Legislature(2001 - 2002)

04/15/2002 03:25 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                         April 15, 2002                                                                                         
                           3:25 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Lisa Murkowski, Chair                                                                                            
Representative Andrew Halcro, Vice Chair                                                                                        
Representative Kevin Meyer                                                                                                      
Representative Pete Kott                                                                                                        
Representative Norman Rokeberg                                                                                                  
Representative Harry Crawford                                                                                                   
Representative Joe Hayes                                                                                                        
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 429                                                                                                              
"An  Act relating  to certain  licenses for  the sale  of tobacco                                                               
products; relating to  tobacco taxes and sales  and cigarette tax                                                               
stamps;   relating  to   provisions  making   certain  cigarettes                                                               
contraband  and subject  to seizure  and forfeiture;  relating to                                                               
certain crimes, penalties, and  interest concerning tobacco taxes                                                               
and  sales;  relating  to   notification  regarding  a  cigarette                                                               
manufacturer's  noncompliance  with  the tobacco  product  Master                                                               
Settlement  Agreement  or  related statutory  provisions  and  to                                                               
confiscation  of the  affected cigarettes;  and providing  for an                                                               
effective date."                                                                                                                
     - MOVED CSHB 429(L&C) OUT OF COMMITTEE                                                                                     
HOUSE BILL NO. 246                                                                                                              
"An Act relating  to confidentiality of records and  to cease and                                                               
desist orders of the division  of insurance, to insurance company                                                               
investments,   to  unauthorized   insurers,   to  surplus   lines                                                               
insurance,  to health  insurance, to  life insurance,  to annuity                                                               
insurance, to consumer credit insurance,  to title insurance, and                                                               
to hospital  and medical service corporations;  and providing for                                                               
an effective date."                                                                                                             
     - MOVED CSHB 246(L&C) OUT OF COMMITTEE                                                                                     
HOUSE BILL NO. 66                                                                                                               
"An Act relating to pesticide use; and providing for an                                                                         
effective date."                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
PREVIOUS ACTION                                                                                                               
BILL: HB 429                                                                                                                  
SHORT TITLE:TOBACCO TAXATION; LICENSING                                                                                         
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR                                                                                      
Jrn-Date   Jrn-Page                     Action                                                                                  
02/15/02     2282       (H)        READ THE FIRST TIME -                                                                        
02/15/02     2282       (H)        L&C, JUD, FIN                                                                                
02/15/02     2282       (H)        FN1: (REV)                                                                                   
02/15/02     2282       (H)        GOVERNOR'S TRANSMITTAL LETTER                                                                
04/03/02                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
04/03/02                (H)        Heard & Held                                                                                 
04/03/02                (H)        MINUTE(L&C)                                                                                  
04/08/02                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
04/08/02                (H)        Scheduled But Not Heard                                                                      
04/10/02                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
04/10/02                (H)        Heard & Held                                                                                 
04/15/02                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
BILL: HB 246                                                                                                                  
SHORT TITLE:OMNIBUS INSURANCE BILL                                                                                              
SPONSOR(S): LABOR & COMMERCE BY REQUEST                                                                                         
Jrn-Date   Jrn-Page                     Action                                                                                  
04/17/01     1015       (H)        READ THE FIRST TIME -                                                                        
04/17/01     1015       (H)        L&C, JUD                                                                                     
04/15/02                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
WITNESS REGISTER                                                                                                              
NEIL SLOTNICK, Deputy Commissioner                                                                                              
Office of the Commissioner                                                                                                      
Department of Revenue                                                                                                           
PO Box 110405                                                                                                                   
Juneau, Alaska 99811-0405                                                                                                       
POSITION STATEMENT:  During the hearing on HB 429, he discussed                                                                 
a formula to eliminate any additional competitive advantage                                                                     
being provided by the discount.                                                                                                 
MIKE ELERDING                                                                                                                   
Northern Sales Company of Alaska                                                                                                
PO Box 8112                                                                                                                     
Ketchikan, Alaska                                                                                                               
POSITION STATEMENT:  During hearing  on HB 429, testified that he                                                               
was not  opposed to  stamping itself,  however, he  expressed the                                                               
need  to pass  an  unfair trade  practices  law before  requiring                                                               
BOBBY SCOTT, Vice President                                                                                                     
Jan's Distributing, Inc.                                                                                                        
1807 W. 47th Avenue                                                                                                             
Anchorage, Alaska 99517-3164                                                                                                    
POSITION STATEMENT:   During  hearing on  HB 429,  testified that                                                               
the  governor's fiscal  notes  don't address  any  of the  actual                                                               
problems  with  regard  to  curbing  the  black  market  sale  of                                                               
BOB GALOSICH, Vice President                                                                                                    
Wholesale Operations                                                                                                            
Alaska Commercial Company;                                                                                                      
Operator, Frontier Expediters                                                                                                   
(No address provided)                                                                                                           
POSITION STATEMENT:  Testified in opposition to HB 429.                                                                         
JOHANNA BALES, Revenue Auditor                                                                                                  
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
550 W. 7th Ave., Suite 500                                                                                                      
Anchorage, AK  99501                                                                                                            
POSITION STATEMENT:  Answered questions with regard to HB 429.                                                                  
BOB LOHR, Director                                                                                                              
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
3601 C Street, Suite 1324                                                                                                       
Anchorage, Alaska 99503-5948                                                                                                    
POSITION STATEMENT:  Presented HB 246.                                                                                          
KATIE CAMPBELL, Actuary L/H                                                                                                     
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110805                                                                                                                   
Juneau, Alaska 99811-0805                                                                                                       
POSITION  STATEMENT:   Answered  questions during  hearing on  HB                                                               
ACTION NARRATIVE                                                                                                              
TAPE 02-57, SIDE A                                                                                                              
Number 0001                                                                                                                     
CHAIR  LISA  MURKOWSKI  called   the  House  Labor  and  Commerce                                                               
Standing   Committee    meeting   to    order   at    3:25   p.m.                                                               
Representatives  Murkowski, Halcro,  Meyer,  Crawford, and  Hayes                                                               
were  present at  the call  to order.   Representatives  Kott and                                                               
Rokeberg arrived as the meeting was in progress.                                                                                
HB 429-TOBACCO TAXATION; LICENSING                                                                                            
CHAIR MURKOWSKI announced that the  first order of business would                                                               
be HOUSE BILL  NO. 429, "An Act relating to  certain licenses for                                                               
the  sale of  tobacco  products; relating  to  tobacco taxes  and                                                               
sales  and cigarette  tax stamps;  relating to  provisions making                                                               
certain  cigarettes   contraband  and  subject  to   seizure  and                                                               
forfeiture; relating  to certain crimes, penalties,  and interest                                                               
concerning  tobacco taxes  and  sales;  relating to  notification                                                               
regarding  a  cigarette  manufacturer's  noncompliance  with  the                                                               
tobacco product Master Settlement  Agreement or related statutory                                                               
provisions and  to confiscation of  the affected  cigarettes; and                                                               
providing for an effective date."                                                                                               
CHAIR MURKOWSKI  reminded the  committee that  some time  ago the                                                               
committee heard  the Department of  Revenue's introduction  of HB                                                               
429  and some  limited public  testimony.   Since that  time, the                                                               
committee has received a couple  of amendments.  She informed the                                                               
committee that she  has been working with the  department as well                                                               
as Mike Elerding, who had  expressed concerned with regard to how                                                               
the stamping  procedure would  take place in  Alaska.   There was                                                               
concern   that  local   Alaskan  distributors   would  be   at  a                                                               
competitive   disadvantage   with    those   large   out-of-state                                                               
businesses  who already  perform  tax stamping.    She said  that                                                               
there was the hope that something  could be worked out that would                                                               
allow the  department to eliminate/limit the  amount of cigarette                                                               
contraband while allowing small Alaskan businesses to compete.                                                                  
Number 0238                                                                                                                     
NEIL SLOTNICK,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department   of  Revenue,   informed  the   committee  that   the                                                               
department  did   consider  Mr.  Elerding's  proposal   that  the                                                               
stamping  be required  to take  place  in Alaska.   However,  Mr.                                                               
Slotnick  suggested that  the aforementioned  requirement not  be                                                               
pursued   because   he   believes    there   would   be   serious                                                               
constitutional problems.   Requiring  the stamping to  take place                                                               
in   Alaska   would   exclude   an   interstate   business   from                                                               
participating in Alaska  trade.  The U.S. Supreme  Court is chary                                                               
of allowing states to use their  tax code to create a competitive                                                               
advantage for in-state  businesses versus out-of-state interstate                                                               
businesses.  Furthermore, Mr. Slotnick  said he believes it would                                                               
create difficulties for certain retailers  who have done all they                                                               
can to work with Alaska and  comply with our tax.  Moreover, such                                                               
a  requirement wouldn't  address  the  competitive advantage  the                                                               
large wholesalers would  have.  Mr. Slotnick  noted his agreement                                                               
with Mr. Elerding  that there is an economy of  scale in stamping                                                               
these cigarettes.                                                                                                               
MR.  SLOTNICK  reminded  the  committee   that  in  the  original                                                               
legislation he  had proposed a  split discount rate in  which the                                                               
distributor who stamps the cigarettes  would keep a small portion                                                               
of  the tax  in order  to compensate  that distributor  for their                                                               
costs.   That  split  discount  rate was  in  recognition of  the                                                               
aforementioned  economies  of scale.    In  discussions with  Mr.                                                               
Elerding,  Mr. Elerding  proposed a  three-tiered discount  rate.                                                               
Mr. Slotnick said  that the goal was to make  stamping neutral so                                                               
that  the  cost  per  cigarette   so  that  everyone's  cost  per                                                               
cigarette was  approximately the same  regardless of the  size of                                                               
the  wholesaler.   The discount  worked  out to  be about  eight-                                                               
tenths  of a  cent per  cigarette per  stamping for  most of  the                                                               
wholesalers.   The proposal was  that for  $1 million or  less in                                                               
stamps, a 3  percent discount would be given.   For all purchases                                                               
of stamps  between $1 million  to $2 million  there would be  a 2                                                               
percent discount.  Above $2 million  but not more than $5 million                                                               
there is  only a .5 percent  discount.  Stamp purchases  above $5                                                               
million don't receive a discount.   This is the best formula that                                                               
could  be  developed  to  eliminate  any  additional  competitive                                                               
advantage being provided by the discount.                                                                                       
Number 0563                                                                                                                     
CHAIR  MURKOWSKI requested  that  Mr. Slotnick  provide her  with                                                               
some idea as to [which wholesalers]  fall where [in regard to the                                                               
amount of  stamps purchased].   She asked  if there would  be any                                                               
