
longer afford their policies, often when they most need them.                                                                   
                                                                                                                                
MS.  HALL pointed  out  most of  the  provisions incorporate  the                                                               
proposals  in  the  model  bill.    The  changes  would  add  new                                                               
provisions  for  producer  training  the DOI  believes  would  be                                                               
helpful.  It would add  consumer benefits such as written reasons                                                               
for claim denial,  but generally would update  the division's 20-                                                               
year-old  statute to  better  reflect the  market  products.   In                                                               
response to Representative Saddler,  she indicated the changes to                                                               
the long-term care extend up to page 48 in the bill.                                                                            
                                                                                                                                
4:14:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  asked  whether  public  notification  is                                                               
required when raising insurance rates.                                                                                          
                                                                                                                                
MS.  HALL  answered that  the  45-day  notice  is to  notify  the                                                               
consumer   or   policy   holder.     In   further   response   to                                                               
Representative  Johnson,   she  answered   that  the   rates  are                                                               
confidential until approved.   She stated that the  DOI would not                                                               
publish  the  rates  until  the   raters  were  approved  by  the                                                               
division,  and once  the rates  were approved,  the filing  would                                                               
become public.  Currently, the  rate filings do not become public                                                               
documents, she added.                                                                                                           
                                                                                                                                
4:16:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  for  clarification  on the  45-day                                                               
consumer notification.                                                                                                          
                                                                                                                                
MS. HALL answered that the 45  days would apply to the individual                                                               
policy renewal.   She  explained the 45  day period  would follow                                                               
the DOI's approval.                                                                                                             
                                                                                                                                
REPRESENTATIVE JOHNSON asked whether  rates could increase in the                                                               
middle of a 12-month policy.                                                                                                    
                                                                                                                                
MS. HALL agreed they could be raised.                                                                                           
                                                                                                                                
4:16:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON recapped  that the  insurer notifies  the                                                               
DOI  60 days  prior  to a  rate  change and  the  rates are  then                                                               
approved.  He  asked for further clarification on  the notice the                                                               
insurer must provide on a rate  change since the 45 days pertains                                                               
to the policy renewal period.                                                                                                   
                                                                                                                                
MS. HALL  answered that once the  DOI approves the rate  that the                                                               
new rates  can go into effect.   While the rates  are technically                                                               
effective, the insurer does not  typically use them since changes                                                               
also require programming the company's  computers.  The insurer's                                                               
new rate could  not go into effect  for at least 45  days even if                                                               
notice was given the day the DOI approved the rate increase.                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON related his  understanding that this would                                                               
apply not just for renewal but any time rates were increased.                                                                   
                                                                                                                                
MS. HALL answered that most  individual policies have a January 1                                                               
renewal date.   She  recalled that most  small group  policies do                                                               
not have a  uniform time.  Thus, currently when  the DOI approves                                                               
rates they  apply to the  base rate  and may impact  a particular                                                               
group anytime  over the 12  months, depending on when  the policy                                                               
is  renewed.   She  related  that  the  rate increase  would  not                                                               
automatically  apply to  each and  every policy.   She  related a                                                               
scenario in  which in which the  DOI approved a rate  increase on                                                               
February 1  which would apply  to policyholders as  policies were                                                               
renewed.                                                                                                                        
                                                                                                                                
4:19:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON   asked  for  clarification   on  proposed                                                               
Section 72 with respect to the "field agent."                                                                                   
                                                                                                                                
MS. HALL  responded that  a field  agent is  a producer  or agent                                                               
visiting clients  in their  homes or  in his  office.   These are                                                               
insurers  who  have been  granted  underwriting  authority.   The                                                               
proposed  change would  ensure that  someone selling  policies in                                                               
the field  bases the cost on  the premium cost.   If the producer                                                               
has  the  authority  to  issue  policies,  the  agent  should  be                                                               
compensated by the  number of policies but not  make a commission                                                               
she said.   The goal in long-term  care is not to  write the most                                                               
expensive  policy.   Many people  may only  need a  shorter term,                                                               
which is based on life expectancy, she stated.                                                                                  
                                                                                                                                
MS.  HALL referred  to  proposed  Section 76  of  HB  164.   This                                                               
section would  require rate  filing and  prior approval  of group                                                               
health care  insurance rates  which are the  same changes  as for                                                               
individuals just  discussed.  The  goal would be to  review, have                                                               
actuarial analysis, and approve them prior to use.                                                                              
                                                                                                                                
