Legislature(2013 - 2014)BARNES 124

01/23/2013 03:15 PM LABOR & COMMERCE

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03:20:55 PM Start
03:21:12 PM Overview: Department of Commerce, Community, & Economic Development (dcced)
04:24:47 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Dept. of Commerce, Community & TELECONFERENCED
Economic Development, Various Divisions
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                        January 23, 2013                                                                                        
                           3:20 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kurt Olson, Chair                                                                                                
Representative Lora Reinbold, Vice Chair                                                                                        
Representative Bob Herron                                                                                                       
Representative Charisse Millett                                                                                                 
Representative Dan Saddler                                                                                                      
Representative Andrew Josephson                                                                                                 
MEMBERS ABSENT                                                                                                                
Representative Mike Chenault                                                                                                    
COMMITTEE CALENDAR                                                                                                            
OVERVIEW: DEPARTMENT OF COMMERCE~ COMMUNITY~ & ECONOMIC                                                                         
DEVELOPMENT (DCCED)                                                                                                             
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
SUSAN BELL, Commissioner                                                                                                        
Department of Commerce, Community & Economic Development (DCCED)                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the overview of the                                                                     
Department of Commerce, Community & Economic Development                                                                        
DON HABEGER, Director                                                                                                           
Division of Corporations, Business and Professional Licensing                                                                   
Department of Commerce, Community & Economic Development (DCCED)                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the DCCED's overview of                                                                 
the Division of Corporations, Business, & Professional Licensing                                                                
BRET KOLB, Director                                                                                                             
Division of Insurance                                                                                                           
Department of Commerce, Community & Economic Development (DCCED)                                                                
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Testified  during the  DCCED's overview  of                                                            
the Division of Insurance (DOI).                                                                                                
LORIE HOVANEC, Director                                                                                                         
Anchorage Office                                                                                                                
Division of Banking and Securities                                                                                              
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Testified  during the  DCCED's overview  of                                                            
the Division of Banking and Securities (DBS).                                                                                   
ACTION NARRATIVE                                                                                                              
3:20:55 PM                                                                                                                    
CHAIR  KURT OLSON  called the  House Labor  and Commerce  Standing                                                            
Committee meeting  to order at 3:20 p.m.   Representatives Herron,                                                              
Millett, Reinbold,  Saddler, Josephson  and Olson were  present at                                                              
the call to order.                                                                                                              
3:21:12 PM                                                                                                                    
CHAIR OLSON  named Representative  Reinbold as  Vice Chair  of the                                                              
Labor & Commerce Standing Committee.                                                                                            
^Overview:   Department  of   Commerce,   Community,  &   Economic                                                              
Development (DCCED)                                                                                                             
    Overview: Department of Commerce, Community, & Economic                                                                 
                      Development (DCCED)                                                                                   
3:21:38 PM                                                                                                                    
CHAIR OLSON  announced that  the only order  of business  would be                                                              
an overview by  the Department of Commerce, Community,  & Economic                                                              
Development (DCCED).                                                                                                            
3:21:57 PM                                                                                                                    
SUSAN  BELL, Commissioner,  Department  of  Commerce, Community  &                                                              
Economic  Development  (DCCED),  introduced  herself.    She  also                                                              
introduced   her   directors   and   Crystal   Koeneman,   Special                                                              
Assistant.     She  began  her   presentation  by   outlining  the                                                              
department's   mission,  which  is   to  ensure  that   competent,                                                              
professional and  regulated commercial  services are  available to                                                              
Alaska consumers.                                                                                                               
COMMISSIONER  BELL  mentioned  the  DCCED  is  comprised  of  five                                                              
consumer  protection  agencies:   the  Division  of  Corporations,                                                              
Business  &   Professional  Licensing  (CBPL);  the   Division  of                                                              
Insurance  (DOI);  Division of  Banking  & Securities  (DBS),  [an                                                              
independent agency],  the Regulatory  Commission of  Alaska (RCA);                                                              
and  the Alcoholic  Beverage  Control Board  (ABC  Board) -  which                                                              
transferred  to  the  DCCED  in  July 2012.    She  indicated  the                                                              
department has 13  agencies that work to achieve  the department's                                                              
mission and serve  Alaskans.  These agencies have  been working to                                                              
address  the  high  cost  of  energy,   strategic  development  of                                                              