wholesaler  that  would  purchase   over  $5  million  and  which                                                               
wholesalers  would fall  into the  category that  receives the  3                                                               
percent discount.                                                                                                               
MR.  SLOTNICK   answered  that   he  could   only  say,   due  to                                                               
confidentiality, that there would be  wholesalers that would fall                                                               
in both categories.                                                                                                             
CHAIR  MURKOWSKI asked  if it  would be  the Wal-Mart  and Costco                                                               
type stores  that would have volumes  over $5 million.   She said                                                               
that she was trying to understand  whether there would be a local                                                               
Alaskan  distributor  that would  fall  in  the over  $5  million                                                               
MR. SLOTNICK indicated that the  big box wholesalers do represent                                                               
the largest category and those  big box wholesalers have told the                                                               
department  that they  probably will  be stamping  in the  state,                                                               
although there has been no firm commitment.                                                                                     
MR. SLOTNICK, in response to  Representative Meyer, answered that                                                               
this legislation only addresses  cigarettes because the stamp was                                                               
too difficult to  place on the other tobacco products.   There is                                                               
no state that requires a stamp  on other forms of tobacco because                                                               
there is  no automation available  to stamp those products.   The                                                               
legislature   has  made   a  policy   decision  that   individual                                                               
importation  of   other  tobacco   products  without   the  stamp                                                               
liability is acceptable.                                                                                                        
Number 0798                                                                                                                     
MIKE ELERDING, Northern  Sales Company of Alaska,  noted that the                                                               
committee  packet should  include his  written testimony.   House                                                               
Bill 429  seeks to create a  tax stamp for cigarettes  in Alaska.                                                               
Currently, only  four states, including  Alaska, don't  have some                                                               
form  of tax  stamping.   Alaska is  also among  the minority  of                                                               
states  that doesn't  have an  unfair trade  practices law.   Mr.                                                               
Elerding informed the  committee that his concern with  HB 429 is                                                               
related  to  the unfair  trade  practices  used  by a  number  of                                                               
nationally recognized chain  stores in Alaska.   These stores are                                                               
selling cigarettes  at or  below cost.   Basically,  these stores                                                               
are  using cigarettes  as a  loss "leader"  to attract  shoppers.                                                               
Furthermore,  predatory  pricing   practices  make  it  extremely                                                               
difficult for Alaska-based  distributors to make a  profit on the                                                               
products  sold.   For  every  $1  profit [distributors]  make  on                                                               
cigarettes, the  State of Alaska makes  a profit of $14.29.   The                                                               
wholesale list  price to the  large grocers in Juneau  is $14.29.                                                               
Mr. Elerding directed  the committee to a chart  in the committee                                                               
packet  entitled, "Juneau,  Alaska  - April  2002 Wholesale  List                                                               
Price $39.12."   He explained  that of the $39.12  wholesale list                                                               
price  for  a  [carton  of  cigarettes],  $26.81  represents  the                                                               
[wholesaler's]  cost to  the manufacturer,  which  amounts to  68                                                               
percent.  The  state receives $10 [per carton],  which amounts to                                                               
26 percent.   The City & Borough of Juneau's  excise tax is $1.61                                                               
[per  carton], which  is 4  percent.   He noted  that the  City &                                                               
Borough of Juneau and the  Municipality of Anchorage are the only                                                               
two  areas  that  charge  an  excise tax  for  cigarettes.    The                                                               
wholesale  distributor  profit  for  Northern  Sales  Company  of                                                               
Alaska is  $.70 [per carton], which  is 2 percent.   Mr. Elerding                                                               
said that although he isn't making  a lot of money on cigarettes,                                                               
there is at least one  nationally recognized store in Juneau that                                                               
is selling cigarettes in Juneau  below their cost.  With stamping                                                               
there  will be  additional costs.   Therefore,  it's going  to be                                                               
difficult for  Northern Sales  Company of  Alaska to  continue in                                                               
the cigarette  business if  the state  doesn't develop  an unfair                                                               
trade practices law.     Mr. Elerding wasn't  opposed to stamping                                                               
in  and  of  itself,  but  the  unfair  trade  practices  law  is                                                               
necessary  before implementing  a law  requiring state  wholesale                                                               
distributors  to  stamp cigarettes  before  selling  them in  the                                                               
Number 1032                                                                                                                     
REPRESENTATIVE MEYER asked whether  it's a fairly common practice                                                               
to have  loss leaders  to get  people in the  store in  the hopes                                                               
that loss is made up on other items.                                                                                            
MR. ELERDING agreed with the  premise suggested by Representative                                                               
Meyer.   However, when it  becomes a predatory practice  it tends                                                               
to  drive   competitors  out  of  business   and  seems  illegal.                                                               
Furthermore, Mr. Elerding  didn't believe it is  in anyone's best                                                               
interest  to  continue  to  sell cigarettes  below  cost  to  the                                                               
detriment  of  local  wholesalers.   Mr.  Elerding  informed  the                                                               
committee  that  there  is  only   one  manufacturer  that  makes                                                               
stamping equipment,  and this manufacturer isn't  currently doing                                                               
business in  Alaska.  This stamping  equipment manufacturer can't                                                               
quote him a price for  the stamping equipment and presently, this                                                               
manufacturer  has  no plans  to  establish  maintenance for  this                                                               
equipment.    Mr.  Elerding  pointed  out  that  [Northern  Sales                                                               
Company of  Alaska] sells about  350,000 cartons of  cigarettes a                                                               
year,  and therefore  if there  is  a problem  with the  stamping                                                               
equipment,  there  would need  to  be  an  immediate fix  to  the                                                               
equipment.   Mr. Elerding  expressed the  need for  HB 429  to be                                                               
coupled with assurances that [a  company] in Alaska would be able                                                               
to purchase  the equipment  to actually  perform the  stamping in                                                               
the state and receive maintenance for that equipment.                                                                           
Number 1140                                                                                                                     
REPRESENTATIVE  ROKEBERG expressed  concern  with Mr.  Elerding's                                                               
comment  that  Alaska  doesn't have  an  unfair  trade  practices                                                               
statute.  Representative  Rokeberg said there is  an unfair trade                                                               
practices statute and surmised that  perhaps [Mr. Elerding meant]                                                               
that  Alaska's  statute  doesn't   speak  to  predatory  pricing.                                                               
Representative Rokeberg  related his  assumption that  Costco and                                                               
Wal-Mart,  due to  their  purchasing power,  are  able to  obtain                                                               
cigarettes  at a  lower cost-to-goods-sold  pricing.   Therefore,                                                               
those businesses  would still make  a profit although  they could                                                               
sell  the  cigarettes  below  what  [Northern  Sales  Company  of                                                               
Alaska] could  in Juneau or  Anchorage.   Representative Rokeberg                                                               
asked if other states would  consider such situations a predatory                                                               
MR.  ELERDING explained  that  everyone,  whether it's  [Northern                                                               
Sales Company  of Alaska] or  Costco, purchasing [from  the major                                                               
tobacco  manufacturer]   for  the   same  exact   invoice  price.                                                               
Therefore,  when  one sels  cigarettes  at  cost or  below  cost,                                                               
that's the same as the raw cost from the manufacturers invoice.                                                                 
REPRESENTATIVE  ROKEBERG remarked  that he  found it  interesting                                                               
that there is a set wholesale price on a national basis.                                                                        
MR. ELERDING  interjected that it's  also interesting  that every                                                               
time  Phillip Morris  raises its  prices  so do  RJ Reynolds  and                                                               
Brown Williamson.  The prices are  exactly the same for the major                                                               
REPRESENTATIVE ROKEBERG  asked if the  freight on board  (FOB) is                                                               
at a major distribution point.                                                                                                  
MR. ELERDING  answered that  the FOB  is the  (indisc.) warehouse                                                               
out of  Seattle.  There  is only  one bonded warehouse  in Alaska                                                               
and it's located in Anchorage.                                                                                                  
CHAIR  MURKOWSKI  returned  to  the proposal  for  a  four-tiered                                                               
MR. ELERDING said that he liked  the approach, which he worked on                                                               
with Mr. Slotnick.   In further response to  Chair Murkowski, Mr.                                                               
Elerding agreed that the [four-tiered  approach] would help level                                                               
the playing field somewhat for in-state distributors.                                                                           
Number 1364                                                                                                                     
BOBBY SCOTT, Vice President,  Jan's Distributing, Inc., testified                                                               
via teleconference.   He noted  his agreement with  Mr. Elerding.                                                               
Mr. Scott  turned to  the governor's fiscal  notes, which  do not                                                               
address  or target  any of  the  actual problems  with regard  to                                                               
curbing  the  black market  sale  of  cigarettes.   He  expressed                                                               
interest in  obtaining statistics  on that matter.   Furthermore,                                                               
the $14.29  profit the state  receives is  "very real" as  is the                                                               
additional  costs the  distributors  would incur.   Moreover,  he                                                               
inquired  as  to  who  would  be  in  change  of  enforcement  of                                                               
stamping, which will probably be another cost to the taxpayers.                                                                 
CHAIR  MURKOWSKI recalled  from  the initial  testimony that  the                                                               
state doesn't  have very accurate  numbers with regard  to seized                                                               
contraband material.  She asked  if the tiered approach helps Mr.                                                               
Scott's  business  in  terms  of  competing  with  [out-of-state]                                                               
MR. SCOTT answered, "Other than  having to add on extra employees                                                               
to run  them, it  might."   He agreed that  it's better  than the                                                               
alternative of no discount.                                                                                                     
Number 1484                                                                                                                     
REPRESENTATIVE ROKEBERG pointed out  that Mr. Scott had indicated                                                               
in his written testimony, included  in the committee packet, that                                                               
a  stamping machine  costs about  $25,000.      That cost  didn't                                                               
include  freight fees  and  the  required maintenance  agreement.                                                               
Representative Rokeberg inquired  as to how many  people would be                                                               
required to operate the stamping machine.                                                                                       
MR.  SCOTT  explained  that  a   representative  of  RJ  Reynolds                                                               
provided him  with examples  of [the  number of  employees] other                                                               
states have used.  The  RJ Reynolds representative specified that                                                               
at a  minimum three people  are required to operate  the stamping                                                               
REPRESENTATIVE  ROKEBERG inquired  as to  how often  the stamping                                                               
machine would  have to be run  in order to deal  with Mr. Scott's                                                               
volume of business.                                                                                                             
MR. SCOTT replied that he couldn't answer that question.                                                                        
REPRESENTATIVE  ROKEBERG related,  "I  think it  relates to  this                                                               
issue about the amendment we have  and you spoke to that.  What's                                                               
that going  to generate and see  if you can either  basically try                                                               
to  recoup your  costs by  the discount  amount because  ... this                                                               
sounds like a private fiscal note,  this bill, versus what we can                                                               
do to soften the blow to these people."                                                                                         
Number 1569                                                                                                                     
BOB  GALOSICH,  Vice   President,  Wholesale  Operations,  Alaska                                                               
Commercial Company; Operator,  Frontier Expediters, testified via                                                               
teleconference.     He  informed  the  committee   that  Frontier                                                               
Expediters is  a DBA  (ph) and  the wholesale  arm of  the Alaska                                                               
Commercial Company.   The wholesale  arm of the  business employs                                                               
about 17 people.  Mr. Galosich  said that he couldn't provide the                                                               
committee with good  numbers for cigarette sells  in 2001 because                                                               
the company  didn't sell cigarettes  for nine months of  2001 due                                                               
to  the municipal  tax issue.   However,  Mr. Galosich  estimated                                                               
that  in  2002   sales  and  distributions  to   its  24  [Alaska                                                               
Commercial Company] stores will  be approximately $20 million, of                                                               
which  about half  is from  tobacco  products.   An inventory  of                                                               
about  $400,000 is  maintained, including  the $10  state tax  in                                                               
Anchorage.    Mr. Galosich  said that he was adamantly opposed to                                                               
HB  429 as  written because  it adversely  impacts small  tobacco                                                               
MR.  GALOSICH said  that [small  tobacco wholesalers]  operate on                                                               