4:22:19 PM                                                                                                                    
                                                                                                                                
MS.  HALL explained  that proposed  Section  78 of  HB 164  would                                                               
prohibit  employers  from  giving  employees  funds  to  purchase                                                               
individual   health   care   policies.      She   recalled   some                                                               
circumstances  in which  employers decided  not to  have a  group                                                               
policy.   The effect  of this  is to  circumvent the  DOI's small                                                               
group laws.   The  small group laws  guarantee an  individual can                                                               
obtain insurance.   When  a person  with a  preexisting condition                                                               
really needs insurance  and the employer drops  the group policy,                                                               
the  individual cannot  purchase insurance  except for  high-risk                                                               
pool insurance.  She highlighted  that the high-risk insurance in                                                               
prohibitively expensive.   This  provision would ensure  that the                                                               
small group  laws are  followed and  are not  being circumvented.                                                               
She  commented   that  when  this  has   occurred  the  insurance                                                               
companies have  worked with the DOI  to resolve the matter.   She                                                               
discovered about three instances in the past 12 months.                                                                         
                                                                                                                                
REPRESENTATIVE SEATON  asked for the  breadth of this issue.   He                                                               
related his  understanding that small employer  have not provided                                                               
insurance.  He recalled some  employers provided vouchers for the                                                               
health fair, which basically amounts  to a cash contribution.  He                                                               
asked whether that would be prohibited.                                                                                         
                                                                                                                                
MS.  HALL answered  no.   She explained  that activity  is not  a                                                               
health insurance  product.  She  characterized the vouchers  as a                                                               
cost management technique but is not insurance.                                                                                 
                                                                                                                                
4:25:35 PM                                                                                                                    
                                                                                                                                
MS. HALL referred to the  tab in members' binders labeled "Title,                                                               
Records & Other  Provisions."  She related  that these provisions                                                               
provide  administrative changes  such as  providing the  director                                                               
authority  when  a  title insurance  company  becomes  insolvent,                                                               
control of the insurance companies'  deposits, and the ability to                                                               
pay claims  from them, custodial  agreements, and the  ability to                                                               
obtain  basic information  such  as  electronic e-mail  addresses                                                               
from applicants.                                                                                                                
                                                                                                                                
MS. HALL  then referred  to the tab  in members'  binders labeled                                                               
"Insolvency."   Again, this  updates official  communications can                                                               
be  conducted via  e-mail.   She turned  to proposed  Section 86,                                                               
which  provides  the primary  emphasis  of  this section.    This                                                               
represents a portion  of a bill that had been  introduced but was                                                               
not understood.   This proposed change pertains  to policies sold                                                               
with a very large deductible,  such as $100,000, and are referred                                                               
to  as  a  retention.    These policies  are  not  covered  under                                                               
receivership  laws.    Thus,  if  an  insurance  company  becomes                                                               
insolvent, the deductible  the employer pays is  not addressed in                                                               
current AS.   This would  clarify that the deductible is still an                                                               
asset of an estate,  but can be paid to the  guarantee fund.  She                                                               
related  that once  an insurance  company becomes  insolvent, the                                                               
guarantee fund picks up the claims  obligation and pays them.  In                                                               
these  instances  the  employer  is responsible  for  that  large                                                               
deductible,  but the  guarantee fund  must pay  the whole  claim.                                                               
The DOI wants  the guarantee fund to be able  to access the funds                                                               
the employer  would pay  if the insurer  were still  in business.                                                               
The DOI  is attempting to  address a specific situation  that the                                                               
insolvency statutes do not currently over.                                                                                      
                                                                                                                                
4:28:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  for  clarification.   He related  a                                                               
scenario  in which  in which  someone  becomes bankrupt,  becomes                                                               
insolvent and asked  whether everyone with a policy  must pay the                                                               
$100,000 to the guarantee corporation.                                                                                          
                                                                                                                                
MS. HALL  answered no.   She explained  that the last  portion of                                                               
that section adds long-term care  to the coverage provided by the                                                               
guarantee funds  in proposed Section  88.  It would  increase the                                                               
amount of  an annuity protected in  a guarantee fund.   The limit                                                               
today is $100,000 and the  proposed change would increase the cap                                                               
on  an annuity  to $250  thousand.   The guarantee  fund supports                                                               
this increase.  She characterized this as a consumer benefit.                                                                   
                                                                                                                                
