02/09/2004 03:19 PM House L&C

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled

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ALASKA STATE LEGISLATURE HOUSE LABOR AND COMMERCE STANDING COMMITTEE February 9, 2004 3:19 p.m. MEMBERS PRESENT Representative Tom Anderson, Chair Representative Carl Gatto, Vice Chair Representative Nancy Dahlstrom Representative Bob Lynn MEMBERS ABSENT Representative Norman Rokeberg Representative Harry Crawford Representative David Guttenberg COMMITTEE CALENDAR HOUSE BILL NO. 403 "An Act relating to the Alaska Insurance Guaranty Association; relating to joint insurance arrangements and assessments to the association; relating to the powers of the Alaska Industrial Development and Export Authority concerning the association; and providing for an effective date." - HEARD AND HELD HOUSE BILL NO. 356 "An Act relating to operation of alcoholic beverage delivery sites; and providing for an effective date." - MOVED HB 356 OUT OF COMMITTEE HOUSE JOINT RESOLUTION NO. 32 Relating to the labeling of salmon and salmon food products. - MOVED CSHJR 32(FSH) OUT OF COMMITTEE PREVIOUS COMMITTEE ACTION BILL: HB 403 SHORT TITLE: ALASKA INSURANCE GUARANTY ASSOCIATION SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR 01/28/04 (H) READ THE FIRST TIME - REFERRALS

01/28/04 (H) L&C, JUD, FIN 02/09/04 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HB 356 SHORT TITLE: EXTEND ALCOHOL DELIVERY SITE SUNSET SPONSOR(S): REPRESENTATIVE(S) JOULE

01/12/04 (H) PREFILE RELEASED 1/2/04

01/12/04 (H) READ THE FIRST TIME - REFERRALS

01/12/04 (H) L&C 02/09/04 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HJR 32 SHORT TITLE: LABELING OF SALMON FOOD PRODUCTS SPONSOR(S): REPRESENTATIVE(S) KERTTULA