infrastructure, and  marketing goods and services.   She said it's                                                              
important to  consider the role  of the agencies -  which provides                                                              
a  strong  foundation  and helps  foster  an  attractive  business                                                              
climate and environment  - that can provide  stability, reasonable                                                              
regulation,  low  taxes  and  fees,  and  consumer  protection  to                                                              
ensure  the public  receives the  services they  believe they  are                                                              
purchasing  or engaging  in.   She characterized  the agencies  as                                                              
often providing  an "unsung  role."   She noted members  typically                                                              
hear from  constituents when  something goes  wrong, but  the day-                                                              
to-day  work the  DCCED does  provides the  fabric and  foundation                                                              
for businesses and the public.                                                                                                  
3:25:27 PM                                                                                                                    
REPRESENTATIVE   HERRON   asked  the   commissioner   to  list   a                                                              
disappointment and a success for the DCCED.                                                                                     
COMMISSIONER   BELL  answered  she   considered  his   question  a                                                              
thought-provoking  one.   She  said she  struggled  to answer  the                                                              
disappointment,  but  suggested   that  the  DCCED  operates  with                                                              
substantial uncertainty.   She remarked it was only  weeks ago the                                                              
country was facing  a "fiscal cliff," which will need  to be faced                                                              
at the  federal level  in the future.   Additionally,  uncertainty                                                              
exists  internationally   with  Alaska's  partners   in  Asia  and                                                              
Europe,  in  terms  of  seafood  exports,  minerals  exports,  and                                                              
tourism relationships.   She said despite the  uncertainty, Alaska                                                              
has  so  much  to  offer  in  terms  of  resources  and  financial                                                              
stability.   She said she thinks  it's important to focus  on what                                                              
can  be  controlled  that  makes  a  difference  and  "calms  that                                                              
uncertainty."    She expressed  excitement  about  the  continuing                                                              
visibility  of the  Arctic.   She recalled  a recent  announcement                                                              
about the  communication  structure between  Europe, Asia  and the                                                              
Arctic.   She  said  the  department is  providing  infrastructure                                                              
that  connects  Alaska to  Asia  and  Europe.   She  reported  the                                                              
department will be  working with private sector  businesses in the                                                              
United  Kingdom,  in Reykjavík,  and  in other  European  markets.                                                              
She  related   the  department   is  currently   working   on  the                                                              
groundwork necessary  for air travel  between Iceland  and Alaska,                                                              
which  will begin  in  May.   She  pointed  out that  the  Pacific                                                              
NorthWest  Economic  Region  (PNWER)   has  also  focused  on  the                                                              
Arctic.   She characterized Alaska  as making the U.S.  an "Arctic                                                              
nation."    She  concluded  by   noting  a  tremendous  amount  of                                                              
opportunity exists and work needs to be done, as well.                                                                          
3:29:38 PM                                                                                                                    
DON  HABEGER, Director,  Division  of Corporations,  Business  and                                                              
Professional Licensing  (CBPL), Department of  Commerce, Community                                                              
& Economic Development  (DCCED), began a PowerPoint  presentation,                                                              
noting while  the CBPL falls under  the regulatory branch  and the                                                              
agency  contributes   a  role  in  economic  development   and  in                                                              
creating  strong  communities.    He  characterized  his  comments                                                              
today as  providing a "20,000  foot" broad  overview.  He  said he                                                              
thinks  of his  division  as analogous  to  a three-legged  stool,                                                              
providing  three  functions,  including   professional  licensing,                                                              
business  licensing   and  tobacco  endorsements,   and  corporate                                                              
registration.   The professional  licensing  is provided  under AS                                                              
08.     The  division  oversees   approximately  40   professions,                                                              
including 20  boards.  The  boards actually provide  the licensing                                                              
for   the  specific   professions  and   set  specific   licensing                                                              
criteria.     The  division  provides  administrative   functions,                                                              
including  providing examination  services  to the  boards.   Some                                                              
professions, such as  naturopaths do not have boards.   He held up                                                              
a  pamphlet that  describes the  professions  the agency  supports                                                              
and promised  to provide copies  to members at  a later date.   He                                                              
reported  the second  leg  of the  stool in  his  division is  the                                                              
business licensing and tobacco endorsements section.                                                                            
3:34:10 PM                                                                                                                    
CHAIR  OLSON  interjected   a  question.    He   referred  to  the                                                              
naturopath profession  and asked for  the number of  licensees who                                                              
operate in  Alaska.   He recalled  the legislature previously  has                                                              
considered creating a board for naturopaths.                                                                                    
MR.  HABEGER  estimated  about  50  naturopaths  are  licensed  in                                                              
Alaska.   He  offered  to provide  the  committee  with the  exact                                                              
