Legislature(2015 - 2016)BARNES 124
03/25/2015 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB114 | |
| HB164 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 114 | TELECONFERENCED | |
| *+ | HB 164 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 25, 2015
3:18 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Shelley Hughes, Vice Chair
Representative Jim Colver
Representative Gabrielle LeDoux
Representative Cathy Tilton
Representative Andy Josephson
Representative Sam Kito
MEMBERS ABSENT
Representative Mike Chenault (alternate)
COMMITTEE CALENDAR
HOUSE BILL NO. 114
"An Act relating to the calculation and payment of workers'
compensation benefits in the case of permanent partial
impairment; relating to the calculation and payment of workers'
compensation death benefits payable to a child of an employee
where there is no surviving spouse; relating to the calculation
and payment of workers' compensation death benefits for an
employee without a surviving spouse or child; relating to notice
of workers' compensation death benefits; and providing for an
effective date."
- HEARD & HELD
HOUSE BILL NO. 164
"An Act relating to insurance; relating to risk based capital
for domestic insurers and fraternal benefit societies, including
provisions related to insurers subject to risk based capital and
action level event requirements; relating to review by the
director of insurance of an insurer's risk based capital plan;
relating to confidentiality and sharing of certain information
submitted to the director of insurance for evaluating insurance
holding companies, risk based capital, risk management, and own
risk and solvency assessments; clarifying provisions related to
risk based capital plans; relating to exemptions by the director
of insurance for certain domestic and casualty insurers from
risk based capital requirements; relating to insurance holding
companies, including filing requirements, divestiture, content
of statements, and hearings; relating to registration
requirements; relating to transactions within an insurance
holding company system or transactions involving a domestic
insurer; relating to management and examination of domestic
insurers that are part of an insurance holding company system;
adding provisions relating to participation by the director of
insurance in a supervisory college; relating to civil and
criminal penalties for violations of provisions related to
insurance holding companies; relating to provisions for risk
management and own risk and solvency assessments; relating to
operating requirements for controlling insurance producers;
relating to producer-controlled insurers; adding and amending
definitions related to insurers; and providing for an effective
date."
- MOVED HB 164 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 114
SHORT TITLE: WORKERS' COMPENSATION: DEATH BENEFITS
SPONSOR(s): REPRESENTATIVE(s) JOSEPHSON
02/18/15 (H) READ THE FIRST TIME - REFERRALS
02/18/15 (H) L&C, FIN
03/25/15 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 164
SHORT TITLE: INSURANCE; RISK MG'T; HOLDING COMPANIES
SPONSOR(s): LABOR & COMMERCE
03/23/15 (H) READ THE FIRST TIME - REFERRALS
03/23/15 (H) L&C
03/23/15 (H) L&C WAIVED PUBLIC HEARING NOTICE, RULE
23(A)
03/25/15 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
LEASA DAVIS, Risk Manger
Division of Risk Management
Department of Administration (DOA)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on HB 114.
LORI WING-HEIER, Director
Division of Insurance
Department of Commerce, Community, & Economic Development (DCCED)
Anchorage, Alaska, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 114.
MICHAEL MONAGLE, Director
Central Office
Division of Workers' Compensation
Department of Labor & Workforce Development (DLWD)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 114.
MARIANNE BURKE
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 114.
LORI WING-HEIER, Director
Division of Insurance
Department of Commerce, Community, & Economic Development (DCCED)
Anchorage, Alaska, Alaska
POSITION STATEMENT: Presented a PowerPoint and answered
questions discussion of HB 164.
ACTION NARRATIVE
3:18:16 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:18 p.m. Representatives Tilton,
Kito, Colver, LeDoux, Josephson, and Olson were present at the
call to order. Representative Hughes arrived as the meeting was
in progress.
3:18:37 PM
HB 114-WORKERS' COMPENSATION: DEATH BENEFITS
3:18:40 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 114, "An Act relating to the calculation and
payment of workers' compensation benefits in the case of
permanent partial impairment; relating to the calculation and
payment of workers' compensation death benefits payable to a
child of an employee where there is no surviving spouse;
relating to the calculation and payment of workers' compensation
death benefits for an employee without a surviving spouse or
child; relating to notice of workers' compensation death
benefits; and providing for an effective date."
3:18:49 PM
REPRESENTATIVE JOSEPHSON, speaking as sponsor of HB 114, stated
that the first thing HB 114 does is to increase the PPI
[permanent partial impairment] amount, which has not been
changed since 2000. The second part would offer a remedy for
the estates of workers who have been killed or died at the
workplace.
3:20:21 PM
REPRESENTATIVE JOSEPHSON said this bill was about a policy call
under the Alaska Supreme Court decision related to AS 23.30,
Ranney v. Whitewater Engineering, 122 P.3d 214 (Alaska 2005).