01/20/04 (H) READ THE FIRST TIME - REFERRALS

01/20/04 (H) FSH, L&C WITNESS REGISTER LINDA HALL, Director Division of Insurance Department of Community & Economic Development Anchorage, Alaska POSITION STATEMENT: Presented HB PAUL LISANKIE, Director Division of Workers' Compensation Department of Labor and Workforce Development Juneau, Alaska POSITION STATEMENT: Testified that his division is in support of HB 403. CARL ROSE, Executive Director Association of Alaska School Boards Juneau, Alaska POSITION STATEMENT: Concurred with comments of Mr. Bush and asked to be exempted from HB arrangements. ROBERT LOHR Office of Management and Budget Municipality of Anchorage Anchorage, Alaska POSITION STATEMENT: Testified in opposition to the portion of HB arrangements, but stated support if the foregoing is deleted. CHARLES MILLER, Lobbyist for Alaska National Insurance Company (ANIC) and American International Group, Inc. (AIG) Anchorage, Alaska POSITION STATEMENT: During hearing on ACTION NARRATIVE TAPE 04-10, SIDE A Number 0001 CHAIR TOM ANDERSON called the House Labor and Commerce Standing Committee meeting to order at 3:19 p.m. Representatives Anderson, Gatto, Dahlstrom, and Lynn were present at the call to order. HB [Contains discussion of HB Committee by request of the governor.] Number 0183 LINDA HALL, Director, Division of Insurance, Department of Labor and Workforce Development, presented HB response, she said proration isn't yet occurring, but is the next alternative if the guaranty fund runs out of money. Ms. Hall reported that the current projection would be to pay roughly 30 percent of each claim. "As that money runs out, in the end of April, then they would go to zero payment," she explained. She remarked: We will certainly have policyholders who are concerned about paying for this, ... employers whose costs will go up. On the other hand, I have employers who are very anxious to see this bill pass because they could have a very substantial financial obligation returned to them. The self-insureds and the joint insurance arrangements are opposed to paying the 2 percent of their claims' cost because they do not participate in the guaranty fund. REPRESENTATIVE GATTO asked for clarification on the fiscal notes, specifically, number five. MS. HALL explained that operating expenditures increase in proportion to the estimated increase in the cost of claims. For self-insureds, the projection is based on 2 percent of their anticipated claims. She pointed out that self-insureds include the State of Alaska. Number 1343 REPRESENTATIVE LYNN asked what was being done to minimize the factors that caused this problem. He also asked when the State of Alaska became aware that this problem existed. MS. HALL responded, "We have looked diligently at financial oversight as a primary responsibility of the Division of Insurance. We do deference to the state of domicile of the insurance company." She said there have been insolvencies for at least 20 years, and suggested the magnitude of this problem was partially caused by Fremont's market share. She added, "We only have one other insurance company with that type of market share. They are a local company, domiciled in Alaska, very stable, very financially stable, very well run. I don't anticipate an insolvency of this magnitude, but I would think we will have insolvencies in the future." As to when the state became aware of the problem, she explained: In the year 2000, it's my understanding that the State of California took oversight responsibilities for Fremont. Their certificate of authority was withdrawn in March of 2001, so they could no longer operate. From March of 2001 through June of 2003 ... they continued under the oversight of their regulator to pay claims; they could not write new business, but they would pay claims. There were still assets; there are still assets there. But in July they were declared insolvent when it was determined officially that they did not have sufficient assets to cover their outstanding liabilities. So it's a long-term process. Number 1500 JEFF BUSH, Deputy Director, Alaska Public Entity Insurance (APEI), stated, "We are one of those entities that's opposed to the legislation, or at least to particular parts of the legislation." He explained that APEI is an insurance pool that provides property, casualty, and workers' compensation insurance for school districts in Alaska and some municipalities as well. He said the legislature essentially authorized APEI to come into existence. Formerly known as ASIC [Alaska Schools Insurance Company], it was to offer a market to school districts for insurance because they were coming to the legislature for assistance and it was deemed to be in the best interests of the state, the school districts, and local governments to allow them to create a self-insurance pool. MR. BUSH reported that for most of the 15 or more years, property insurance has been a big focus. He said this program has been quite successful and has saved the state a great deal of money over the years. For example, APEI paid over $40 million in claims during the 1990s for schools that had significant property losses; those are the kinds of liabilities that previously would have fallen back on the state. Noting that the pools and self-insureds don't participate in the guaranty association, he told members: What this bill is doing, at least in terms of those provisions that are falling on to the pools and the self-insureds, is that they are requiring the self- insureds, ... or the local governments in our case, ... to subsidize poor business practices by insurance companies that otherwise ... have now gone insolvent." Number 1606 MR. BUSH suggested this amounts to a tax, "in our case, a tax on local governments." He explained: It's going to be a tax that's going to add to the cost of their workers' compensation insurance directly - whatever the amount is paid to the guaranty fund is going to be charged back on the local school districts and municipalities that we insure, and it has to be collected from them. ... I'm sure you have already heard some of the presentations that have been in the legislature and in press reports about what's happening