thin  margins  for  competitive  reasons.     Alaska  is  one  of                                                               
approximately  17 states  that do  not have  a minimum  sell law.                                                               
This legislation would cause a  substantial increase in operating                                                               
costs for  the wholesaler and  that would continue to  place [the                                                               
small  tobacco   wholesalers]  at  a   competitive  disadvantage.                                                               
Although  the discount  structure would  help, one  must keep  in                                                               
mind that in  Alaska no one has stamping machines  and no one has                                                               
ever done  stamping.  Therefore,  there is the combination  of an                                                               
investment, a  learning curve, additional  people costs,  and air                                                               
rate that's going  to contribute to costs in the  beginning.  Mr.                                                               
Galosich related  his belief that no  one has had enough  time to                                                               
study exactly what the impact would  be other than to say that it                                                               
would be a  negative impact on business.   Furthermore, the state                                                               
has been  unable to quantify  the amount  of lost revenue  due to                                                               
contraband cigarette  sales.  Mr. Galosich  remarked that getting                                                               
contraband cigarettes in  Alaska is difficult.   "Do the existing                                                               
volumes justify the burden on  the small businessmen in Alaska, I                                                               
don't think at this point that they do," he concluded.                                                                          
Number 1746                                                                                                                     
CHAIR MURKOWSKI returned  to Mr. Scott's questions.   With regard                                                               
to  the contraband,  Chair Murkowski  related that  there doesn't                                                               
seem  to be  anything firm  in terms  of what  the Department  of                                                               
Revenue might expect to recover from any contraband.                                                                            
MR. SCOTT  specified that  he wanted to  know why  the department                                                               
has such a  sense of urgency with the implementation  of this tax                                                               
stamp.   Mr. Scott reminded  the committee that he  also inquired                                                               
as to who would enforce this.                                                                                                   
MR. SLOTNICK  deferred to Johanna  Bales.  However, he  said that                                                               
the  department   cannot  quantify   the  amount   of  contraband                                                               
cigarettes  coming into  the state,  although there  is knowledge                                                               
that  it does  happen  due  to Ms.  Bales'  work.   Mr.  Slotnick                                                               
related the hope that the  contraband is small, but Hawaii, which                                                               
is also  remote, became a  quick target for importers  of untaxed                                                               
cigarettes.    Hawaii's  stamp   law  significantly  reduced  the                                                               
contraband.  Mr.  Slotnick specified that the goal  [with HB 429]                                                               
is  to  perform  reasonable enforcement  action;  the  department                                                               
doesn't  want  the state  to  be  an  attractive target  for  the                                                               
importers  of untaxed  cigarettes.   With regard  to enforcement,                                                               
Mr. Slotnick  informed the committee that  [the department] would                                                               
need at least two additional  positions to help enforce this law.                                                               
Moreover, the  department will  cross-train with  law enforcement                                                               
and  investigative officials  who are  in the  field, which  will                                                               
include Village  Public Safety  Officers (VPSOs),  troopers, city                                                               
police,   investigators,   department  investigators,   and   the                                                               
Department  of  Health  & Social  Services.    Additionally,  Mr.                                                               
Slotnick  expected  that the  public  would  report sightings  of                                                               
unstamped cigarettes.                                                                                                           
REPRESENTATIVE  MEYER related  his understanding  then that  this                                                               
stamp would ensure that the state  tobacco tax is being paid.  He                                                               
asked  if there  is  a way  in  which the  cities  of Juneau  and                                                               
Anchorage could also ensure that  they receive their tax as well,                                                               
or will those cities need their own stamp.                                                                                      
MR.  SLOTNICK answered  that he  believes the  cities would  need                                                               
their own stamp.                                                                                                                
Number 1908                                                                                                                     
JOHANNA  BALES,  Revenue  Auditor, Tax  Division,  Department  of                                                               
Revenue, testified via  teleconference.  Ms. Bales  said that the                                                               
only city she  knew of that had its own  [cigarette] stamp is New                                                               
York City.  All the other  states feel that the cities would have                                                               
to have  a stamp designating  that the tax is  paid.  One  of the                                                               
problems  with  cities  having  their  own  stamp  is  that  [the                                                               
department] has  confidentiality statutes that don't  allow it to                                                               
share information with the municipalities.                                                                                      
REPRESENTATIVE ROKEBERG  inquired as  to the percent  increase in                                                               
revenue Hawaii experienced after implementing the [tobacco] tax.                                                                
MR. SLOTNICK  answered that  when the  stamp was  imposed, Hawaii                                                               
experienced a 25 percent increase in revenue collection.                                                                        
MS.  BALES,  in response  to  Mr.  Slotnick, specified  that  the                                                               
cigarette  tax in  Hawaii increased  from about  $.60 to  $1.00 a                                                               
pack.  Although  She pointed out that it's  difficult to decipher                                                               
the  amount  of total  revenue  Hawaii  saw, Hawaii's  collection                                                               
increased  from $4  million  a  month before  the  stamp to  $6.5                                                               
million a month in revenue [after implementation of the stamp].                                                                 
REPRESENTATIVE ROKEBERG  asked if the discounts  in the amendment                                                               
would be sufficient to cover the costs of applying the stamps.                                                                  
MS.  BALES  pointed out  that  [the  department]  has seen  a  22                                                               
percent reduction  in reported  taxable cigarettes  once Alaska's                                                               
tax  rates increased.    [The department]  believes  that is  the                                                               
result of  a combination  of people who  have stopped  smoking or                                                               
cut back and  bootlegging.  Without a stamp,  it's impossible for                                                               
the  department  to  determine  what makes  up  the  22  percent.                                                               
However,  for every  1 percent  increase, after  implementing the                                                               
stamp, [the  state] will  receive $400,000  more in  revenue each                                                               
year.   A 10 percent  increase would  amount to an  additional $4                                                               
million in revenue.                                                                                                             
MR. SLOTNICK  added that although this  [discount proposal] won't                                                               
cover all  the distributor's  costs, it narrows  it to  less than                                                               
$.01 per  cigarette.   Mr. Slotnick related  the belief  that the                                                               
distributors will experience an increase  in revenue if there is,                                                               
in  fact,   an  increase   in  taxable   sales.     Mr.  Slotnick                                                               
acknowledged that the  discount rate could be changed  so that it                                                               
covers  all the  distributor's costs,  but it  would result  in a                                                               
much higher  fiscal note.   Furthermore, Mr.  Slotnick reiterated                                                               
his belief that  the distributors will experience  an increase in                                                               
sales  with  the  passage  of  HB  429  and  thus  the  [discount                                                               
amendment] is generous.                                                                                                         
Number 2072                                                                                                                     
REPRESENTATIVE ROKEBERG surmised then  that Mr. Slotnick believes                                                               
[under HB 429] sales would  increase, and therefore the increased                                                               
cost would be offset with the discount and the increased sales.                                                                 
MR. SLOTNICK  responded, "I'm  not sure I'm  willing to  go quite                                                               
that far.   I don't know  whether they will, in  fact, offset all                                                               
of their costs, but at least there's no competitive advantage."                                                                 
REPRESENTATIVE ROKEBERG envisioned Wal-Mart  or Costco doing this                                                               
with a stamp  machine outside of the state, and  perhaps doing so                                                               
MR. SLOTNICK  said that the  department expects there to  be some                                                               
out-of-state stamping.   He reiterated  that [some of  the larger                                                               
distributors] have  indicated a  high probability that  they will                                                               
stamp in the state.  Some  of the smaller wholesalers who operate                                                               
out  of Seattle  and  ship to  remote  communities will  probably                                                               
stamp out of state.                                                                                                             
CHAIR  MURKOWSKI  informed  the   committee  that  Mark  Johnson,                                                               
Department of Health & Social  Services, is present to answer any                                                               
additional questions regarding the  tobacco enforcement aspect of                                                               
this.  There were no questions of Mr. Johnson.                                                                                  
Number 2173                                                                                                                     
MR. ELERDING related  that since the arrival of  the national box                                                               
stores in Anchorage, the volume  of cartons that move through the                                                               
bonded  warehouse  has  steadily  declined.   Therefore,  in  Mr.                                                               
Elerding's opinion,  the majority of  the stamping by  the larger                                                               
stores will be performed outside of Alaska.                                                                                     
CHAIR MURKOWSKI, determining there to  be no one else to testify,                                                               
closed public testimony.                                                                                                        
Number 2215                                                                                                                     
REPRESENTATIVE  MEYER  commented  that he  is  having  difficulty                                                               
getting  excited  about  HB  429.    Even  with  the  amendments,                                                               
[stamping]  could still  hurt the  small business  wholesalers in                                                               
Alaska.   He related that he  wasn't convinced that Alaska  has a                                                               
[tobacco] bootlegging problem.                                                                                                  
CHAIR  MURKOWSKI said  that was  her concern  when the  committee                                                               
first heard the  bill.  However, the proposal  being discussed as                                                               
the  four-tiered system  addresses  the competitive  disadvantage                                                               
and   levels  the   playing  field   a  bit.     She   recognized                                                               
Representative Meyer's  concern to be  in regard to  whether it's                                                               
necessary to have  a stamping operation in this state.   She said                                                               
the state  doesn't want  to be  a target  for contraband  and she                                                               
questioned whether  that would be  the case  if Alaska is  one of                                                               
the last states to monitor [cigarette contraband].                                                                              
REPRESENTATIVE  MEYER recalled  an earlier  point with  regard to                                                               
the difficulties  of having  a stamping machine  in Alaska.   The                                                               
only  state that  would be  similarly situated  would be  Hawaii,                                                               
which  has a  larger  population  base that  could  fix a  broken                                                               
stamping machine.                                                                                                               
TAPE 02-57, SIDE B                                                                                                              
REPRESENTATIVE MEYER  expressed concern that there  could be some                                                               
other inherent risks  that could hurt the  small businesses other                                                               
than the volume.                                                                                                                
Number 2331                                                                                                                     
REPRESENTATIVE HAYES moved that  the committee adopt Amendment 1,                                                               
which reads as follows:                                                                                                         
     Page 7, lines 23-27:                                                                                                       
          Delete:  "For the first $1,000,000 in denominated                                                                     
     value  of stamps  purchased by  a  licensee under  this                                                                    
     section  in the  same  calendar year  is  equal to  one                                                                    
     percent  of the  denominated values  of the  additional                                                                    
     Page 7, line 31, following "AS 43.50.500-43.50.700.":                                                                      
          Insert:  "The discount under this subsection is                                                                       
     equal to  the sum of  the amounts calculated  using the                                                                    
     following  percentages of  denominated value  of stamps                                                                    
     purchased  by  a  licensee  under  this  section  in  a                                                                    
     calendar year:                                                                                                             
               (1) $1,000,000 or less, three percent;                                                                           
               (2) the amount that is more than $1,000,000,                                                                     
     but not more than $2,000,000, two percent;                                                                                 
               (3) the amount this is more than $2,000,000,                                                                     
     but not more than $5,000,000, 0.5 percent;                                                                                 
               (4) the amount that is over $5,000,000, zero                                                                     
There being no objection, Amendment 1 was adopted.                                                                              
REPRESENTATIVE HAYES  related his belief that  it's probably safe                                                               
to assume that Alaska has  some bootleg contraband because Alaska                                                               
is  one of  only  four states  that doesn't  know.   Amendment  1                                                               
places a safeguard  in the bill, which  Representative Hayes said                                                               
made  him more  comfortable.   With regard  to the  concerns that                                                               
this   stamping   machine   couldn't    be   fixed   in   Alaska,                                                               