In the foregoing case, Ms. Ranney, was unmarried with a long-
time live-in boyfriend, Gary Stone and argued that she should
receive death benefits when Mr. Stone died. The Alaska Supreme
Court unanimously ruled that she should not receive them. It
held that the legislature had undertaken some "line drawing" in
the workers' compensation code. It noted that legislators
frequently engage in line drawing. He suggested that the
legislature needs to redraw some of the lines.
3:21:29 PM
REPRESENTATIVE JOSEPHSON stated that HB 114 would ask the
legislature to reconsider redrawing some of the lines. He
related that numerous single childless people live in Alaska.
He further stated that if a single person dies at the workplace
with no obvious third-party liability, for example, if the
person falls off a ladder and dies, the remedy would be in Title
[AS] 23. Although he said he was not a personal injury lawyer,
he suggested if the ladder had a bad rung and the person fell,
the state might sue the manufacturer of the ladder. Typically,
workplace deaths are due to a generally unsafe workplace or
employee negligence and in instances in which an employee dies
and is childless, AS 23 provides the estate with $10,000 for
funeral expenses and nothing more.
3:22:38 PM
REPRESENTATIVE JOSEPHSON offered that the employer might be
subject to some occupational safety violations when a death
occurs, but there wouldn't be any incentive to improve workplace
safety. In the specific case that led to him filing this bill,
an OSHA [Occupational Safety and Health Administration]
investigation occurred. Overall, current law lacks any remedy
for single people who die in the workplace, and often people
postpone marriage or having children. He offered his view that
this issue needs reform. In instances in which nothing
malfunctions in the workplace or was tortuously manufactured,
such as a badly designed product that exploded, Alaska does not
allow the estate to sue for wrongful death nor is there any
remedy other than the $10,000 funerary expenses previously
mentioned.
3:24:48 PM
REPRESENTATIVE JOSEPHSON referred to Section 1, which was an
uncodified provision that requests the Act be called the Abigail
Caudle Act, to reference an employee who was killed in the
workplace in 2011. At the time, Ms. Caudle was working for an
electrical contractor at a midtown Anchorage branch of Alaska
USA and she suffered an electric accident, fell, and died as a
result of those injuries.
REPRESENTATIVE JOSEPHSON stated that Section 2 would increase
the permanent partial impairment (PPI) rating, noting that the
PPI amount has not been increased from a whole body figure of
$177,000. This language would increase the rating to $255,584
to reflect today's figures. He said that a doctor could find a
person suffered a partial permanent injury and if so, the system
has scales for this depending on the loss.
3:26:28 PM
REPRESENTATIVE JOSEPHSON said that Section 3 would provide
notice of death benefits so it is very clear to the estate of
the deceased what the remedies are, including that the estate
can hire an attorney, seek grief counseling, and other things an
employer should provide.
REPRESENTATIVE JOSEPHSON referred to Section 4, noting that
current law provides for funeral expenses. He provided details
of the progression of spendable weekly wages a widow, widower,
child, or children will receive ranging from zero to 100
percent, depending on the number of surviving family members.
In response to Representative LeDoux he agreed this was current
statute. He continued, noting that an only child without a
surviving spouse would receive 100 percent of the benefits.
REPRESENTATIVE JOSEPHSON expressed concern that a teenager may
receive only a few months of financial assistance and funeral
expenses if his/her parent died in the workplace, since the
support would end at either age 18 or 19 - he wasn't certain of
the age limit; however, under the bill payments would continue
for five years. He characterized current law as constituting a
lack of generosity in the system. He reviewed paragraph (3) of
existing law, pertaining to a surviving spouse who remarries and
benefits are ceased after two years. Paragraph (4) [on page 3,
lines 12-17] would increase the amount from the $20,000 allowed
for people dependent on the person who died in the workplace,
such as an elderly parent or siblings, to the whole body amount
of $177,000 or potentially $255,000 if the PPI is increased
under the bill.
3:32:49 PM
REPRESENTATIVE LEDOUX related her understanding that under
current law if the decedent was supporting relatives, they could
receive $20,000, but a child over 18 years of age would not
receive anything unless they supported a grandchild, who could
receive benefits.
REPRESENTATIVE JOSEPHSON answered yes. He referred to the
language in [paragraph] (4), stating that a son who was 18 and a
half years old could receive an additional 6 months in benefits,
but the person's grandchild, as a dependent could receive more
as a percentage of the deceased's spendable weekly wages. In
response to Representative LeDoux, he answered that existing law
limited the support to $20,000. He surmised the theory was that
the nuclear family gets less important outside the ring of [the
immediate family such as] parents or children.
3:35:15 PM
REPRESENTATIVE LEDOUX expressed concern since many parents
currently support their children through college.