number, but  recalled the  number is  similar to  the size  of the                                                              
Board of [Certified Direct-Entry] Midwives.                                                                                     
CHAIR   OLSON   acknowledged   the   licensed   naturopaths   were                                                              
comparable-sized  board [to the  Board of Certified  Direct-Entry]                                                              
Midwives].   He suggested  perhaps the  committee will  consider a                                                              
naturopathic board again this year.                                                                                             
3:35:17 PM                                                                                                                    
MR.  HABEGER continued.   He  said  businesses that  wish to  sell                                                              
tobacco products  at the  retail level  must have an  endorsement.                                                              
He said  the third  leg of the  stool is corporation  registration                                                              
under AS 10,  which provides guidance for all  the corporations in                                                              
the state.   These  corporations have an  obligation to  the state                                                              
to  register.    Additionally,   corporations  must  identify  the                                                              
specific activities  the corporation will engage in,  along with a                                                              
requirement   to  submit   biennial   reporting  requirements   to                                                              
identify  any changes,  including changes  to corporate  officers.                                                              
This  information  becomes  public   and  anyone  can  go  to  the                                                              
division's   website  and   access   and   review  the   corporate                                                              
3:36:13 PM                                                                                                                    
REPRESENTATIVE  SADDLER asked whether  the division's  corporation                                                              
section follows the same federal nomenclature for occupations.                                                                  
MR.  HABEGER agreed  the  initial corporate  application  requests                                                              
the  specific   North  American  Industry   Classification  System                                                              
(NAICS) code.   The business licensing section has  adopted a less                                                              
robust  list than  the  federal  NAICS, but  the  CBPL tracks  the                                                              
specific occupation, he said.                                                                                                   
3:37:07 PM                                                                                                                    
MR. HABEGER  read the  mission statements  related to  the "three-                                                              
legged stool"  functions the division  provides.  He  recalled the                                                              
legislature  challenged  the  division   last  year  to  formulate                                                              
efficiency  measures  as  well  as  effectiveness  measures.    He                                                              
suggested this is  a good direction for the division  to take.  He                                                              
has challenged  his executive  staff to  consider these  measures.                                                              
He read mission statements [slide 3], as follows:                                                                               
     Professional   licensing:      Provide   effective   and                                                                   
     efficient    licensure   of   Alaska's    professionals.                                                                   
     Corporations  & Business  Licensing:   Promote  commerce                                                                   
     by  processing  business  and   entity  filings,  ensure                                                                   
     statutory  and regulatory  compliance,  and provide  the                                                                   
     public   access   to   documents   filed   for   record.                                                                   
    Investigations:      Protect    Alaskan   consumers   by                                                                    
     providing investigative and enforcement support.                                                                           
MR. HABEGER  related the majority  of the division's  efforts fall                                                              
under  professional  licensing and  in  registering  corporations.                                                              
He related the  activities comprise approximately  120,000 or more                                                              
annual  actions.   He stated  the investigations  section is  much                                                              
smaller  and  investigative  staff  spends the  majority  of  time                                                              
investigating professional licensees based on complaints.                                                                       
3:39:27 PM                                                                                                                    
MR.  HABEGER   related  the   division's  business   and  customer                                                              
activity [slide 4].   In FY 12, the division  licensed over 63,000                                                              
professional  licenses,  he said.    He  stated that  1.2  percent                                                              
represented  new  applicants.   In  FY  12, over  66,000  business                                                              
licenses   were   issued   with  23   percent   representing   new                                                              
businesses;  however,  this  does not  necessarily  represent  new                                                              
businesses,  but  may relate  to  an  existing business  that  has                                                              
added a new  activity.  He  pointed out that businesses  also have                                                              
an option  to renew annually or  biennially.  He  further reported                                                              
in  FY  12,  50,000  corporations  registered,  with  1.2  percent                                                              
representing  new  registrants.   He  reported that  the  division                                                              
recently instituted  a new  database that  will help the  division                                                              
identify  the  corporations  not  in  compliance,  and  allow  the                                                              
division to  proactively contact  licensees to ensure  compliance,                                                              
or dissolve  any corporation if it  is obsolete.  In FY  12, 1,200                                                              
investigations were  conducted, with 55 percent  of investigations                                                              
closed during  the fiscal  year, he  said.   He clarified  that an                                                              
investigative  action could be  as simple  as someone  phoning the                                                              
agency to  complain about substandard  service experiences  with a                                                              
professional, but  some actions  lead to formal licensing  actions                                                              
by the board or the division.                                                                                                   