Representative Hayes  said he believes  there are plenty  of good                                                               
mechanics in the state who could probably fix it.                                                                               
Number 2238                                                                                                                     
REPRESENTATIVE HALCRO  moved to report  HB 429 as amended  out of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  note.    There  being no  objection,  CSHB  429(L&C)  was                                                               
reported from the House Labor and Commerce Standing Committee.                                                                  
HB 246-OMNIBUS INSURANCE BILL                                                                                                 
CHAIR MURKOWSKI announced  that the next order  of business would                                                               
be HOUSE  BILL NO.  246, "An Act  relating to  confidentiality of                                                               
records  and  to cease  and  desist  orders  of the  division  of                                                               
insurance,  to  insurance  company investments,  to  unauthorized                                                               
insurers,  to surplus  lines insurance,  to health  insurance, to                                                               
life  insurance,   to  annuity  insurance,  to   consumer  credit                                                               
insurance,  to  title  insurance,  and to  hospital  and  medical                                                               
service  corporations;  and  providing for  an  effective  date."                                                               
[The committee's discussion was  directed at Version 22-LS0743\J,                                                               
Ford, 2/20/02.]                                                                                                                 
Number 2193                                                                                                                     
BOB  LOHR,   Director,  Division  of  Insurance,   Department  of                                                               
Community  &  Economic  Development  (DCED),  specified  that  in                                                               
[Version 22-LS0743\J,  Ford, 2/20/02]  there are  two substantive                                                               
issues and  some miscellaneous provisions.   The bill  contains a                                                               
number  of  confidentiality  provisions,  which  would  basically                                                               
require the Division of Insurance  to protect the confidentiality                                                               
of insurance  examination work  papers in  order to  increase the                                                               
willingness of  insurers to  share confidential  information with                                                               
the  division during  the examination  process.   Currently,  the                                                               
division  has   the  authority  to   compel  the   production  of                                                               
documents, but  at times the  insurer will argue  that production                                                               
to the  division risks access  to those documents by  third party                                                               
litigators.    The  current protection  in  statute  is  somewhat                                                               
limited;  the  director  has  the  authority  to  make  documents                                                               
confidential when it is in the  public interest and can do so for                                                               
as  long  as  necessary  to protect  the  confidentiality.    The                                                               
statute  basically provides  for  a  situational standard  that's                                                               
designed  to be  somewhat  temporary.   This [legislation]  would                                                               
make   [confidentiality]  automatic   with  respect   to  certain                                                               
categories of  documents.  Mr.  Lohr emphasized that  this change                                                               
is  important  so  that  Alaska will  remain  accredited  by  the                                                               
National Association  of Insurance Commissioners  (NAIC), meaning                                                               
that Alaska  meets the minimum  national standards  for financial                                                               
regulation   of   insurance   companies.     Furthermore,   [this                                                               
legislation] would  make it  possible for  the division  to share                                                               
confidential information  with federal  and state  regulators and                                                               
to  receive  documents  that  other  states  and  the  NAIC  have                                                               
gathered  about  insurance  companies.   Mr.  Lohr  informed  the                                                               
committee that  the Washington State insurance  commissioner will                                                               
not  share   investigative  files   with  Alaska's   Division  of                                                               
Insurance  under  the  current  confidentiality  standards.    He                                                               
explained   that  Washington   State   wants  a   confidentiality                                                               
agreement  on  a  case-by-case basis.    Furthermore,  Washington                                                               
State wants an agreement that is  at least as protective as their                                                               
law.   Washington State wants  to avoid someone going  to another                                                               
jurisdiction, such  as Alaska, and  seek production  of documents                                                               
under  that   jurisdiction's  public   records  act   when  those                                                               
documents   weren't  available   directly   from  the   insurance                                                               
regulators in Washington State.                                                                                                 
Number 2068                                                                                                                     
CHAIR   MURKOWSKI  recalled   the   credit  scoring   legislation                                                               
introduced by Representative Crawford  and the question regarding                                                               
whether  aspects   or  insurers'  records  would   be  considered                                                               
confidential.    She asked  if  the  aforementioned would  be  an                                                               
example of the confidentiality provisions being discussed now.                                                                  
MR.  LOHR  replied  no  and   pointed  out  that  the  provisions                                                               
implicated  by  Representative  Crawford's bill  deal  with  rate                                                               
making.   Within  the rate-making  statute there  is a  provision                                                               
specifying  that once  the  division has  concluded  action on  a                                                               
requested rate, all  of the supporting documents  related to that                                                               
rate request become  public.  Therefore, in order  for an insurer                                                               
to get  a credit scoring  model approved, the insurer  would have                                                               
to be  willing for that model  to become public.   That provision                                                               
wouldn't be impacted by HB 246.                                                                                                 
Number 2011                                                                                                                     
MR.  LOHR  returned to  [Version  J]  and the  Multiple  Employer                                                               
Welfare  Arrangements  (MEWA),  which  consists  of  a  group  of                                                               
employers that form  a pool to provide health  insurance to their                                                               
employees.   The division would  like to encourage  the formation                                                               
of  financially  sound MEWAs.      Furthermore, Alaska  wants  to                                                               
attract  additional responsible  insurers  and sound  alternative                                                               
health  insurance  arrangements to  the  state.   He  noted  that                                                               
competition in this area is  desirable.  However, the current law                                                               
requires MEWAs to  obtain a certificate of authority  as a health                                                               
insurer and thus  requires the MEWA to  maintain approximately $2                                                               
million  of capital  and surplus  and  file financial  statements                                                               
that would  be regulatory overkill,  in Mr. Lohr's opinion.   Mr.                                                               
Lohr pointed  out that [Version  J] establishes  capital surplus,                                                               
reserve standards,  financial reporting, et cetera  that are more                                                               
appropriate  to the  structure and  type of  business in  which a                                                               
MEWA engages.                                                                                                                   
MR. LOHR turned  to the miscellaneous provisions  of [Version J].                                                               
He  noted  that  he  has  chosen only  three  examples  of  those                                                               
provisions.  One of the  provisions would establish fees for late                                                               
payment  of  premium  taxes  in order  to  encourage  the  timely                                                               
payment  of  premium  taxes, which  are  general  fund  revenues.                                                               
Another provision would  establish an annual fee to  operate as a                                                               
joint  insurance  arrangement  (JIA)   in  order  to  offset  the                                                               
division's cost  of enforcing  the provisions of  AS 21.76.   Mr.                                                               
Lohr explained  that JIAs aren't regulated  as insurance entities                                                               
under state law.   However, in order to  preserve the competitive                                                               
playing field,  each of the  JIAs have frequently  requested that                                                               
the  division  be the  "competitive  gatekeeper."   The  division                                                               
incurs  an expense  for  doing the  aforementioned  and if  those                                                               
expenses  aren't covered  by  fees  paid by  the  JIAs, then  the                                                               
expenses  would be  recovered through  the fees  to the  division                                                               
from  the licensees.   However,  the division  doesn't feel  that                                                               
it's  appropriate  to  cross  subsidize  JIA  activities  out  of                                                               
licensing  fees.    Another  provision  would  establish  minimum                                                               
attachment points consistent with  NAIC's model law for stop-loss                                                               
insurance  policies  that are  purchased  by  employers to  self-                                                               
insure their  health insurance plans.   These minimums  will help                                                               
eliminate health  insurance policies sold as  stop-loss insurance                                                               
in  order  to  avoid  compliance   with  health  insurance  laws,                                                               
including guaranty  issue, federal portability  requirements, and                                                               
benefit  mandates.    Mr.  Lohr  related  his  belief  that  this                                                               
legislation  isn't   controversial  because  the  text   of  this                                                               
legislation  has  been "shopped"  to  all  interested parties  of                                                               
which  the  division is  aware.    The division  hasn't  received                                                               
substantial  opposition  and  thus wouldn't  predict  controversy                                                               
with regard to the provisions of the legislation.                                                                               
REPRESENTATIVE  CRAWFORD  requested   explanation  of  attachment                                                               
points and retention limits.                                                                                                    
Number 1827                                                                                                                     
KATIE CAMPBELL,  Actuary L/H,  Division of  Insurance, Department                                                               
of   Community  &   Economic  Development,   explained  that   an                                                               
attachment  point  is the  point  at  which the  insurance  would                                                               
actually kick  in.   Therefore, an employer  who wanted  to self-                                                               
insure   their  health   insurance   benefits  while   protecting                                                               
themselves  from  large claims  or  excessive  numbers of  claims                                                               
[would use] the attachment point.   Ms. Campbell pointed out that                                                               
a small employer who wants  to self-insure can't purchase a stop-                                                               
loss  policy with  a retention  of less  than $10,000  per claim.                                                               
Therefore,  the employer  would have  to  take the  risk for  any                                                               
amount  below $10,000,  on  an individual  claim.   Ms.  Campbell                                                               
explained that if  the [attachment point] is low  enough that all                                                               
the risk is  on the insurance company [that  is] health insurance                                                               
instead  of stop-loss  insurance.   Stop-loss insurance  policies                                                               
aren't subject  to health  insurance laws  and thus  the employer                                                               
wouldn't  have  credible  coverage.   A  stop-loss  policy  isn't                                                               
health insurance, she specified.                                                                                                
MR. LOHR surmised that a  self-insured party isn't subject to the                                                               
insurance code in  the way that an insurer would  be.  Therefore,                                                               
if  a self-insured  party can  eliminate  all risk  to itself  by                                                               
virtue  of a  high deductible  and  a low  attachment point,  the                                                               
self-insured  is  [risk  free]  and still  isn't  treated  as  an                                                               
REPRESENTATIVE ROKEBERG  directed attention to page  12, line 25,                                                               
which  specifies the  regulated  type institutions.   "We're  not                                                               
talking about a self-insured here," he asked.                                                                                   
MS. CAMPBELL  explained that  insurance companies  actually write                                                               
the  stop-loss  policy, and  therefore  it's  insurance, but  not                                                               
health  insurance.    The [stop-loss  insurance]  is  similar  to                                                               
employer liability  in which the  employer purchases  a stop-loss                                                               
policy to  cover any  losses incurred in  their health  plan over                                                               
the [specified] dollar amount.                                                                                                  
REPRESENTATIVE ROKEBERG inquired  as to how a MEWA  would issue a                                                               
stop-loss insurance policy.                                                                                                     
MS. CAMPBELL  clarified that  [a MEWA] would  have to  purchase a                                                               
stop-loss insurance  policy.   She related that  the goal  was to                                                               
cover  anyone who  could have  a  license to  write an  insurance                                                               
policy.   Therefore, any  stop-loss policy  issued by  anyone who                                                               
has  a  license  to  write  insurance  is  subject  to  the  same                                                               
standard, including  the MEWAs.   She agreed  with Representative                                                               
Rokeberg  that  the  self-insured  can't  be  covered  under  the                                                               
Employee Retirement and Income Security Act of 1974 (ERISA).                                                                    
Number 1609                                                                                                                     
CHAIR MURKOWSKI turned attention  to the sectional analysis [done                                                               
by the  Division of Insurance]  and the definition of  the health                                                               
care insurance  plan [found in  Section 36  of Version J  on page                                                               
14].   The sectional analysis  says, "The  unintended consequence                                                               
is that  individual short-term medical coverage  must comply with                                                               
health  benefit mandates."   The  sectional analysis  goes on  to                                                               
say,  "This   section  amends  the  definition   of  health  care                                                               
insurance plan  in order to exclude  short-term individual health                                                               
coverage  from  the   benefit  mandates."    She   asked  if  the                                                               