to workers' compensation insurance right now. ... The estimates right now are that local government workers' [compensation] rates are going to rise between 22 and 32 percent this year already. So, this is ... a potential add-on on top of that. MR. BUSH addressed specific financial aspects. He offered his understanding that the current 2 percent assessment on workers' compensation amounts to about $4.2 million, collected annually, to the guaranty fund; that would double under this legislation. Thus there'd be $8.4 million coming in from workers' compensation carriers. He expressed uncertainty as to how much would be collected under the second provision of the bill, which allows an assessment against homeowners', auto, and other insurance companies to cover these losses; however, he said he understood it would be a large amount that could be brought in, as much as $15 million annually. "That's about $19 million new dollars, potentially, under this piece of legislation, even without the self-insureds," he remarked. MR. BUSH referred to the last part of the bill and related his understanding that about $1 million comes out of "the self- insureds and its governments, of which two-thirds of that amount is local government money." He added, "The biggest piece, by far, is the state, and we've heard comments about the fiscal note; it's essentially a tax, a subsidy ... by local governments and by the state government, of these private insurance companies." Number 1729 MR. BUSH told members: It is our view that ... those provisions of the bill are unnecessary and are bad public policy. They are unnecessary because, as I said, we're probably no more than 5 percent of the total pot, when you're done, of money, represented by the assessment on public entities and self-insureds. We're the only ... one represented here who's being asked to pay who's not getting any benefits from the program. We are not, out there, as protected by the guaranty fund. ... I think it's bad public policy to ... tax local governments that are already struggling quite severely. And I know that you all have had a lot of ... media lately about the impacts that are going on at the local level, of school districts and municipalities, right now, across the state. So, I just simply would ask that you consider dropping us. To do so, it is quite simple. ... Sections 1, 4, 5, and 6 of the bill apply to the self-insureds and the ... pools, the joint insurance arrangements. You can simply delete those four sections of the bill. You will still have 95 percent of the money, and the solution is still there. That still will result in a solution to the problem, ... although you may not be able to collect enough directly into the guaranty fund in one year. ... I don't honestly believe that the $1-milliion difference that the public entities make will make up that difference, one way or another. But if you don't collect enough ... in an annual basis, the bill, as pointed out, has the other provision which allows for borrowing of money in the short run to deal with the big years, which, of course, are the early years ... because we're dealing with the runoff of Fremont. Number 1853 PAUL LISANKIE, Director, Division of Workers' Compensation, Department of Labor and Workforce Development, informed the committee that his division is in support of TAPE 04-10, SIDE B Number 2335 JOHN GEORGE, Lobbyist for Property Casualty Insurers Association of America, explained that about 700 insurance companies make up this association and write roughly 50 percent of all of insurance in Alaska. He testified: We, too, feel that this bill is unfair to us and our policyholders. But as Linda Hall so eloquently expressed, ... this bill is unfair to everyone. All of us would agree that a solution has to come about; we got to fix it. We can't go to prorating the claims, and none of us cheerfully want to put our money in there. Part of the problem that ... brought this to the forefront is there aren't many insurance companies writing workers' compensation insurance - there aren't many companies writing homeowners, there aren't many companies writing auto, there aren't many companies writing construction equipment, you name it. We're burdened with that for a number of reasons, part of which is we're a small state, relatively small premium volume. It's a difficult place to do business because you have to have infrastructure here, and premium just doesn't support a lot of infrastructure. They use independent adjustors; they don't have quite as much control. Our legal system is different than ... some. Our regulatory climate ... comes and goes. ... We can bail out the fund, we can throw money at it, but have we fixed the problem? And we see that as getting more companies, getting a good regulatory climate, and coming up with ... some reforms in workers' comp and some other lines of insurance. Number 2200 MR. GEORGE referred to HB deleting were 1, 3, and 6, which apply to self-insureds. Number 1947 ROBERT LOHR, Office of Management and Budget, Municipality of Anchorage, testified that he endorsed what Mr. Bush said, and believed it was essential to delete the sections that deal with self-insureds and joint insurance arrangements. He added that if the bill was adopted as the division presented it, with those deletions, proration would be unnecessary. He said he supported the rest of the bill, since it would ensure that the guaranty fund had adequate money to meet its obligation to provide the safety net for private insurance companies. MR. LOHR said HB good public policy, but with the sections deleted that involve self-insureds, the municipality does support the bill. Noting that he'd done a quick survey that morning to find out how other states approach this question, he said of the 12 states he was able to contact, none assesses employers who are self-insured. He added, "They all recognize that distinction. While they do hit private insurance companies, they do not assess self- insureds." Mr. Lohr suggested if the division has additional information on all the states available, that would be useful. He also recommended gathering legal opinions regarding assessing self-insureds and options