REPRESENTATIVE JOSEPHSON said this bill would allow for an
extension. He referred to [page 3, line 25] to proposed Section
5, which would extend the death benefits paid to a child to age
24 to allow death benefits to continue and not stop at age 19,
and it would continue as a fraction of the spendable weekly
allowance, presumably to get the child of the deceased through
college.
3:36:27 PM
REPRESENTATIVE JOSEPHSON directed attention to a final scenario,
which brings Ms. Burke to Juneau. He indicated the deceased
worker was single without any dependents. This bill proposes
the estate would receive half of the whole body allowance in
death benefits, which is approximately half of the $177,000
[PPI] under current law or $88,000. He directed attention to
the fiscal note impact due to changes in the PPI, he said. He
acknowledged that Chair Olson has his own bill related to PPI,
which has not been increased since 2000 and should be adjusted
to reflect the 2015 value.
3:38:01 PM
CHAIR OLSON commented that the fiscal note was significant.
REPRESENTATIVE JOSEPHSON said he also had questions about the
fiscal note.
3:38:29 PM
REPRESENTATIVE JOSEPHSON referred to [paragraph] (6), and
questioned differentiating between the estate of the single
person with or without children. He suggested that the figures
used were half the amount available under the modified
[paragraph] (4), or half of $177,000. Proposed Section 5 would
adjust the amount based on the Consumer Price Index (CPI). He
offered his belief that the benefits of passing HB 114 is that
that it improve workplace safety, although it would be difficult
to quantify; and it would reflect the PPI; and fundamentally
would confirm that just because a person is single and dies in
the workplace doesn't mean the individual's estate is not due
any settlement.
3:41:08 PM
CHAIR OLSON asked whether the fiscal note applies only to state
employees.
LEASA DAVIS, Division of Risk Management, Department of
Administration (DOA) answered yes; stating that the fiscal note
was based on the AWCB [Alaska Workers' Compensation Board] data
for the past five years. She related her calculation, based on
the PPI [permanent partial impairment ratings] benefit payout
multiplied by 45,000. She said she reviewed the claim history
and reported that one person died in the line of duty without
leaving a family or dependents and the death benefit amount was
averaged over five years.
3:42:20 PM
CHAIR OLSON asked whether the private sector would have more
fatalities than the state.
MS. DAVIS answered that more fatalities happen with certain
industries, such as high risk occupations, including public
safety or those individuals who fly as part of their job duties.
3:42:51 PM
REPRESENTATIVE LEDOUX asked for further clarification on the
fiscal note. She asked whether these changes would cost the
state $291 million.
MS. DAVIS explained that she inadvertently listed whole numbers
of $291,632 for six months and $583,263 for a full year. She
apologized for the error.
3:43:31 PM
REPRESENTATIVE KITO directed attention to the fourth paragraph
of the fiscal note analysis that indicated the bill could result
in a yearly average increase of $23,585.40. He questioned this
figure since there has only been one instance in the past five
years. He asked for further clarification on the basis for the
$291,000 and $500,000 projections.
MS. DAVIS explained the formula she used to arrive at the fiscal
note figures. The fiscal note was based on the annual PPI
[permanent partial impairment] payout over five years multiplied
by the increase of the percentage of 44 percent. She also
reviewed the six percent second injury fund amount and records
to discover only one individual died due to an on the job
fatality without any dependents. She averaged the foregoing
death benefits over five years.
3:45:06 PM
REPRESENTATIVE KITO asked whether most of the increased costs in
the fiscal note were due to the consumer price index (CPI)
increase.
MS. DAVIS answered that she did not include the CPI since the
state is entering a deflationary period so the future figures
are unknown. She explained that the bulk of costs are due to
the actual PPI rate increase itself since the department sees a
large number of PPI ratings for state employees.
REPRESENTATIVE KITO related his understanding that it was based
on the historic catch up costs.
3:45:43 PM
REPRESENTATIVE COLVER related his understanding that the state
entity is self-insured. He asked whether there was any type of
reinsurance or umbrella policy for these kinds of claims.
MS. DAVIS answered no. She stated that the state was completely
self-insured.
REPRESENTATIVE COLVER suggested that in his experience most
government entities have another level of insurance as well as
reinsurance.
CHAIR OLSON suggested that he was referring to liability
insurance, and this bill relates to workers' compensation, which
has an exclusive remedy.
REPRESENTATIVE COLVER said he was seeking a way to reduce the
state's exposure.
3:46:52 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community & Economic Development (DCCED), said that
according to the National Council on Compensation Insurance - a
statistical rating organization that sets rates in Alaska - the
bill could possibly have a 4 percent impact on rates.