3:42:47 PM                                                                                                                    
MR. HABEGER  pointed  out the organization  chart  [slide 5].   He                                                              
explained this  slide demonstrates the  number of people  it takes                                                              
to manage  the activities  in the  division.   He pointed  out the                                                              
color   coding  used   to  differentiate   staff  for   licensing,                                                              
investigations,    administrative,    corporate,   and    business                                                              
3:43:44 PM                                                                                                                    
CHAIR  OLSON noted  new  members  serving on  the  committee.   He                                                              
pointed   out   that  Representative   Saddler   has   substantial                                                              
experience with boards and commissions.                                                                                         
3:44:26 PM                                                                                                                    
BRET KOLB,  Director, Division of  Insurance (DOI),  Department of                                                              
Commerce,  Community  &  Economic  Development  (DCCED),  remarked                                                              
that he joined the  division in May 2012 when Linda  Hall retired.                                                              
He  related  he  has  20 years  of  experience  in  the  insurance                                                              
industry, primarily in life and health insurance.                                                                               
3:45:56 PM                                                                                                                    
MR. KOLB  referred to the  Division of Insurance's  mission, which                                                              
is  to  regulate   the  insurance  industry  to   protect  Alaskan                                                              
consumers,  while  promoting a  healthy,  competitive  marketplace                                                              
[slide 2].  He  reiterated the two core components  are protecting                                                              
Alaska's consumer  and regulating  the insurance marketplace.   He                                                              
referred to the  division's mission as providing  a "level playing                                                              
field," which  must be kept  in balance  to allow the  industry to                                                              
work in Alaska's market while protecting Alaskans.                                                                              
3:46:46 PM                                                                                                                    
MR. KOLB  turned to the industry  overview [slide 3].   He pointed                                                              
out  Alaska's  industry is  different  than  most states  in  that                                                              
Alaska has  a large  geographic area  with smaller population,  as                                                              
well  as complex  pricing  and service  delivery  challenges.   He                                                              
said  despite these  challenges,  Alaska's  market  is active  and                                                              
functioning.    He reported  $3.1  billion  of total  premium  was                                                              
written  in calendar  year 2011;  1,085  insurance companies  were                                                              
admitted  to   do  business  in   Alaska,  and  42,753   licensees                                                              
currently operate  in Alaska.  He  indicated this is almost  a ten                                                              
percent increase over  FY 2011.  He clarified  that some licensees                                                              
reside in the Lower 48, but serve Alaska through surplus lines.                                                                 
3:48:14 PM                                                                                                                    
REPRESENTATIVE HERRON  asked him to describe the  market given the                                                              
three bullets he just described on slide 3.                                                                                     
MR.  KOLB responded  that  the  insurance  industry is  broad  and                                                              
includes  property,  casual,  life,  and health  components.    He                                                              
offered his  belief the industry  in Alaska faces  many challenges                                                              
due  to the  geographic  diversity.   He  recognized that  serving                                                              
urban needs  might be  different than serving  the needs  of rural                                                              
residents.    In  terms  of  a  soft  or  hard  market,  Mr.  Kolb                                                              
responded   that    the   $3.1   billion    previously   mentioned                                                              
demonstrates  an active  industry in  Alaska.   He said  companies                                                              
continue  to express  ongoing interest  in  providing services  in                                                              
Alaska and  he hoped  the division could  help move  that activity                                                              
forward.   In  further response,  he  agreed the  market could  be                                                              
summarized as  a soft market still  moving in that direction.   In                                                              
response to  a question by Chair  Olson, he agreed this  would not                                                              
apply  to major  medical insurance.    He related  insurance is  a                                                              
topic that is very broad.                                                                                                       
CHAIR OLSON  predicted the  division will  face some  difficulties                                                              
enforcing  some requirements  related to  major medical  insurance                                                              
since   insurance  will   be  driven   by   the  [federal]   Obama                                                              
administration's  changes.   He said  the division  will not  have                                                              
much leeway with respect to the current rate structure.                                                                         
MR.  KOLB  said  one  of  the  keys   to  maintain  and  grow  the                                                              
marketplace  is through effective  statutes  and regulations.   He                                                              
offered  his  belief  that  the division  can  help  the  industry                                                              
through its regulatory function.                                                                                                
3:51:07 PM                                                                                                                    
MR.  KOLB  reviewed  the  Division   of  Insurance's  organization                                                              
[slide 4].  He  said the division is split into  six sections with                                                              
specific roles.   The licensing  section oversees  and administers                                                              
the  licensure of  agents, brokers,  and insurance  entities.   In                                                              
response  to Representative  Saddler,  Mr.  Kolb  answered he  was                                                              