papers that might provide further solutions. Number 1738 CHARLES MILLER, Lobbyist for Alaska National Insurance Company (ANIC) and American International Group, Inc. (AIG), noted that he represents two private carriers that underwrite workers' compensation in Alaska. Responding to Representative Lynn's question on how to avoid this problem in the future, he expressed concern with protecting the system from future failures. Mr. Miller said most insurers weren't involved in this failure; most are responsible, and policyholders had conducted themselves appropriately and are protected. Voicing concern that adding 2 percent onto his customers' costs is unfair, Mr. Miller said the rest of the insurance industry shouldn't be singled out, since no conduct on their part deserved this reaction. Agreeing there is a dilemma in the public policy sense, he emphasized that a solution is necessary and should be arrived at soon. Number 1599 MR. MILLER concluded by commenting on the appropriateness of the surcharge being sent to the policyholders. The insurance companies would not pay the surcharge themselves, but he noted it is their responsibility to come up with the money within the excess reserves that would not then be available to write new business. This would affect the insurance company's returns. In addition, he explained that there would be administrative costs resulting from this legislation. Finally, he said, the market has caused profit loss for insurance companies for the last five or six years. He said he feels insurance companies pay their share, as do their policyholders. CHAIR ANDERSON announced that public testimony would be kept open and that HB HB Number 1538 CHAIR ANDERSON announced that the next order of business would be HOUSE BILL NO. 356, "An Act relating to operation of alcoholic beverage delivery sites; and providing for an effective date." Number 1501 REPRESENTATIVE REGGIE JOULE, Alaska State Legislature, sponsor, explained that HB AS 04.11.494] from July legislation provides communities with the option of monitoring the inflow of alcohol into their communities through a locally operated distribution center. To date, Barrow is the only community that has opted to utilize this option, but has found it helpful in controlling alcohol consumption and bootlegging in the area. Representative Joule said he believes it is important to extend the sunset date to give communities more options to deal with problems at the local level. In reply to a question from Chair Anderson, he explained: When a community exercises the local-option law and goes to a "damp" status, people can bring in alcohol to those communities, but they cannot legally sell alcohol in those communities. There are some communities that have a real battle between whether to go dry or to go wet, or ... somewhere in between. In a damp community and in the community of Barrow, in particular, this distribution center is the happy medium. This is where both sides of a very contentious issue have come to the middle and have agreed. For alcohol that's being freighted in, for baggage that's marked, everybody ... does check through the distribution center, pays their little fee. There's a limit on how much alcohol that they can bring into the community in a month. ... Currently, in the community of Barrow where it is being exercised, there are 1,713 permits. ... So, it is being utilized. Not all of them are active, mind you, but ... that many people have applied for permits. CHAIR ANDERSON asked: If someone lives in Barrow and wants to drink alcohol, does that person get a permit and bring in liquor, or are there bars? REPRESENTATIVE JOULE replied that there are no bars in Barrow and that all liquor comes through the distribution center and then into homes. In response to questions from Representatives Dahlstrom and Gatto, he said it can be transported and given as a gift. He also said he imagined it could be traded. He said it cannot be legally produced. Number 1320 REPRESENTATIVE DAHLSTROM moved to report HJR CHAIR ANDERSON announced that the final order of business would be HOUSE JOINT RESOLUTION NO. 32, Relating to the labeling of salmon and salmon food products. [Before the committee was CSHJR 32(FSH).] Number 1288 REPRESENTATIVE BETH KERTTULA, Alaska State Legislature, sponsor of HJR testimony over to her aide. Number 1270 AURORA HAUKE, Staff to Representative Beth Kerttula, introduced HJR 32, people have the right to know what's in fish, where it's from, and how it's raised. She remarked, "We all know that wild salmon and other fish taste better and it's better for you. Lately, more and more Americans have been catching on to this. And because fish is just such an important part of our economy, we need to take advantage of this awareness and support labeling." REPRESENTATIVE GATTO asked if this resolution would help fishermen demand a higher price. MS. HAWK replied that she believed so, although not directly. REPRESENTATIVE GATTO commented: I've tried to make this argument a hundred times: we have a Timex and we have a Rolex. We are selling our Rolexes at Timex prices because we're trying to compete on price. We've got this amazing product that is only available -- if you want to sell an Alaskan wild salmon, you can't substitute it. I'm trying to find some sort of a way to say we can charge 10 times more than a farmed fish for this fish. Number 1164 REPRESENTATIVE DAHLSTROM, cosponsor, commented that it is important to provide accurate information to consumers who are increasingly better educated about diet. She said, "I think this is a great bill and support it 100 percent." REPRESENTATIVE LYNN, cosponsor, asked why wild salmon taste so much better and are better nutritionally. REPRESENTATIVE KERTTULA offered her belief that the primary reason is what wild fish eat - wild food. Number 0995 MARK VINSEL, Executive Director, United Fishermen of Alaska (UFA), testified that UFA supports CSHJR 32(FSH).] REPRESENTATIVE DAHLSTROM moved to adopt ADJOURNMENT There being no further business before the committee, the House Labor and Commerce Standing Committee meeting was adjourned at 4:43 p.m.

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