4:30:14 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  asked whether  assessments  would  be made  on  the                                                               
proposed coverage being brought on.                                                                                             
                                                                                                                                
MS.  HALL  agreed  that  those  would still  be  assessed.    She                                                               
referred  to   the  last  tab,  titled   "Financial,"  which  she                                                               
characterized  as  relating  to miscellaneous  provisions.    She                                                               
related  that   proposed  Section  89,  which   pertains  to  the                                                               
biographical affidavits  and the  DOI's ability to  require them.                                                               
She elaborated  that this section  pertains to  fraternal benefit                                                               
societies.                                                                                                                      
                                                                                                                                
4:30:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked for  clarification on page  63, line                                                               
13,  to the  $100,000 in  present-value annuity  benefits in  the                                                               
aggregate and whether that was changed.                                                                                         
                                                                                                                                
MS. HALL  answered yes.   She explained  that this pertains  to a                                                               
specific   government  benefit   retirement  program,   which  is                                                               
different  than a  traditional annuity  that an  individual would                                                               
purchase.  She commented that  the benefit has not been increased                                                               
on governmental annuities.                                                                                                      
                                                                                                                                
4:31:36 PM                                                                                                                    
                                                                                                                                
MS. HALL  referred to proposed  Section 90, which allows  a self-                                                               
insured  group, the  multiple  employer  welfare association,  to                                                               
sell short term  disability policies.  She pointed  out that this                                                               
group sells health insurance.                                                                                                   
                                                                                                                                
MS.  HALL related  that proposed  Sections  91 and  92 relate  to                                                               
biographical affidavits.                                                                                                        
                                                                                                                                
MS. HALL related that proposed  Section 93 would require hospital                                                               
and  medical service  corporations to  comply with  the new  rate                                                               
requirements contained in proposed Sections 61 and 73.                                                                          
                                                                                                                                
MS.  HALL reported  that the  remainder of  the bill  pertains to                                                               
various repealer provisions and effective dates, she said.                                                                      
                                                                                                                                
4:32:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  recalled a  bill prior  legislature passed                                                               
that allowed  pooling by  nonprofits.  He  asked whether  that is                                                               
separate or encompassed in this  bill.  He asked whether anything                                                               
in  this  bill would  affect  the  nonprofit and  small  business                                                               
pooling.                                                                                                                        
                                                                                                                                
MS. HALL answered no, that the  pooling is not being addressed in                                                               
this bill.   She recalled  that a program  by the United  Way was                                                               
done through  association language.   She related that  groups of                                                               
employers  are pooling  in  the hopes  that  the businesses  will                                                               
create wellness programs as a self-insured plan.                                                                                
                                                                                                                                
4:34:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON referred  to an  earlier discussion  with                                                               
respect to  employers being  prohibited from  providing employees                                                               
with cash payments  to purchase their own insurance.   He related                                                               
a scenario in which he is  an employer who interviews someone and                                                               
advises them  they do  not carry health  insurance but  pay their                                                               
employees  20 percent  more  than similar  companies.   He  asked                                                               
whether that would be prohibited.                                                                                               
                                                                                                                                
MS.  HALL  answered no.    She  explained  that  so long  as  the                                                               
employer  is  not  giving  special   stipends  for  employers  to                                                               
specifically buy  insurance and just  paying a higher wage.   The                                                               
employer is not  cancelling its current group  insurance plan and                                                               
providing the employee $200 to purchase his/her own insurance.                                                                  
                                                                                                                                
4:35:20 PM                                                                                                                    
                                                                                                                                
MS. HALL offered her  belief that HB 164 is a  complex bill.  She                                                               
expressed her willingness to explain any provisions to members.                                                                 
                                                                                                                                
[HB 164 was held over.]                                                                                                         
                                                                                                                                
4:36:28 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
4:36 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB164 Fiscal Note-CCED-INS-02-17-11.pdf HL&C 2/21/2011 3:15:00 PM
HB 164
HB164 ver A.pdf HL&C 2/21/2011 3:15:00 PM
HB 164
HB164 Sponsor Statement.pdf HL&C 2/21/2011 3:15:00 PM
HB 164
HB164 Sectional Analysis.pdf HL&C 2/21/2011 3:15:00 PM
HB 164