unsure  which  parts  of  the  industry  contributed  to  the  ten                                                              
percent growth in the licensing activity.                                                                                       
3:52:16 PM                                                                                                                    
MR. KOLB continued  with the Division of Insurance's  organization                                                              
[slide  4].   He said  the division  functions include  licensing,                                                              
consumer  services, investigations,  filings  and market  conduct,                                                              
financial  examination,  and administrative  functions.    Besides                                                              
interactions  on licensing  and  consumer  services, the  division                                                              
works  to  educate  consumers  on  insurance.    He  related  that                                                              
insurance  complex for  some people  and the  agency continues  to                                                              
strive  to  broaden  its  consumer  assistance.    The  division's                                                              
investigation section  provides the first line of  defense against                                                              
fraud  committed   against  consumers  and  the   industry.    The                                                              
division has touch  points with insurance industry  in filings and                                                              
market conduct.   The  industry files rates  and forms,  which the                                                              
division reviews  to ensure compliance  with Alaska statutes.   In                                                              
terms of  financial examination, it  is critical for  the division                                                              
to  review  the  solvency  of  an   insurance  company  to  ensure                                                              
companies  can carry  out  future  promises.   The  administrative                                                              
section  oversees and  manages  many state  activities,  including                                                              
human  resources,  finance,  and  budget development  areas.    He                                                              
reported  the  division  has  two  locations,  with  21  staff  in                                                              
Anchorage  and 30  located in  Juneau.     He said  he resides  in                                                              
Anchorage,  but the  division's  deputy director,  Martin  Hester,                                                              
resides in  Juneau and brings  a property and casualty  background                                                              
to the  division, which  helps broaden  the knowledge  to regulate                                                              
the industry  as a whole.   He advised  members that  the division                                                              
is fully  funded by  annual receipts  and is  able to  provide the                                                              
state with  approximately  $58 million after  receipts, fees,  and                                                              
premium  taxes.   The division  provides  consumer protection  and                                                              
creates   an   environment   in   which   business   can   operate                                                              
3:55:32 PM                                                                                                                    
MR. KOLB  turned to  the benefits and  challenges the  Division of                                                              
Insurance faces  [slide 5].   He indicated despite  the division's                                                              
best efforts,  white  collar crime  has been  on the increase  and                                                              
the  complexity  of how  crimes  occur  is  also expanding.    The                                                              
division is  working to control  and limit crime.   The complexity                                                              
of insurance  filings also  continues to  increase, which  creates                                                              
challenges for consumers,  as well as for regulators.   He related                                                              
one division  section reviews filings  for compliance.   In recent                                                              
months considerable  discussion has surrounded the  cost of health                                                              
care  in  Alaska,   and  while  the  insurance   division  doesn't                                                              
regulate the  cost of health care,  these costs do  affect premium                                                              
rates.   The state faces many  unknowns related to  federal health                                                              
care  reform and  as  January 2014  approaches  the division  will                                                              
view  how the  federal will  be  regulated in  Alaska and  further                                                              
identify division's role in protecting consumers.                                                                               
3:57:32 PM                                                                                                                    
REPRESENTATIVE HERRON  noted 19 new insurance companies  have been                                                              
admitted  to do  business  in  Alaska.   He  asked  if these  were                                                              
general insurance  companies or  represented a suite  of insurance                                                              
MR. KOLB  was unsure, but  offered to provide  the details  to the                                                              
REPRESENTATIVE  HERRON referred  to limited workers'  compensation                                                              
insurance.  He  asked whether the two pools,  the Alaska Municipal                                                              
League  Joint Insurance  Association  (AMLJIA)  and Alaska  Public                                                              
Entity Insurance  (APEI) have asked to collectively  work with the                                                              
division to solve issues.                                                                                                       
MR.  KOLB answered  no,  not specifically,  although  he has  held                                                              
brief discussions which he characterized as being introductory.                                                                 
3:58:57 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  asked if  questions  about the  Patient                                                              
Protection and  Affordable Care Act  (PPACA) are best  directed to                                                              
him or the  Department of Health  and Social Services (DHSS).   He                                                              
referred  to   the  uncertainties  previously  mentioned   and  as                                                              
related to the exchange.                                                                                                        
MR. KOLB  pointed out a commitment  and connection  exists between                                                              
the Division  of Insurance  and the  DHSS on  health care,  but he                                                              
understood  the  lead  agency  would  be the  DHSS.    In  further                                                              
response,  Mr. Kolb  deferred  to  HSS in  terms  of questions  on                                                              
revenues the  state would surrender  by not accepting  the maximum                                                              
MEDICAID funds under the PPACA.                                                                                                 
