Legislature(2005 - 2006)CAPITOL 17

03/21/2005 03:15 PM LABOR & COMMERCE

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

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