3:47:51 PM
MS. WING-HEIER, in response to Representative Colver, agreed
self-insured entities frequently have a stop-loss or excess
workers' compensation policy, typically in excess of $500,000 or
$1 million, which is common for large employers. Further,
larger employers often do not have policies because of the high
cost. If entities don't purchase the insurance, the division
refers to the amount as the "burn layer." Basically, if
entities do not exceed the costs very often, it is frequently
better to save the [insurance fees] and use the money for claims
expenses. She offered her belief that was what the state
decided to do.
3:48:34 PM
CHAIR OLSON commented that if HB 114 were to pass, the bulk of
the claims would fall under private policyholders rather than on
the state.
MS. WING-HEIER added that most large employers may have small
claims of $20,000 to $100,000 with an occasional large claim due
to a significant injury or fatality.
3:49:13 PM
REPRESENTATIVE COLVER asked for the average fatality rate.
MS. WING-HEIER deferred to the Division of Workers' Compensation
to respond.
3:49:53 PM
MICHAEL MONAGLE, Director, Central Office, Division of Workers'
Compensation, Department of Labor & Workforce Development
(DLWD), responded to an earlier question, noting that a child
dependent was a child up to age of 19, with an additional four
more years if they were attending college. In addition, he read
a portion of the definition of "child" in existing law [under AS
23.30.395 (8)] as follows, " ... are wholly dependent upon the
deceased employee ...." Thus the death benefits can continue
beyond the age of 19 if the child is dependent on the deceased
employee. He clarified that the benefit was not limited to
grandchildren, grandparents, or parents.
3:51:13 PM
REPRESENTATIVE LEDOUX related a scenario in which the decedent
died while a child was a sophomore in high school, went to
college, but decides to go to medical school. She asked whether
the workers' compensation would cover it.
MR. MONAGLE answered no, since it says the first four years of
college and the statute doesn't anticipate graduate school. He
read additional language for the definition of "child" which
read, " ... are wholly dependent upon the deceased employee and
incapable of self-support by reason of mental or physical
disability, [and persons of any age while they are attending the
first four years of vocational school, trade school, or college,
and persons of any age while they are attending high school;"].
In response to Representative Josephson, he offered the citation
for the definition as AS 23.30.395 (7).
3:52:39 PM
REPRESENTATIVE HUGHES asked for more of a foundation since she
was not familiar with workers' compensation. She recalled that
the rates for the private sector might increase by 4 percent.
She suggested that was an automatic payment, but she understood
that the surviving family members often file lawsuits.
MR. MONAGLE answered that it depends. He informed members that
workers' compensation is an exclusive liability, in fact, you
cannot bring a separate action against employers even if they
are negligent; however, there is a third-party exposure, for
example, if a rung of a ladder or other machinery was defective.
Since the exclusive liability does not extend to the third
party, a lawsuit could be filed. However, workers' compensation
law provides for an offset so the survivor would not receive the
full death benefit plus the full third-party recovery since the
employer would be allowed to reduce their benefit payments.
3:54:27 PM
REPRESENTATIVE JOSEPHSON asked whether the third-party recovery
was from the second injury fund.
MR. MONAGLE answered no. He explained a separate provision in
law allows an employer to offset any third-party recovery. He
explained that the second injury fund was established through
assessments against employer indemnity benefits. The second
injury fund would be used in instances in which an employer
hires a person with a qualifying preexisting condition and the
employee has a subsequent workplace injury made worse by the
pre-existing condition. If an employer hires an employee,
knowing the employee has had a lot of back injuries, but the
employee is subsequently injured, the fund will reimburse the
employer for the indemnity benefit payments so long as it meets
all the requirements for second injury fund reimbursement.
3:55:23 PM
MARIANNE BURKE began her testimony, as follows:
You have no idea what I've gone through to this point.
This is bittersweet - to talk to you - I'm excited,
but I'm saddened for the reason I stand before you.
My daughter [Abigail Caudle] was killed in the
workplace and no value at all - zero - was given for
her life. When you talk about different money and
stuff in the workplace environment - there was nothing
given for her life, but the funeral costs. That's it
- because she had no dependents. There is no
liability to the employer. Nothing happened to the
employers whatsoever because of "no fault" insurance.
Nothing happens. If there is any payout, the
insurance pays it - and I'll get to that in a minute.
I just want to emphasize those two points before I
start.
3:57:07 PM
MS. BURKE continued her testimony, as follows:
My daughter was the second child of four children, two
boys and two girls. Her sister and she would play
dolls growing up. She enjoyed soccer, basketball,
babysitting, day care - she worked at Home Depot. She
volunteered at ChangePoint church doing lighting for
all of their services for three years. She helped
with the youth group at ChangePoint.
MS. BURKE paused to show photographs of her daughter.