aforementioned means that under  [Version J individual short-term                                                               
medical  coverage] wouldn't  be  required to  carry coverage  for                                                               
prostrate screening and breast cancer screening.                                                                                
MS.  CAMPBELL  replied  yes  and   explained  that  this  federal                                                               
definition  wasn't  translated into  our  laws  accurately.   The                                                               
intent  was  that it  shouldn't  apply  to individual  short-term                                                               
medical  coverage,   such  as  a   three-month  period   when  an                                                               
individual  is between  coverage.   There are  some insurers  who                                                               
actually want to market such short-term coverage.                                                                               
Number 1526                                                                                                                     
CHAIR  MURKOWSKI surmised  then  that [Version  J] is  consistent                                                               
with  the Health  Insurance  Portability  and Accountability  Act                                                               
MR. LOHR  agreed, adding  that HIPAA  compliance is  an important                                                               
element in keeping the federal government "off our back."                                                                       
CHAIR MURKOWSKI  related her understanding then  that [Version J]                                                               
only takes on two policy  issues:  the confidentiality components                                                               
and the MEWA regulations.                                                                                                       
MR. LOHR replied  yes and added that there  are other potentially                                                               
controversial provisions such as  the possibility that JIAs might                                                               
believe paying  any fee at  all is inappropriate and  thus oppose                                                               
it.   Currently, there  is an exemption  under the  surplus lines                                                               
taxation  law  for  aircraft   regularly  engaged  in  interstate                                                               
commerce.   This legislation proposes  to change the  language to                                                               
refer to "primarily engaged".                                                                                                   
CHAIR MURKOWSKI  inquired as to  whether "primarily  engaged" has                                                               
been defined.                                                                                                                   
MR. LOHR answered  that it isn't defined in  this legislation and                                                               
it may  be an appropriate  subject for regulation.   The division                                                               
wanted to  clarify the  statute before  taking on  the regulatory                                                               
Number 1428                                                                                                                     
REPRESENTATIVE ROKEBERG directed attention  to Section 35 on page                                                               
14 and inquired as to why that language was included.                                                                           
MS. CAMPBELL  explained that the insurance  companies interpreted                                                               
the original provision  to mean that they didn't  have to provide                                                               
at least $1,500  [of coverage].  Therefore,  this language merely                                                               
clarifies the  original intent that  a health care  insurer can't                                                               
provide less than $1,500 per year.   This was discovered when the                                                               
division reviewed the contracts.                                                                                                
REPRESENTATIVE  ROKEBERG  recalled  the  debate  on  this  matter                                                               
revolving  around why  if someone  didn't use  all their  benefit                                                               
that  they would  have to  lose their  benefit or  why would  the                                                               
insurer have to pay more if the $1,500 wasn't used.                                                                             
CHAIR  MURKOWSKI related  her  understanding  that the  insurance                                                               
companies  interpreted the  language  to mean  that they  weren't                                                               
required to provide anything unless it was up to $1,500.                                                                        
MS. CAMPBELL indicated that the  original language "up to $1,500"                                                               
created the problem.  The  language in [Version J] specifies that                                                               
an [insurer] has to provide up to $1,500 of benefit.                                                                            
REPRESENTATIVE  ROKEBERG asked  if  the language  in [Version  J]                                                               
says that.                                                                                                                      
MS. CAMPBELL said,  "So they have to provide at  least $1,500 for                                                               
a covered person."                                                                                                              
REPRESENTATIVE ROKEBERG inquired  as to a situation  in which the                                                               
person doesn't want to spend $1,500.                                                                                            
CHAIR MURKOWSKI said that the  language doesn't seem to allow for                                                               
[coverage] of less [than $1,500].                                                                                               
Number 1256                                                                                                                     
REPRESENTATIVE  ROKEBERG turned  to  Section  41 and  interpreted                                                               
that section as  adding MEWAs to the  Alaska Comprehensive Health                                                               
Insurance Association (ACHIA).                                                                                                  
MR.  LOHR agreed  with Representative  Rokeberg's interpretation.                                                               
He  added that  the division  is trying  to broaden  the base  of                                                               
CHAIR  MURKOWSKI returned  to the  current  language relating  to                                                               
diabetes education  and pointed out  that it says,  "coverage for                                                               
the cost of  diabetes training or education is  limited to $1,500                                                               
for a covered person in a year."                                                                                                
MS.  CAMPBELL   explained  that  the  insurance   companies  were                                                               
interpreting the  existing language  as allowing them  to provide                                                               
benefits up  to $3,000.   In other  words, the  existing language                                                               
seemed to cap the benefit.                                                                                                      
CHAIR MURKOWSKI recalled that the intent  was not to put in place                                                               
an unlimited requirement that an  insurer had to provide diabetes                                                               
education  and training  at an  unrestricted amount.   Therefore,                                                               
the $1,500  was a compromise.   If the insurer wanted  to provide                                                               
more   coverage,  the   existing   language   was  construed   as                                                               
Number 1146                                                                                                                     
MR.  LOHR  offered the  following  language:   "The  health  care                                                               
insurer  shall provide  benefits  not to  exceed  $1,500 and  may                                                               
provide benefits in excess of this amount."                                                                                     
MS. CAMPBELL  agreed that the  aforementioned language  might get                                                               
to  the problem.   Ms.  Campbell pointed  out that  other benefit                                                               
mandates  such  as   with  alcohol  and  drug   abuse  and  those                                                               
established  limits  haven't been  interpreted  to  mean that  if                                                               
someone didn't use it, the benefit still had to be paid.                                                                        
REPRESENTATIVE ROKEBERG  remarked that  the language  [in Section                                                               
35] isn't clear to the average person.                                                                                          
MS. CAMPBELL  suggested that the  language [in Section  35] could                                                               
refer to "coverage" rather than "benefits".                                                                                     
CHAIR  MURKOWSKI  agreed  that  the change  to  "coverage"  seems                                                               
MS. CAMPBELL interjected that the  term "limited" in the existing                                                               
statute seemed to cause the problem.                                                                                            
Number 1022                                                                                                                     
REPRESENTATIVE   ROKEBERG   moved   that  the   committee   adopt                                                               
conceptual Amendment 1, as follows:                                                                                             
     Page 14, line 10,                                                                                                          
          Delete "benefits"                                                                                                     
          Insert "coverage"                                                                                                     
There being no objection, conceptual Amendment 1 was adopted.                                                                   
CHAIR MURKOWSKI noted that the  committee packet includes several                                                               
amendments [to  Version J]  and asked whether  Mr. Lohr  cared to                                                               
speak to them.                                                                                                                  
MR. LOHR pointed out that the  legislation seems to have an error                                                               
in which "small"  and "large" are reversed and thus  there is the                                                               
need to amend that.  The  change from "large" to "small" confirms                                                               
the  lower retention  limits for  a smaller  entity.   It doesn't                                                               
make sense to  have stricter standards for the  large entity than                                                               
for  the  small entity.    For  actuarial purposes,  the  smaller                                                               
entity needs additional sidebars.    The same amendment inserts a                                                               
section that references AS 21.07,  the codified Patients' Bill of                                                               
Rights,   and  AS   21.18.080-21.18.086,  the   health  reserving                                                               
standards.   The addition  of these  references were  included to                                                               
ensure  that  the provisions  in  the  case of  hospital  medical                                                               
service corporations,  of which Blue  Cross is an  example, [were                                                               
included].    He  informed  the committee  that  the  Blue  Cross                                                               
statute includes  a provision that  other provisions of  the code                                                               
don't  apply to  them unless  explicitly listed.   Although  Blue                                                               
Cross  has  treated  the aforementioned  provisions  as  if  they                                                               
apply, a  strict reading  of the  code wouldn't  apply them  as a                                                               
matter of law.                                                                                                                  
Number 0810                                                                                                                     
REPRESENTATIVE HAYES moved that  the committee adopt Amendment 2,                                                               
which reads as follows:                                                                                                         
     Page 13, line 1                                                                                                            
     replace "large" with "small"                                                                                               
     Page 13, line 8                                                                                                            
     replace "small" with "large"                                                                                               
     Page 29, line 27                                                                                                           
     Insert new bill section to read:                                                                                           
        *Sec. ____. AS 21.87.340 is amended by adding a                                                                       
     new paragraphs to read:                                                                                                    
               (22) AS 21.07;                                                                                                   
               (23) AS 21.18.080-21.18.086                                                                                      
There being no objection, Amendment 2 was adopted.                                                                              
Number 0772                                                                                                                     
REPRESENTATIVE  KOTT  moved  to   adopt  CSHB  246,  Version  22-                                                               
LS0743\J, Ford,  2/20/02, as the  working document.   There being                                                               
no objection, Version J was before the committee.                                                                               
The  committee   then  proceeded  to  restate   the  motions  for                                                               
conceptual Amendment 1 and Amendment  2, which were adopted again                                                               
without objection.                                                                                                              
Number 0708                                                                                                                     
REPRESENTATIVE ROKEBERG moved that  the committee adopt Amendment                                                               
3 [22-LS8004\A.5,  Ford, 4/4/02], which  can be found at  the end                                                               
of this section of minutes.                                                                                                     
REPRESENTATIVE KOTT objected for discussion purposes.                                                                           
MR.  LOHR  explained  that Amendment  3  addresses  the  property                                                               
casualty  guaranty  fund,  which  is set  up  as  a  backstopping                                                               
mechanism to protect the consumer.   When a consumer purchases an                                                               
insurance policy,  the consumer  wants to  know that  the premium                                                               
dollars paid  to the company will  be used to provide  the claims                                                               
coverage promised.   If  the company  goes under,  this mechanism                                                               
ensures that all  other companies participate in  a guaranty fund                                                               
designed to  pay claims  against insolvent  companies.   Mr. Lohr                                                               
said  this  works  very  well  because it  provides  a  level  of                                                               
insurance  to  the insurance  system.    "Every company  that  is                                                               
participating in a line of  insurance is required, as a condition                                                               
of  that access  to that  market, to  agree to  pay its  pro rata                                                               
share  on claims  based  on  its market  share  in  that line  of                                                               
insurance,"  he  explained.     It's  very  important  that  this                                                               
amendment be in place, he said.                                                                                                 
MR. LOHR  specified that Amendment  3 would change  the mechanism                                                               
of  calculating the  assessment.   Currently,  the assessment  is                                                               
done at the end of the year  in which the insolvency occurs.  For                                                               
example, if  a company became  insolvent August 15, 2001,  at the                                                               
end of 2001 the assessment would  be based on the market share of                                                               
each company  in the workers'  compensation or  property casualty                                                               
market  in Alaska  for that  year only.   This  legislation would                                                               
provide that one year later there  would be an adjustment of that                                                               
assessment based  on the  market share  that occurred  during the                                                               
subsequent year  [of insolvency].   He explained that  it intends                                                               
to address the current situation in  which a new entrant into the                                                               
market during  the year [of  another company's  insolvency] would                                                               
bear  no  assessment  for  the  failure  of  the  other  company.                                                               