REPRESENTATIVE JOSEPHSON  noted his question is probably  one best                                                              
answered  by   the  commissioner.     He  stated   the  department                                                              
registers foreign  corporations and he is interested  in the types                                                              
of actions  the DCCED  is taking to  protect consumers  since this                                                              
activity is often litigated.                                                                                                    
MR.  KOLB  agreed [it  did  not  pertain  to  his division].    He                                                              
concluded that  the division has  its work cut  out for it  in the                                                              
years ahead.                                                                                                                    
4:01:56 PM                                                                                                                    
REPRESENTATIVE  REINBOLD asked whether  the Division  of Insurance                                                              
plays  a role  similar  to one  of  an insurance  commissioner  in                                                              
another state.                                                                                                                  
MR.  KOLB related  the  director  is  comparable to  directors  or                                                              
commissioners in other states.                                                                                                  
REPRESENTATIVE   REINBOLD  asked  him   to  broadly   explain  his                                                              
MR. KOLB  said the  division has  very broad  authority in  AS 21.                                                              
The  Division of  Insurance oversees  licensing, rate-making,  and                                                              
form  filing for  products offered  in  the state.   The  director                                                              
oversees and is responsible for these functions.                                                                                
4:03:29 PM                                                                                                                    
CHAIR  OLSON   related  the  National  Association   of  Insurance                                                              
Commissioner  (NAIC)  also  provides the  director  with  valuable                                                              
tools.   These agents  meet quarterly  and spend  10 hours  a week                                                              
networking to  avoid "reinventing  the wheel."  They  collectively                                                              
work to solve  insurance issues, he  said.  He noted the  group is                                                              
not always  in agreement,  such as  for "Obamacare."   He  said he                                                              
has a list of  members and access to the  organization's database.                                                              
He  characterized  this  as  a  non-political  organization.    He                                                              
offered  to  assist  members  if   they  have  questions  and  the                                                              
director is not available.                                                                                                      
4:05:00 PM                                                                                                                    
LORIE  HOVANEC, Director,  Anchorage Office,  Division of  Banking                                                              
and  Securities,  Department  of Commerce,  Community  &  Economic                                                              
Development   (DCCED),  introduced   herself.     She  began   her                                                              
PowerPoint  by reading  the Division  of  Banking and  Securities'                                                              
mission; "to protect  consumers of financial services  and promote                                                              
safe and sound financial systems" [slide 2].                                                                                    
4:07:02 PM                                                                                                                    
MS. HOVANEC  said the department  provides financial  services and                                                              
charters, licenses,  register, accept filings, and  examines state                                                              
financial  institutions,  as  well  as regulating  the  firms  and                                                              
people who  offer and sell  securities, home mortgages,  and money                                                              
services  [slide  3].    She  emphasized  that  every  Alaskan  is                                                              
affected  by  the  programs  the  division  administers  involving                                                              
banks, credit  unions, payday  lenders, securities registered  for                                                              
sale in  Alaska, and  the investment  advisors, sales  agents, and                                                              
brokers who  sell these securities.   She noted Alaskans  who wire                                                              
funds, use travelers  checks or money orders or  exchange currency                                                              
are  affected  by  banking  and  securities.    She  reported  the                                                              
division has  25 staff positions,  which are evenly  split between                                                              
three sections: banking, consumer finance, and securities.                                                                      
4:07:39 PM                                                                                                                    
MS.  HOVANEC  listed  the  division's programs  [slide  3].    She                                                              
detailed activities  for these  three sections: banking,  consumer                                                              
finance,   and  securities.     The   banking  section   charters,                                                              
licenses,   and   examines  70   state   financial   institutions,                                                              
including  four state  banks, three  bank  holding companies,  one                                                              
credit union,  two trust  companies, the  Business and  Industrial                                                              
Development  Corporation   (BIDCO),  a  small  loan   company,  24                                                              
premium finance company  offices, and 34 payday  loan offices, she                                                              
said.  She  pointed out these financial institutions  are examined                                                              
at least  once each 18  months by statute.   She reported  that 52                                                              
examinations  were conducted in  FY 12.   She advised  examination                                                              
results are  confidential;  however, the  banks and credit  unions                                                              
are profitable  and well  capitalized in Alaska.   She  stated the                                                              
division   provides  financial   outreach   education  and   while                                                              
outreach is  somewhat limited by  resources, bank  examiners often                                                              
give  presentations   at  schools.    For  example,   an  examiner                                                              
recently  led  a number  of  classes  in  a  Juneau school.    The                                                              