MS. BURKE continued. She said:
My daughter was a new apprentice with Raven Electric
so she was not with the unions. The private sector is
not as "up" as the unions are sometimes. She was
[indisc.] with a live wire. They were working on an
open junction box in a bank remodel job taking down
lights. The journeyman did not turn off the circuit
breaker or lock and tag as he was supposed to. This
was because he wasn't planning on doing that lighting
that night. Usually he would bring temporary lights,
but he wasn't planning on doing that work that night
so they used the lights that were there and just
turned off light switches. Abigail had an inadequate
non-contact tester. It did not clamp onto the wire;
it just went near the wire so it did not sense the
live wire. She tried it twice. It showed green, safe
or to go. And she touched the live wire; got locked
up. Her coworkers tried to get her off the ladder.
They couldn't. They finally kicked the ladder real
hard and she fell off to the floor. She went into
seizures. The others told that about 440 volts that
went through her body. She [indisc.] defibrillator
and she was taken to the hospital. She was 26 years
old and she died on June 21, 2011. I cannot tell you
how much we miss Abigail [indisc.]. Her sister does
not have a sister anymore. Her brothers do not have a
sister that they had anymore to talk with and be
support with. Thank you.
3:59:32 PM
MS. BURKE said that about three months after her daughter's
death she called numerous lawyers, but none would represent her
since her daughter's death fell under workers' compensation.
She said the lawyers she contacted informed her they would not
win the case and that similar cases had been taken to the Alaska
Supreme Court and the plaintiff did not prevail. In fact, she
couldn't even get any lawyer to take the case pro bono. Two
years after her daughter's death she began fighting - by herself
- for death benefits for her daughter She could not sue the
employer, she said, due to House Bill 323 that passed the
legislature in 2004. Since her daughter's death was a work
related death she also could not file a civil lawsuit or obtain
any type of justice. Subsequently, the legislature considered
House Bill 303, which would have allowed wrongful death cases to
be filed civilly, but that bill did not pass, in part, since it
was opposed by the business sector.
4:00:49 PM
MS. BURKE declared that workers' compensation laws give zero
value to people like her daughter, a single worker without any
dependents, except for funeral costs. Although the employer,
[Raven Electric] received five citations from OSHA [the US
Department of Labor, Occupational Safety and Health
Administration], in which four violations were determined to
contribute to her daughter's death, the company only paid
$11,000 to OSHA. In fact, OSHA advised her that after three
years the employer's slate will be wiped clean. She was
astonished at this outcome since her daughter's death
constituted gross negligence by the employer. As the sponsor
said earlier, the Abigail Caudle Act would update the value of
an employee's life by increasing the PPI [permanent partial
impairment] amount to $256,000, noting the PPI has not been
adjusted in 15 years.
4:01:41 PM
MS. BURKE stated that if the PPI figures were updated all of the
people who are injured will receive compensation based on
today's wages. Survivors of workers killed on the job would
receive something, describing her feelings as hollow feelings
since nothing was given for her daughter's life. She
recommended the statute of limitations should be raised from one
year to four years. She reported that California has a four-
year statute of limitation in wrongful deaths, and even though
she recognizes that this bill pertains to workers' compensation,
the statute of limitation still needs to be raised to four
years. She explained that two years passes by quickly during a
period of grief when losing a loved one and one year was simply
insufficient.
4:02:47 PM
MS. BURKE said that this issue is a bipartisan issue and
although she her political affiliation is Republican, a
Democrat, Representative Josephson, stepped up to help her. She
stressed that this issue adversely affects families. She urged
the legislature to pass HB 114. Even though the bill may need
additional work and businesses don't want to pay more for
workers' compensation, perhaps businesses could elect to provide
a life insurance policy for their employees or require them to
obtain life insurance. Most importantly, under current law,
employers can avoid purchasing safety equipment since they are
not held accountable and lawsuits can't be filed against them.
She felt it was crucial that the law recognizes that every
person has value. She said one problem with workers'
compensation was due to "no fault" insurance, which she
characterized as being a nationwide problem.
4:04:23 PM
CHAIR OLSON stated that having an exclusive remedy means that
workers' compensation will pay immediately, whether or not the
claim is perceived as legitimate and it could be controverted if
issues arise.
MS. BURKE offered his belief, shared by the workers'
compensation staff she spoke to, that when a death occurs in the
workplace it should cease to be a workers' compensation case.
This was especially true in instances in which employers are
negligent, which was the case in her daughter's death since the
employees did not lock and tag, the employees did not
communicate, and the employer failed to do a number of things it
should have done. In fact, Abigail was a new apprentice, brand
new, trusting her journeymen that she was safe, she said. Her
daughter's journeymen weren't even in the room when the
electrical accident occurred. In closing she emphasized that
when deaths occur, the matter should not fall under workers'
compensation to allow for justice. She thanked members for
allowing her to testify.