However, the  new entrant may  inherit a  lot of business  due to                                                               
the failure  of the other  company and  thus there wouldn't  be a                                                               
level playing  field in  that market  at that time.   Based  on a                                                               
recalculation of that assessment one  year later, the new entrant                                                               
would pay  its fair share based  on its market share  at the time                                                               
of  the  insolvency  of  the  other  company.    In  response  to                                                               
Representative  Rokeberg,   the  new   entrant  would   have  its                                                               
assessment   calculated  one   year  subsequent   to  the   prior                                                               
assessment.    Mr. Lohr  commented  that  this [amendment]  would                                                               
establish  a level  playing  field that  wouldn't  allow the  new                                                               
entrant to  enter the market  for free.  Furthermore,  this would                                                               
result  in a  proportionately  lower assessment  to  each of  the                                                               
other players  in the  market and thus  the total  market doesn't                                                               
change  but rather  is reallocated.    Mr. Lohr  noted that  this                                                               
proposal  has been  submitted to  the board  of directors  of the                                                               
guaranty  fund, which  he understood  had no  opposition to  this                                                               
REPRESENTATIVE  KOTT asked  if  [Amendment 3]  would  be the  new                                                               
Section 50.                                                                                                                     
MR. LOHR answered in the affirmative.                                                                                           
Number 0288                                                                                                                     
REPRESENTATIVE  ROKEBERG  asked  if  the board  of  the  guaranty                                                               
association   has  representatives   from  each   of  the   firms                                                               
participating in the association.                                                                                               
MR. LOHR related his belief that  the members of the board of the                                                               
guaranty  association  represent  the  largest  insurers  in  the                                                               
market.   Furthermore,  he said  he believes  that the  voting is                                                               
weighted proportional  to the  member's market  share.   He noted                                                               
that he has heard no opposition  from this board and the language                                                               
was submitted  to this board.   He mentioned that he  received e-                                                               
mail  confirmation from  the  board's staff  that  the board  was                                                               
comfortable with the language.                                                                                                  
REPRESENTATIVE KOTT withdrew his objection.                                                                                     
Therefore, Amendment 3 was adopted.                                                                                             
Number 0130                                                                                                                     
REPRESENTATIVE MEYER moved that the committee adopt Amendment 4,                                                                
which reads as follows:                                                                                                         
     Page 5, line 19:                                                                                                           
     Insert new bill section to read:                                                                                           
          *Sec.___. AS 21.09.200(a) is amended to read:                                                                       
               (a) Each authorized insurer shall annually,                                                                      
     before March 2, file with  the director or his designee                                                                
     a full  and true statement of  its financial condition,                                                                    
     transactions, and affairs as  of the preceding December                                                                    
     31.  The reporting format for  a given year is the most                                                                    
     recently  approved  National Association  of  Insurance                                                                    
     Commissioners'  annual financial  statement blank  form                                                                    
     and    instructions,   supplemented    for   additional                                                                    
     information as required by the  director.  The director                                                                    
     may  require the  statement to  be filed  on electronic                                                                    
     media.  The statement shall  be verified by the oath of                                                                    
     the   insurer's   president  or   vice-president,   and                                                                    
     secretary, or, if a reciprocal  insurer, by oath of the                                                                    
     attorney-in-fact or its like  officers if a corporation                                                                    
     unless  verification  is  waived  by  the  director  of                                                                    
     insurance.   The filing locations will  be published by                                                                
     the director at least annually.                                                                                        
     Page 5, line 24:                                                                                                           
     Insert new bill sections to read:                                                                                          
          *Sec.___. AS 21.09.200(e) is amended to read:                                                                       
               (e) An insurer shall pay to the division                                                                         
     $100 for each day the  insurer fails to file the annual                                                                    
     statement in the form and  location required and within                                                                
     the  time established  in  (a) of  this  section.   The                                                                    
     authority of the insurer to  enter into new obligations                                                                    
     or issue new  or renewal policies of  insurance in this                                                                    
     state may  be suspended by  the director if  the annual                                                                    
     statement has not been filed by March 1.                                                                                   
          *Sec.___. AS 21.09.205(b) is amended to read:                                                                       
               (b) A quarterly financial statement, if                                                                          
     required,  is due  45 [60]  days after  the end  of the                                                                
     quarter to which it applies.                                                                                               
     Page 8, line 15:                                                                                                           
     Insert new bill section to read:                                                                                           
          *Sec.___. AS 21.27.330(b) is amended to read:                                                                       
               (b) If a licensee that is a firm transacts                                                                       
     business at  more than one  place of business  [IN THIS                                                                    
     STATE], the licensee  shall pay a license  fee for each                                                                    
     place of business.                                                                                                         
CHAIR MURKOWSKI objected for the purpose of discussion.                                                                         
MR.  LOHR  explained that  that  the  amendment would  allow  the                                                               
director of the Division of  Insurance to delegate responsibility                                                               
to receive these annual statements.   Furthermore, it would allow                                                               
the division  to indicate  the location  of the  filing annually.                                                               
This  would  typically  be  done   in  the  annual  statement  of                                                               
instructions that  the division  already publishes  for insurance                                                               
companies.   The amendment  also deals with  the location  of the                                                               
filing and  amends the  deadline for  filing from  60 days  to 45                                                               
days  after the  end of  the  quarter.   Therefore, an  insurance                                                               
company has  a month-and-a-half to submit  the requirement, which                                                               
he said  he believes to  be consistent with NAIC's  standards for                                                               
quarterly reports.                                                                                                              
TAPE 02-58, SIDE A                                                                                                              
MR. LOHR  continued by  pointing out that  Amendment 4  inserts a                                                               
new  section that  deletes  the  language "in  this  state".   He                                                               
explained that  [the language  was deleted]  because it  has been                                                               
argued by  an outside  nonresident applicant  for a  license that                                                               
this language means  that those not located in  Alaska don't have                                                               
to pay  this license  fee.   However, the  division feels  that a                                                               
nonresident applicant should pay their fair share, he said.                                                                     
REPRESENTATIVE MEYER asked if these are conceptual amendments.                                                                  
CHAIR MURKOWSKI said that the drafter can work out the sections.                                                                
Number 0069                                                                                                                     
REPRESENTATIVE ROKEBERG  turned to the last  portion of Amendment                                                               
4, which  inserts a  new bill  section on  page 8,  line 15.   He                                                               
questioned the drafting.                                                                                                        
MR. LOHR, in response to  Representative Rokeberg, explained that                                                               
the argument is that if  a [nonresident] applicant doesn't intend                                                               
to open an  office in Alaska, those applicants  shouldn't pay any                                                               
fee at all for multiple places of business.                                                                                     
REPRESENTATIVE ROKEBERG pointed out  that the current language is                                                               
more ambiguous because it says  "the licensee shall pay a license                                                               
fee for  each place  of business"  regardless of  the state.   He                                                               
recommended leaving the language "in  this state" in the bill and                                                               
including language  that specifies  that if the  licensee doesn't                                                               
have a  premise in the state,  the licensee is still  required to                                                               
purchase a license.                                                                                                             
CHAIR MURKOWSKI  asked if the  language read "If a  licensee that                                                               
is a firm transacts business at  more than one place of business,                                                               
the licensee shall  pay a license fee for each  place of business                                                               
in this state." would address Representative Rokeberg's concern.                                                                
REPRESENTATIVE ROKEBERG  said that  the language could  state, "A                                                               
business  that has  no premises  in the  state still  must pay  a                                                               
licensing fee."                                                                                                                 
MR. LOHR said he  considered Representative Rokeberg's suggestion                                                               
as a friendly amendment.                                                                                                        
REPRESENTATIVE  ROKEBERG  moved  that   the  committee  adopt  an                                                               
amendment to Amendment 4 that would  result in the new section to                                                               
be  inserted on  page 8,  line 15,  to read  as follows:   "If  a                                                               
licensee  that is  a firm  transacts  business at  more than  one                                                               
place of business, the licensee shall  pay a license fee for each                                                               
place of business in  this state.  If a licensee  does not have a                                                               
place of  business in this state,  he is still required  to pay a                                                               
license fee."                                                                                                                   
REPRESENTATIVE MEYER  noted his  acceptance of that  amendment to                                                               
Amendment 4.                                                                                                                    
MR. LOHR  said that the  person that  should be consulted  is the                                                               
director  of the  Division of  [Occupational]  Licensing and  the                                                               
licensing supervisor who suggested the  amendment.  He offered to                                                               
consult with the [licensing supervisor]  and hold that portion of                                                               
the amendment until the next committee of referral.                                                                             
Number 0394                                                                                                                     
REPRESENTATIVE ROKEBERG  pointed out that the  amendment could be                                                               
CHAIR MURKOWSKI said that she  wasn't sure she understood because                                                               
she  thought that  one  would  pay a  license  fee  based on  the                                                               
locations, although it  has been determined that  there might not                                                               
be locations within Alaska.                                                                                                     
MR.  LOHR recommended  deleting from  Amendment 4,  the following                                                               
     Page 8, line 15:                                                                                                           
     Insert new bill section to read:                                                                                           
          *Sec.___. AS 21.27.330(b) is amended to read:                                                                       
               (b) If a licensee that is a firm transacts                                                                       
     business at  more than one  place of business  [IN THIS                                                                    
     STATE], the licensee  shall pay a license  fee for each                                                                    
     place of business.                                                                                                         
MR. LOHR  said that  the division can  deal with  the enforcement                                                               
issue through current statute, if necessary.                                                                                    
Number 0543                                                                                                                     
REPRESENTATIVE  ROKEBERG withdrew  his amendment  to Amendment  4                                                               
and  then  moved  to  delete  from  Amendment  4,  the  following                                                               
     Page 8, line 15:                                                                                                           
     Insert new bill section to read:                                                                                           
          *Sec.___. AS 21.27.330(b) is amended to read:                                                                       
               (b) If a licensee that is a firm transacts                                                                       
     business at  more than one  place of business  [IN THIS                                                                    
     STATE], the licensee  shall pay a license  fee for each                                                                    
     place of business.                                                                                                         
There  being  no objection,  the  amendment  to Amendment  4  was                                                               
CHAIR MURKOWSKI withdrew her objection  to Amendment 4, and there                                                               
being no other objection, Amendment 4 [as amended] was adopted.                                                                 
Number 0597                                                                                                                     
REPRESENTATIVE  ROKEBERG   remarked  that   the  July   1,  2002,                                                               
effective  date  seemed  unusual.     For  example,  the  omnibus                                                               
insurance  bill  had  different  effective  dates  for  different                                                               