division has  also been working  to make more financial  materials                                                              
and consumer  education materials  available  on its website,  she                                                              
MS. HOVANEC  said the  consumer finance  section has  successfully                                                              
implemented  the  examination  components  for the  regulation  of                                                              
mortgage  lending  and money  service  businesses.   This  section                                                              
licenses over 500  mortgage loan originators, 200  mortgage broker                                                              
lenders,  and 56  money service  businesses,  which include  money                                                              
transmitters,  wire  transfers,   such  as  Western  Union  -  the                                                              
issuers  of  travelers checks  and  money  orders -  and  currency                                                              
exchangers.    She said  these  examiners  investigate  unlicensed                                                              
activity   and  handle   consumer  complaints.     Most   consumer                                                              
complaints deal  with money  service providers demonstrating  poor                                                              
customer service,  mortgage lender advertising that  may be deemed                                                              
deceptive,  or mortgage  loan  originators  who fail  to  disclose                                                              
fees  or other  relevant information  to the  borrower.   Finally,                                                              
the securities  section registers  about 1,200 broker  dealers and                                                              
700 investment  advisors, of which  20 are located  within Alaska,                                                              
and  over 81,000  securities  firm  agents.   Almost  1,800  sales                                                              
agents  are  located in  Alaska,  she  noted.   She  reported  the                                                              
majority of  the division's  $13 million  in revenue is  generated                                                              
by securities registration and filing fees.                                                                                     
MS.  HOVANEC stated  that  the  securities section  also  receives                                                              
notice filings  for mutual fund  and unit investment  trusts being                                                              
sold in Alaska,  which totaled 5,900 in FY 12.   This section also                                                              
reviewed and  approved 411 securities  registrations -  the actual                                                              
securities being  offered or sold  - and processed  169 exemptions                                                              
from securities registration  in FY 12.  The  securities examiners                                                              
conducted   six   investment   advisor    examinations   and   one                                                              
broker/dealer   examination   last   year.     She   noted   staff                                                              
investigates  investor   complaints  and  reports   of  securities                                                              
fraud,  including operations  allegedly  operating  in Alaska  but                                                              
having only  "shell" corporations in  the state.   Most complaints                                                              
involve those  businesses selling  stocks or property  investments                                                              
"in a warm place"  that do not exist.  She related  other areas of                                                              
concern  to investigators,  including gold  or mineral  extraction                                                              
scams.     Some  investigations   involve  legitimate   investment                                                              
companies that have  simply "made a mistake," such  as mishandling                                                              
a transaction or failing process it in a timely manner.                                                                         
4:13:39 PM                                                                                                                    
MS. HOVANEC  related the securities  section also  receives Alaska                                                              
Native  Claims Settlement  Act (ANCSA)  corporate and  shareholder                                                              
proxy  filings from  approximately 42  of the  200 ANCSA  regional                                                              
and village  corporations required  to file  with the  division by                                                              
statute.      She  said   misleading   filings   are   prohibited.                                                              
Securities  examiners  received 12  requests  and  opened 6  ANCSA                                                              
related investigations.    She pointed out  that these  complaints                                                              
often  pertain   to  proxy   solicitation  information   that  the                                                              
shareholder  does  not  understand  or  about  election  processes                                                              
allegedly mishandled  [slide 5].  She reported  staff fielded over                                                              
230 substantive  inquiries on ANCSA  corporations or  statutes and                                                              
regulations  related   to  proxy   solicitation  filings.     Most                                                              
inquiries  were  answered  on  the   first  day.    In  2011,  the                                                              
regulations   governing   investigations   and   complaints   were                                                              
revised.  The  requests must now contain specific  information and                                                              
the  division  must respond  in  writing  within  ten days  as  to                                                              
whether the division will open or decline an investigation.                                                                     
MS.  HOVANEC related  the division  has changed  how it  currently                                                              
handles   investigations   and  complaints,   which   is  a   vast                                                              
improvement  over how they  were previously  conducted.   In 2012,                                                              
the   section  chief   helped  produce   two  more   investigative                                                              
televised  programs   that  aired   on  Alaska's  public   affairs                                                              
channel,  360   NORTH,  and   four  investigative  articles   were                                                              
published  in  the  Senior  Voice."     She  said,  "The  division                                                            
protects consumers  by responding to inquiries and  complaints and                                                              
by  examining and  investigating  to  ensure compliance  with  the                                                              
law."    She   related  that  enforcement  includes   issuance  of                                                              
administrative  orders,  negotiated  settlements,  restitution  to                                                              
Alaskans,  and   collection  of  investigative  costs   and  civil                                                              
penalties.   She  reported  the division  often  works with  other                                                              
states on  global settlements,  which resulted  in FY 11  to about                                                              