[HB 114 was held over.]
4:06:23 PM
The committee took a brief at-ease.
HB 164-INSURANCE; RISK MG'T; HOLDING COMPANIES
4:07:16 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 164, "An Act relating to insurance; relating to
risk based capital for domestic insurers and fraternal benefit
societies, including provisions related to insurers subject to
risk based capital and action level event requirements; relating
to review by the director of insurance of an insurer's risk
based capital plan; relating to confidentiality and sharing of
certain information submitted to the director of insurance for
evaluating insurance holding companies, risk based capital, risk
management, and own risk and solvency assessments; clarifying
provisions related to risk based capital plans; relating to
exemptions by the director of insurance for certain domestic and
casualty insurers from risk based capital requirements; relating
to insurance holding companies, including filing requirements,
divestiture, content of statements, and hearings; relating to
registration requirements; relating to transactions within an
insurance holding company system or transactions involving a
domestic insurer; relating to management and examination of
domestic insurers that are part of an insurance holding company
system; adding provisions relating to participation by the
director of insurance in a supervisory college; relating to
civil and criminal penalties for violations of provisions
related to insurance holding companies; relating to provisions
for risk management and own risk and solvency assessments;
relating to operating requirements for controlling insurance
producers; relating to producer-controlled insurers; adding and
amending definitions related to insurers; and providing for an
effective date."
4:07:50 PM
The committee took an at-ease from 4:07 p.m. to 4:12 p.m.
4:12:21 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community, & Economic Development (DCCED), began her
PowerPoint on HB 164, related to insurance. She stated that the
mission of the Division of Insurance is to regulate the
insurance industry to protect Alaskan consumers [slide 1].
4:13:48 PM
MS. WING-HEIER stated that individual state governments are the
primary regulators of insurance. In Alaska, the state regulates
seven domestic insurance companies, including Alaska Vision,
Sunderland Insurance Services, Inc., Alaska Timber Insurance
Exchange that are domiciled in Alaska. The division regulates
close to 1,100 foreign insurance companies.
CHAIR OLSON interjected that foreign insurance companies does
not mean outside the country, but outside Alaska.
MS. WING-HEIER agreed. She named a few major foreign insurance
companies, including State Farm, Geico, Safeco, Premera, and
Aetna qualify but they are not domiciled in the state. She
indicated it was due to the way these companies are
incorporated. The ones [HB 164 would address] under discussion
today are those domiciled within the state.
MS. WING-HEIER said that in 1945, Congress passed the McCarran-
Ferguson Act (15 U.S.C. 1011 - 1015) which exempted: the
business of insurance from most federal regulation, and to this
date insurance has been regulated by states, and state-based
regulation works [slide 3].
MS. WING-HEIER said that the act provided that, " ... [n]o Act
of Congress shall be construed to invalidate, impair, or
supersede any law by any State for the purpose of regulating the
business of insurance ...." However, in 2010, Congress passed
Dodd-Frank with a provision establishing the federal insurance
office. Although it was currently set up as a non-regulatory
agency, it is poised to step in and take over state-based
regulation. She acknowledged that this wasn't something that is
being addressed every day; however, the division is very much
aware of its existence and the authorization it could hold over
the states with federal regulation of insurance. Again, state-
based regulation has been very successful for over 100 years.
4:15:55 PM
MS. WING-HEIER directed attention to slide 4, stating that
during the 2007-2009 financial crisis which hit hard the
financial services industry of which insurance is a part, the
insurance industry was held as a shining example of what worked.
The Independent Insurance Agents & Brokers of America (IIABA)
agreed stating in a 2011 letter to the FIO: "Even during the
most tumultuous of times, state insurance regulators ensure that
insurers are solvent, that claims are paid, and that consumers
are protected. The IIABA remains dedicated to preserving state
insurance regulation." She said that this statement was
powerful enough that the federal Government Accountability
Office put it in its 2013 report to Congress.
4:16:53 PM
MS. WING-HEIER directed attention to slide 5, stating the
National Association of Insurance Commissioners (NAIC) is the
U.S. standard setting and regulatory support organization
created and governed by the chief insurance regulators from the
50 states, the District of Columbia and five U.S. territories.
Through the NAIC, state insurance regulators establish standards
and best practices, of the protocols of the insurance companies,
the producers, the brokers, and the adjustors. Through peer
review, the division monitors companies, brokers, and ourselves,
she said.
MS. WING HEIER acknowledged while much of the business of
insurance is local in nature due to differences of risk and
other factors particular to a local area, the elected or
appointed state government officials who oversee the regulation
of insurance companies and producers in their respective
jurisdiction - the members of the NAIC recognize that there
often is a need for national standards and uniformity.