MR. LOHR  said that he  didn't believe the changes  would require                                                               
substantive  retooling by  the insurers.    Therefore, a  uniform                                                               
effective date [seems appropriate].                                                                                             
REPRESENTATIVE ROKEBERG turned to  the MEWA regulations and asked                                                               
if Mr. Lohr  believes [this legislation] has  lessened the burden                                                               
of entering in this market versus the current situation.                                                                        
MR. LOHR answered, "Most definitely."                                                                                           
REPRESENTATIVE  ROKEBERG requested  an example  of the  amount of                                                               
money  that [an  insurer] has  to  put forth  for their  solvency                                                               
provisions upon operation.                                                                                                      
MS. CAMPBELL  directed the  committee to the  bottom of  page 21,                                                               
which  specifies  that  $200,000   must  be  deposited  with  the                                                               
director  to cover  insolvency.   The  language  also requires  a                                                               
written  plan of  operation and  the insurer  also has  to submit                                                               
financial statements to assure stop-loss coverage.                                                                              
MR. LOHR pointed out that  the current insolvency requirement for                                                               
insurance companies is $2 million.                                                                                              
REPRESENTATIVE ROKEBERG asked if there  is a provision that would                                                               
allow the  money to be released  once the plan reached  a certain                                                               
size with a certain balance sheet.                                                                                              
MR.  LOHR  informed  the  committee   that  the  capital  surplus                                                               
requirement for an insurance company  is a perpetual requirement.                                                               
These  requirements are  typically  maintained  on an  interstate                                                               
basis.  A multi-state insurance  company isn't required to have a                                                               
separate  dedicated  capital surplus  reserve  for  Alaska.   The                                                               
insurance  company  is  allowed   to  invest  the  aforementioned                                                               
[capital surplus  revenue].  The  capital surplus  requirement is                                                               
maintained for the life of the company.                                                                                         
REPRESENTATIVE  ROKEBERG   asked  whether  the  money   would  be                                                               
deposited with the directors of insurance in the various states.                                                                
MS.  CAMPBELL  explained  that the  $200,000  requirement  is  an                                                               
initial  requirement occurring  when the  [company] qualifies  to                                                               
become a MEWA.   The requirement is certified  and recommended by                                                               
a  qualified  actuary.    Ms.  Campbell  pointed  out  that  this                                                               
$200,000  is   what  the  [insurer]   is  actually   holding,  no                                                               
additional money is being given  to the director; there is merely                                                               
an initial deposit during startup.                                                                                              
Number 0863                                                                                                                     
REPRESENTATIVE  ROKEBERG presumed  that [the  insurer] could  dip                                                               
into  the [$200,000]  fund at  a  certain point  or the  director                                                               
would allow them the use of that money.                                                                                         
MR.  LOHR noted  that question  has come  up after  the September                                                               
11th  tragedy.   The company  must maintain  the minimum  capital                                                               
surplus requirement in  order to be in good standing.   A company                                                               
seeking a  lower level of  reserve would  have to speak  with the                                                               
regulator.   Mr.  Lohr  informed the  committee  that Ms.  Glover                                                               
should be available to discuss reserving requirements.                                                                          
REPRESENTATIVE  ROKEBERG turned  to  page 23,  paragraph (5)  [of                                                               
Version J] and inquired as to what that's about.                                                                                
MS.  CAMPBELL  answered  that  ERISA  requires  that  MEWAs  hold                                                               
fidelity bonds.  In further  response to Representative Rokeberg,                                                               
Ms. Campbell  said that the  fidelity bonds  have to do  with the                                                               
solvency  aspects.   Unlike  a  health  insurance company,  these                                                               
MEWAs aren't covered  under the guaranty fund and  thus there are                                                               
some additional requirements.                                                                                                   
Number 1007                                                                                                                     
MR.  LOHR noted  that there  have been  some MEWA  wannabes which                                                               
have claimed that  they are exempt from federal  law because they                                                               
are state regulated  and vice versa.  In  these situations, these                                                               
[companies]  can  be turning  premium  into  personal income  and                                                               
never pay  a claim.   It takes  vigilant review  and coordination                                                               
among state  regulators to deal with  these.  Mr. Lohr  said that                                                               
he wasn't sure that [the division]  has been able to document any                                                               
at this time,  although there have been some that  are located in                                                               
other states and have written some  business in Alaska.  This law                                                               
would assist in [enforcement].                                                                                                  
MR. LOHR, in  response to Representative Rokeberg,  said that the                                                               
division  has  had  communications   with  the  MEWA  forming  in                                                               
Fairbanks.   At this time,  that MEWA  has been informed  that it                                                               
must  comply  with  the  full-blown   requirements  of  being  an                                                               
insurance company.   The division  has also advised this  MEWA of                                                               
HB 246.                                                                                                                         
REPRESENTATIVE ROKEBERG  surmised then  that without  the passage                                                               
of this legislation,  the MEWA forming in Fairbanks  would be put                                                               
out of business.                                                                                                                
MR. LOHR  agreed that without this  legislation, the requirements                                                               
would be burdensome.                                                                                                            
Number 1164                                                                                                                     
REPRESENTATIVE MEYER moved to report CSHB 246, Version 22-                                                                      
LS0743\J,  Ford,  2/20/02,  as  amended  out  of  committee  with                                                               
individual  recommendations  and  the  accompanying  zero  fiscal                                                               
note.  There being no  objection, CSHB 246(L&C) was reported from                                                               
the House Labor and Commerce Standing Committee.                                                                                
The following is Amendment 3:                                                                                                   
     Page ____, line ____:                                                                                                      
          Insert new bill sections to read:                                                                                     
        "* Sec. ___.  AS 21.80.060 is amended to read:                                                                        
          Sec. 21.80.060.  Powers and duties of the                                                                           
     association.  (a)  The association                                                                                       
               (1)  is obligated to pay covered claims                                                                          
     existing before  the order  of liquidation  and arising                                                                    
     within  30  days after  the  order  of liquidation,  or                                                                    
     before the policy expiration date  if less than 30 days                                                                    
     after the  order of liquidation, or  before the insured                                                                    
     replaces the  policy or causes its  cancellation if the                                                                    
     insured  does so  within  30 days  after  the order  of                                                                    
     liquidation,  but this  obligation  includes only  that                                                                    
     amount  of  each  covered  claim   that  is  less  than                                                                    
     $500,000,  except that  a covered  claim for  return of                                                                    
     unearned  premium  may  not  exceed  $10,000  for  each                                                                    
     policy, and  except that the association  shall pay the                                                                    
     full  amount of  any  covered claim  arising  out of  a                                                                    
     workers'  compensation policy;  the association  is not                                                                    
               (A)  to a policyholder or claimant in an                                                                         
     amount  in excess  of the  obligation of  the insolvent                                                                    
     insurer under  the policy from which  the claim arises;                                                                    
               (B)  to pay a claim filed with the                                                                               
     association after the  final date set by  the court for                                                                    
     the  filing   of  claims  against  the   liquidator  or                                                                    
     receiver of an insolvent insurer;                                                                                          
               (2)  is considered the insurer to the extent                                                                     
     of its  obligation on  the covered  claims and  to that                                                                    
     extent has  all rights, duties, and  obligations of the                                                                    
     insolvent  insurer as  if the  insurer  had not  become                                                                    
               (3)  shall allocate claims paid and expenses                                                                     
     incurred  among  the  three  accounts  separately,  and                                                                    
     assess  member  insurers  separately for  each  account                                                                    
     amounts  necessary   to  pay  the  obligation   of  the                                                                    
     association under (1) of  this subsection subsequent to                                                                    
     an insolvency, the expenses  of handling covered claims                                                                    
     subsequent  to   an  insolvency,  and   other  expenses                                                                    
     authorized by this chapter; under this paragraph,                                                                          
               (A)  the assessments of each member insurer                                                                      
     must  initially be  based on  a uniform  percentage, as                                                            
     determined by  the association,  of [IN  THE PROPORTION                                                                
     THAT]  the net  direct written  premiums of  each [THE]                                                                
     member  insurer  for the  last  year  for which  annual                                                                
     statements  have been  filed  [CALENDAR YEAR  PRECEDING                                                                
     THE  ASSESSMENT]  on  the kinds  of  insurance  in  the                                                                    
     account; this  initial assessment shall be  adjusted by                                                                
     applying the same uniform  percentage as initially used                                                                
     to each  member insurer's  net direct  written premiums                                                                
     for the calendar  year following the year  in which the                                                                
     initial assessment  was issued; any  difference between                                                                
     the   initial  assessment   amount  and   the  adjusted                                                                
     assessment amount  allocated to a member  insurer shall                                                                
     be  levied  against  or credited  back  to  the  member                                                                
     insurer,  as  appropriate,   by  the  association;  the                                                                
     association shall  calculate and issue  all appropriate                                                                
     levies  and  credits as  soon  as  practical after  all                                                                
     member insurers have filed  their annual statements for                                                                
     the  calendar  year following  the  year  in which  the                                                                
     initial assessment was issued  [BEARS TO THE NET DIRECT                                                                
     WRITTEN  PREMIUMS  OF  ALL   MEMBER  INSURERS  FOR  THE                                                                    
     CALENDAR YEAR PRECEDING THE ASSESSMENT  ON THE KINDS OF                                                                    
     INSURANCE IN THE ACCOUNT; EACH  MEMBER INSURER SHALL BE                                                                    
     NOTIFIED  OF  THE ASSESSMENT  NOT  LATER  THAN 30  DAYS                                                                    
     BEFORE IT IS DUE];                                                                                                         
               (B)  on an annual basis, the association                                                                     
     shall determine if  funding is required for  any of the                                                                
     three  accounts;  based   on  this  determination,  the                                                                
     association shall, during November  of each year, issue                                                                
     initial assessments  as may be  necessary to  cover the                                                                
     projected reasonable  costs of  claims and  expenses to                                                                
     administer the association for  the following year; the                                                                
     association shall  use the  services of  an independent                                                                
     actuary to assist the association  to evaluate and make                                                                
     the projection;  an initial assessment  may be  made at                                                                
     any other  time if  the association  determines funding                                                                
     is necessary, except  that a member insurer  may not be                                                                
     assessed  initial  assessments  [IN ANY  YEAR]  on  any                                                                
     account in  an amount greater  than two percent  of the                                                                
     member insurer's  net direct  written premiums  for the                                                                    
     applicable calendar  year [PRECEDING THE  ASSESSMENT ON                                                                
     THE KINDS OF INSURANCE IN THE ACCOUNT];                                                                                    
               (C)  the association may pay claims in any                                                                       
     order  that  it  determines reasonable,  including  the                                                                    
     payment of  claims as they are  received from claimants                                                                    
     or in groups  or categories of claims;  however, if the                                                                    
     maximum assessment,  together with the other  assets of                                                                    
     the  association in  any account,  does not  provide in                                                                    
     any one  year in  any account  an amount  sufficient to                                                                    
     make  all necessary  payments  from  that account,  the                                                                    
     funds  available  shall  be prorated,  and  the  unpaid                                                                    
     portion  shall  be paid  as  soon  thereafter as  funds                                                                    