$1.6 million  to the general fund  and in FY 12 to  over $300,000.                                                              
She  detailed that  Alaska's investors  also received  restitution                                                              
in the amount of $69,000.                                                                                                       
4:17:30 PM                                                                                                                    
MS.   HOVANEC  turned   to  efficiencies   and  streamlining   for                                                              
licensing,  registrations, and filings  [slide 5].   She  said the                                                              
state has expanded  the use of multi-state and  joint examinations                                                              
of licensees and  registrants and also has shared  staffing, which                                                              
helps  ease  the  burden  on businesses.    The  division  accepts                                                              
registration  and license applications  through national  database                                                              
filings,  thereby allowing  "one  stop" access  to all  regulators                                                              
with  fewer  entries.   She  said  this  process also  allows  the                                                              
public to better  track licensed individuals and  firms.  Finally,                                                              
she  reported the  division  allows  electronic filing  for  ANCSA                                                              
corporate  and   shareholder  filings,  which  also   reduces  the                                                              
corporate costs.                                                                                                                
4:19:20 PM                                                                                                                    
MS.  HOVANEC  identified  some  of the  Division  of  Banking  and                                                              
Securities'  challenges [slide 6].   She  pointed out  the effects                                                              
of  changing technology,  which  allows business  to be  conducted                                                              
nationally  and internationally  via the  Internet.   She said  on                                                              
the one  hand the improved  access assists  Alaskans, but  it also                                                              
makes it more  difficult for the agency to  conduct investigations                                                              
on licensees  located  in the Lower  48 and  to detect  unlicensed                                                              
activity.   She  highlighted  that approximately  55  of 56  money                                                              
service  businesses licensed  to  conduct business  in Alaska  are                                                              
located  in the  Lower  48.   These  businesses  use delegates  to                                                              
conduct  business  in  Alaska;  however,  their  primary  business                                                              
records  are  located  in  another  state,  she  said.    Mortgage                                                              
companies present  a similar scenario,  with 65 companies  located                                                              
in  Alaska and  180  companies who  maintain  primary offices  and                                                              
business records outside Alaska.                                                                                                
MS.  HOVANEC said  the division  must  find ways  to maximize  its                                                              
resources to  conduct investigations,  she advised.   The division                                                              
primarily focuses  on Alaska businesses located in  the state, but                                                              
partners  with  other   agencies  in  the  Lower   48  to  conduct                                                              
examinations  and investigations  outside  Alaska.   She  reported                                                              
that Alaskans  have been  targeted for scams.   She  also reported                                                              
the  FBI and  the  National  White  Collar Crime  Center  indicate                                                              
Alaska has the  highest per capita number of  complaints involving                                                              
online criminal  activity.  She  estimated losses at  $1.2 million                                                              
in  2011,  although  she  suspected   losses  were  higher.    She                                                              
concluded  this validates  the vulnerability  of Alaskans  who are                                                              
using  the  Internet to  invest  and  obtain goods  and  financial                                                              
services.   She  related  that Alaskans  are  targeted since  they                                                              
have  the second  highest median  household income  in the  nation                                                              
and fraudsters  "follow the money."   She also said  that Alaska's                                                              
distance from the  Lower 48 hampers investigations.   For example,                                                              
while the state  has a few licensed Internet  payday lenders, most                                                              
of  the payday  lender  complaints  point to  either  non-existent                                                              
businesses  or lenders  who do  not  believe they  are subject  to                                                              
Alaska's  statutes.    She emphasized  the  importance  for  state                                                              
regulators   to  increase   outreach   to   Alaskans  to   educate                                                              
individuals  on scams  and fraud,  which can  help prevent  people                                                              
from being "taken in" and to prevent losses.                                                                                    
4:23:22 PM                                                                                                                    
MS.  HOVANEC  pointed  out  the elderly  are  often  targeted  for                                                              
fraud.   She  hoped  the  division will  be  able  to improve  its                                                              
outreach to all  Alaskans to provide tools for  consumers, such as                                                              
financial education  to reduce the impact of scams.   She reported                                                              
that the  division is  working to improve  its website  to provide                                                              
links  and access to  tools for  Alaskans.   She acknowledged  the                                                              
Internet is  beneficial since  it allows  many Alaskans  access to                                                              
information,  particularly  in rural  Alaska,  where  face-to-face                                                              
contact is limited.                                                                                                             
4:24:47 PM                                                                                                                    
There  being  no  further business  before  the  committee,  House                                                              
Labor and  Commerce Standing  Committee meeting  was adjourned  at                                                              
4:24 p.m.                                                                                                                       

Document Name Date/Time Subjects
DCCED Regulatory Agency Overview.pdf HL&C 1/23/2013 3:15:00 PM
DCCED Overview