4:17:41 PM
MS. WING-HEIER said the NAIC, working with regulators, promotes
national standards, uniformity, reciprocity, and consistency at
the national level through the development of model laws and
regulations.
MS. WING-HEIER said much of the work of the NAIC is conducted
through its committees, task forces, working groups, or
subgroups. Alaska sits on two subcommittees: Property and
Casualty Insurance, and Market Regulation and Consumer Affairs
C&D) committee, and 14 task forces, 3 liaison committees,
including the American Indian and Alaska Native Liaison
Committee, which she chairs; and numerous working groups. The
committee level is where the discussion most likely begins in
the consideration of a new model law.
MS. WING-HEIER said the NAIC members dedicate significant to
educating consumers and the industry to support a model that has
been adopted by the membership. Model laws are developed by
drafting procedures that entail a rigorous process providing
notice and opportunity for consumer groups and industry to
comment. She said they take years to develop to the point at
which they are presented to groups such as this committee.
MS. WING-HEIER said that both the parent committee, such as the
Property and Casualty Committee, Finance Committee, or the
Health Committee, with oversight for the subject area of a model
law and the entire membership of the NAIC must adopt any
proposed model law by a two-thirds majority vote. The state in
most cases is not required to adopt the model law except in the
circumstances such as the one today, which is the adoption of
the NAIC financial regulation standards & accreditation program
[slide 6].
4:20:07 PM
MS. WING-HEIER said the mission of the NAIC's financial
regulation standards & accreditation program is to establish and
maintain state regulator standards to promote sound insurance
company financial solvency regulation [slide 7]. Although it
seems simple, but the state has seven domestic and 1,100 foreign
insurance companies it monitors. The Department of Commerce,
Community & Economic Development is a rather small department
and with that many insurers, the state needs to be able to rely
on its counterparts in other states to ensure that the insurance
companies who are coming to Alaska to sell insurance to Alaskans
meet a certain standard of financial solvency. In turn, other
insurance commissioners or directors must be able to trust that
insurance companies who are domiciled in Alaska doing business
in the Lower 48 are also to financially solvent. Lastly, but
equally important is consumer protection because an insurance
company must be financially solvent to meet its contractual
policy obligations to pay claims in the event of a loss to pay
claims.
4:21:39 PM
MS. WING-HEIER directed attention to slide 8, and said that the
accreditation program provides a process whereby solvency
regulations of multi-state insurance companies can be enhanced
and adequately monitored. As mentioned earlier, it is important
for a small state that the insurance companies domiciled here or
those operating here but domiciled in another state are being
adequately regulated for financial solvency by the domiciliary
state.
4:22:16 PM
MS. WING-HEIER said that Alaskan consumers could be negatively
impacted as companies may decide not to operate in Alaska due to
the duplicative examination costs incurred by operating in a
non-accredited state. Thus, if Alaska loses its accreditation
and companies had to bear the expense of having every state
conducting an examination of their financial records and could
not accept theirs, they could elect to not to be domiciled in
Alaska, which would reduce the number of insurers, a reduction
in employment and in premium taxes paid to the state.
4:23:04 PM
CHAIR OLSON asked how much income the division generates each
year.
MS. WING-HEIER answered that the division generates
approximately $55 million plus $7 million in fees collected from
producers in the insurance companies. In further response to a
question, she said last year the division's budget was $7.5
million and that the division is receipt-supported by the fees
collected from insurance companies.
4:23:48 PM
MS. WING-HEIER stated the accreditation was for a five year
period. One of the key components of the financial solvency
regulation accreditation review will be a determination by the
NAIC accreditation review team that the state has the necessary
solvency laws and regulations to protect consumers and guarantee
funds [slide 9]. She reported that the division was due for an
interim audit in June 2015. She feared the division will not
pass, which was why HB 164 is important.
4:24:43 PM
MS. WING-HEIER felt responsible for three provisions in HB 164
that should have been addressed two or three years ago, but she
was not certain why the division did not request the changes.
She referred to pages 2-8 to AS 21.14, related to risk based
capital in the bill. Basically, this language would change the
method of measuring the minimum amount of capital appropriate
for an insurer to support its overall business operations in
consideration of its size and risk profile. Capital provides a
cushion to an insurer against insolvency and RBC will limit the
amount of risk a company can take. Thus these provisions all
pertain to solvency. She said this should have been effective
January 1, 2015. She acknowledged other provisions should have
been effective on January 2014 and January 2016.
4:25:38 PM
REPRESENTATIVE LEDOUX related her understanding that in order to
be accredited the legislature must pass HB 164.
MS. WING-HEIER answered yes.
4:25:52 PM
REPRESENTATIVE LEDOUX surmised that if the state is not
accredited all sorts of problems happen.
MS. WING-HEIER answered yes.