     become available;                                                                                                          
               (D)  the association may defer, in whole or                                                                      
     in part,  an assessment  of any  member insurer  if the                                                                    
     assessment  would endanger  the ability  of the  member                                                                    
     insurer   to   fulfill    the   insurer's   contractual                                                                    
     obligations  or cause  the  member insurer's  financial                                                                    
     statement  to reflect  amounts  of  capital or  surplus                                                                    
     less   than  the   minimum  amounts   required  for   a                                                                    
     certificate of  authority by any jurisdiction  in which                                                                    
     the   member   insurer   is  authorized   to   transact                                                                    
     insurance;  however, during  the  period of  deferment,                                                                    
     the   member  insurer   may   not   pay  dividends   to                                                                    
     shareholders  or policyholders;  a deferred  assessment                                                                    
     may  only be  paid  when the  payment  does not  reduce                                                                    
     capital or  surplus below minimums  required by  law; a                                                                    
     member  insurer  who  pays a  larger  assessment  as  a                                                                    
     result of  a deferment given to  another member insurer                                                                    
     shall receive a  refund when the deferment  ends or, at                                                                    
     the election  of the member  insurer, receive  a credit                                                                    
     against future assessments;                                                                                                
               (E)  each member insurer may set off against                                                                     
     an  assessment  authorized  payments  made  on  covered                                                                    
     claims and  expenses incurred in  the payment  of these                                                                    
     claims by the member insurer  if they are chargeable to                                                                    
     the account for which the assessment is made;                                                                              
               (4)  shall investigate claims brought                                                                            
     against  the association,  adjust, compromise,  settle,                                                                    
     and   pay  covered   claims  to   the  extent   of  the                                                                    
     association's  obligation, and  deny all  other claims,                                                                    
     and may review settlements,  releases, and judgments to                                                                    
     which  the  insolvent  insurer  or  its  insureds  were                                                                    
     parties to  determine the extent to  which settlements,                                                                    
     releases, and judgments may be properly contested;                                                                         
               (5)  may, subject to AS 21.89.100, appoint,                                                                      
     substitute, or  direct legal counsel retained  under an                                                                    
     insurance policy for the defense of a covered claim;                                                                       
               (6)     shall   handle  claims   through  its                                                                    
     employees  or through  one or  more  insurers or  other                                                                    
     persons   designated   as   servicing   facilities;   a                                                                    
     servicing  facility  shall  operate  and  maintain  its                                                                    
     principal  office in  this state  unless the  use of  a                                                                    
     servicing facility  located outside of the  state would                                                                    
     result  in  operating  cost  savings  of  at  least  10                                                                    
     percent  and  would not  result  in  material delay  in                                                                    
     claim payments; designation of  a servicing facility is                                                                    
     subject   to  the   approval  of   the  director,   but                                                                    
     designation may be declined by a member insurer;                                                                           
               (7)  shall  reimburse each servicing facility                                                                    
     for  obligations   of  the  association  paid   by  the                                                                    
     facility  and for  expenses  incurred  by the  facility                                                                    
     while handling claims on behalf  of the association and                                                                    
     shall  pay  the  other   expenses  of  the  association                                                                    
     authorized by this chapter.                                                                                                
          (b)  The association may                                                                                              
               (1)     employ   or   retain  those   persons                                                                    
     necessary to handle claims and  perform other duties of                                                                    
     the association;                                                                                                           
               (2)   borrow  funds necessary  to effect  the                                                                    
     purposes of  this chapter  in accord  with the  plan of                                                                    
               (3)  sue or be sued;                                                                                             
               (4)   negotiate and  become a party  to those                                                                    
     contracts that are necessary to  carry out the purposes                                                                    
     of this chapter;                                                                                                           
               (5)   perform  all  other  acts necessary  or                                                                    
     proper to carry out the purposes of this chapter;                                                                          
               (6)     retain  amounts  excess   of  claims,                                                                
     expenses,  credits,   and  other  liabilities   in  any                                                                
     account to  be applied to reduce  future assessments in                                                                
     that  account,  except  that,  if,  in  any  year,  the                                                                
     association  determines   that  significant   funds  in                                                                
     excess  of  projected  claims, expenses,  credits,  and                                                                
     other liabilities exist in  an account, the association                                                                
     shall   return   amounts  to   policyholders,   through                                                                
     procedures established by  the association, whereby the                                                                
     association  reimburses member  insurers for  providing                                                                
     uniform credits against rates  and premiums charged for                                                                
     all policies  applicable to  the account  issued during                                                                
     the next  calendar year [REFUND TO  THE MEMBER INSURERS                                                                
     IN  PROPORTION  TO  THE  CONTRIBUTION  OF  EACH  MEMBER                                                                    
     INSURER  TO  THAT  ACCOUNT THAT  AMOUNT  BY  WHICH  THE                                                                    
     ASSETS  OF THE  ACCOUNT EXCEED  THE LIABILITIES  IF, AT                                                                    
     THE END  OF ANY CALENDAR  YEAR, THE BOARD  OF GOVERNORS                                                                    
     FINDS  THAT  THE  ASSETS  OF  THE  ASSOCIATION  IN  ANY                                                                    
     ACCOUNT  EXCEED  THE  LIABILITIES OF  THAT  ACCOUNT  AS                                                                    
     ESTIMATED  BY THE  BOARD OF  GOVERNORS  FOR THE  COMING                                                                    
        * Sec. ___.  AS 21.80.070(c) is amended to read:                                                                  
          (c)  The plan of operation must                                                                                       
               (1)   establish  the  procedures whereby  all                                                                    
     the  powers   and  duties  of  the   association  under                                                                    
     AS 21.80.060 will be performed;                                                                                            
               (2)     establish  procedures   for  handling                                                                    
     assets  of the  association,  including procedures  for                                                                    
     handling  assets   received  from  the  estate   of  an                                                                    
     insolvent insurer;                                                                                                         
               (3)    establish  the amount  and  method  of                                                                    
     reimbursing  members of  the board  of governors  under                                                                    
     AS 21.80.050;                                                                                                              
               (4)   establish  procedures  by which  claims                                                                    
     may  be  filed  with   the  association  and  establish                                                                    
     acceptable forms of proof of  covered claims; notice of                                                                    
     claims to  the receiver or liquidator  of the insolvent                                                                    
     insurer is considered notice to  the association or its                                                                    
     agent,   and  a   list  of   these   claims  shall   be                                                                    
     periodically  submitted to  the association  or similar                                                                    
     organization  in  another  state  by  the  receiver  or                                                                    
               (5)   establish regular places and  times for                                                                    
     meetings of the board of governors;                                                                                        
               (6)   establish procedures for records  to be                                                                    
     kept of all financial  transactions of the association,                                                                    
     its agents, and the board of governors;                                                                                    
               (7)     provide   that  any   member  insurer                                                                    
     aggrieved  by  a  final  action   or  decision  of  the                                                                    
     association may  appeal to the director  within 30 days                                                                    
     after the action or decision;                                                                                              
               (8)     establish   the  procedures   whereby                                                                    
     selections of the board of  governors will be submitted                                                                    
     to the director;                                                                                                           
               (9)  provide for  a member insurer serving on                                                                    
     the  board of  governors  to appoint  an individual  to                                                                    
     represent the  member insurer  on the  board, including                                                                    
     appointment    of    an   alternate    or    substitute                                                                    
     representative for the appointed person;                                                                                   
               (10)       contain    additional   provisions                                                                    
     necessary  or proper  for the  execution of  the powers                                                                    
     and duties of the association;                                                                                         
               (11)     establish  procedures   whereby  the                                                                
     association shall,  concurrent with making  any initial                                                                
     assessments    for    the    following    year    under                                                                
     AS 21.80.060(a)(3)(B),   determine  uniform   surcharge                                                                
     percentages that  may be applied by  member insurers to                                                                
     all policies related to an account;                                                                                    
               (12)  establish procedures whereby the                                                                       
     association   shall  determine   surcharge  percentages                                                                
     related  to an  account  so  that adjusted  assessments                                                                
     match, as  closely as possible, the  amounts that would                                                                
     be collected  by member insurers, in  the aggregate, if                                                                
     the surcharge  percentages were applied to  all new and                                                                
     renewal policies  issued by member insurers  during the                                                                
     applicable  12-month period;  any  estimated or  actual                                                                
     difference   between  the   aggregate  assessment   and                                                                
     maximum  allowable  surcharge  amounts  related  to  an                                                                
     account shall be taken into  account by the association                                                                
     in determining future surcharge percentages.                                                                           
        * Sec. ___.  AS 21.80.140 is amended to read:                                                                         
     Sec.   21.80.140.     Recognition  of   assessments  in                                                                  
     surcharge rates.   The rates  and premiums  charged for                                                                
     insurance policies  to which  this chapter  applies may                                                                    
     include surcharge rates  [AMOUNTS] sufficient to offset                                                                
     the adjusted  assessments [ASSESSMENT] made  under this                                                                
     chapter  and paid  to the  association by  [THE] member                                                                    
     insurers [INSURER  LESS AMOUNTS RETURNED TO  THE MEMBER                                                                
     INSURER BY THE ASSOCIATION],  and these surcharge rates                                                                
     may not  be considered  excessive because  they contain                                                                    
     an  amount reasonably  calculated  to  offset the  full                                                                
     amounted of  adjusted assessments paid by  [THE] member                                                                
     insurers.   The association  shall notify  the director                                                                
     of   each  surcharge   percentage  determined   by  the                                                                
     association,  and this  surcharge  percentage shall  be                                                                
     the  maximum  surcharge rate  that  may  be applied  by                                                                
     member insurers related to  the assessment, except that                                                                
     a member  insurer may make application  to the director                                                                
     to  apply  a  higher  surcharge rate  [INSURER].    The                                                                
     amount  charged on  a policy  shall  be shown  separate                                                                    
     from  the  premium for  coverage  on  the policy.    [A                                                                    
     RATING ORGANIZATION  MAY MAKE  A PROVISION IN  ITS RATE                                                                    
     FILING TO RECOVER AN ASSESSMENT  UNDER THIS CHAPTER FOR                                                                    
     THE  ORGANIZATION'S  MEMBER AND  SUBSCRIBER  INSURERS.]                                                                    
     The   surcharge  rate   [ASSESSMENT   CHARGE]  is   not                                                                
     considered a premium and is  not subject to the premium                                                                    
     tax imposed under AS 21.09.210."                                                                                           
The committee took an at-ease from 5:23 p.m. to 5:24 p.m.                                                                       
There being no further business before the committee, the House                                                                 
Labor and Commerce Standing Committee meeting was adjourned at                                                                  
5:20 p.m.                                                                                                                       

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