CHAIR OLSON acknowledged that was the reason HB 164 is being
fast-tracked.
4:26:04 PM
MS. WING-HEIER said the risk-based capital provides the cushion
to protect solvency. The risk-based capital compares risk based
on a ration of the risk to capital. This means the division
knows the company has enough capital for underwriting, other
investments to ensure claims can be paid when Alaskan consumers
submit the claims.
4:26:36 PM
MS. WING-HEIER directed attention to slide 11, to insurance
holding companies, on pages 8-16 of the bill, which must be
effective in 2016 in order for the state to pass accreditation.
Referring back to the financial crisis in the Lower 48, many
people probably heard of AIG [American International Group],
which was a holding company. She said what brought down AIG was
not its insurance operations, but aircraft leasing and other
investments that AIG had made. The foregoing provisions would
allow the state to review other operations insurance companies
have and not allow them to invest insurance dollars in other
operations. She added that this language does require other
reporting mechanisms, but that she essentially described what
the holding company provisions of this bill would accomplish.
4:27:42 PM
CHAIR OLSON asked whether the financial crisis was also due to
substandard mortgages.
MS. WING-HEIER answered yes.
4:27:51 PM
MS. WING-HEIER directed attention to slide 12, to Risk
Management and Own Risk Solvency Assessment (ORSA). She
described this as enterprise risk management that would require
insurance companies to report to the state on confidential
investments, as well as their risk management framework, to
allow the state to see the how the companies are judging
themselves. Although these provisions are not yet in the NAIC
[National Association of Insurance Commissioners] model law,
they have been proposed and the division anticipates these
provisions will be adopted this fall.
4:28:41 PM
MS. WING-HEIER stated that the controlling insurance producer
provisions should have been effective on January 1, 2014.
Basically, these provisions would provide additional guidelines
for businesses between the controlled insurers and controlling
producers necessary for fiduciary and oversight reasons, for
example, when an insurance producer owns the insurance company
[slide 13].
4:29:07 PM
MS. WING-HEIER suggested that this bill needs to pass this year
since the provisions must be in place by January 2016.
CHAIR OLSON commented that the director has only been on the job
for a little over one year, approximately 15 months.
4:30:01 PM
REPRESENTATIVE LEDOUX directed attention to Section 1 of the
bill and asked whether maritime policies were indemnity policies
and if they will be included in the bill.
MS. WING-HEIER answered yes; for domestic companies, but
generally speaking maritime insurance falls under surplus lines
placement, typically offered through Lloyds of London.
4:30:56 PM
CHAIR OLSON commented that he did not believe any domestic
insurer writes maritime coverages for at least 15 years.
REPRESENTATIVE LEDOUX asked whether Alaska National Insurance
offers it.
CHAIR OLSON offered his belief the last one was Pacific Marine
Underwriting Managers Ltd.
4:31:16 PM
MS. WING-HEIER said some incidental policies may be written, but
it was not their main line of business for any of the foregoing
companies.
CHAIR OLSON acknowledged that Alaska National Insurance writes
some incidental coverage, and Longshoremen and Harbor Workers
coverage, but he did not believe they offered offshore unless it
would be workers' compensation for people working on the oil
platforms.
MS. WING-HEIER suggested that Sunderland Insurance Services,
Inc. may write some.
CHAIR OLSON said he stands corrected.
4:31:45 PM
REPRESENTATIVE HUGHES asked how much business insurance
companies domiciled in Alaska provide outside Alaska.
MS. WING-HEIER answered that Sunderland Insurance Services does
some, but Alaska National Insurance probably does the most and
operates in Idaho, California, Louisiana, and are likely looking
to expand. She suggested that the others are content to be in
Alaska.
4:32:44 PM
REPRESENTATIVE HUGHES noted that obvious this is needed sooner
rather than later. She asked whether anything in the bill that
was not related for accreditation.
MS. WING-HEIER answered no; that the bill was limited strictly
to accreditation and financial solvency for domestic insurance
companies in Alaska.
4:34:36 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on HB 164.
4:35:00 PM
REPRESENTATIVE HUGHES moved to report HB 164 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 164 was reported from the
House Labor and Commerce Standing Committee.
4:36:00 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:36 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB164 ver A.PDF |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |
| HB164 Sponsor Statement.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |
| HB164 Sectional Analysis.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |
| HB114 ver A.PDF |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Sponsor Statement.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Sectional Analysis.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Fiscal Note-DOA-DRM-03-20-15.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Fiscal Note-DOLWD-WC-03-27-15.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Supporting Documents-Research Report 2-4-15.PDF |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Supporting Documents-Intestate Statutes.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB164 Supporting Documents-DOI Presentation-3-25-15.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |
| HB164 Fiscal Note-DOA-DOI-3-24-15.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |