Legislature(2003 - 2004)

05/01/2003 02:20 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                          May 1, 2003                                                                                           
                           2:20 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Con Bunde, Chair                                                                                                        
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Gary Stevens                                                                                                            
Senator Hollis French                                                                                                           
MEMBERS ABSENT                                                                                                                
Senator Bettye Davis                                                                                                            
COMMITTEE CALENDAR                                                                                                            
CS FOR HOUSE BILL NO. 214(JUD)                                                                                                  
"An Act relating  to the recovery of punitive  damages against an                                                               
employer who is  determined to be vicariously liable  for the act                                                               
or  omission  of an  employee;  and  providing for  an  effective                                                               
     MOVED CSHB 214(JUD) OUT OF COMMITTEE                                                                                       
SENATE BILL NO. 186                                                                                                             
"An Act  relating to authorizing charitable  gaming permittees to                                                               
use up  to five electronic  gaming machines at  certain locations                                                               
with  certain  liquor  licenses or  certain  other  places  where                                                               
access is  restricted to persons 21  years of age or  older as an                                                               
authorized  form  of  charitable  gaming;  limiting  the  maximum                                                               
number of electronic gaming machines  for which a vendor may have                                                               
an  endorsement  to  not  more than  10;  relating  to  licensing                                                               
manufacturers  and distributors  of  electronic gaming  machines;                                                               
relating to local prohibition of  electronic gaming; limiting the                                                               
authority of  municipalities to  tax electronic  gaming machines;                                                               
relating  to  penalties   concerning  charitable  gaming;  making                                                               
conforming amendments; and providing for an effective date."                                                                    
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 178                                                                                                             
"An  Act  establishing a  state  lottery;  and providing  for  an                                                               
effective date."                                                                                                                
     EARD AND HELD                                                                                                              
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 184(L&C) am                                                                        
"An Act relating to individual deferred annuities; and providing                                                                
for an effective date."                                                                                                         
     MOVED SCS CSSSHB 184(L&C) OUT OF COMMITTEE                                                                                 
SENATE BILL NO. 13                                                                                                              
"An Act prohibiting discrimination in insurance rates based on                                                                  
credit rating or credit scoring; and providing for an effective                                                                 
     MOVED SB 13 OUT OF COMMITTEE                                                                                               
PREVIOUS ACTION                                                                                                               
HB 214 - See Labor and Commerce minutes dated 4/29/03.                                                                          
SB 186 - No previous action to consider.                                                                                        
SB 178 - No previous action to consider.                                                                                        
HB 184 - See Labor and Commerce minutes dated 4/29/03.                                                                          
SB 13 - See Labor and Commerce minutes dated 4/8/03 and 4/22/03.                                                                
WITNESS REGISTER                                                                                                              
Ms. Sarah Nelson                                                                                                                
Staff to Representative Samuels                                                                                                 
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on HB 214.                                                                                      
Senator Taylor                                                                                                                  
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Sponsor of SB 186 and SB 178.                                                                             
Ms. Willow Seay                                                                                                                 
Staff to Representative Coghill                                                                                                 
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on HB 184.                                                                                      
Ms. Katie Campbell, Life and Health Actuary                                                                                     
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Commented on HB 184.                                                                                      
Ms. Linda Hall, Director                                                                                                        
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Commented on SB 13.                                                                                       
Senator Cowdery                                                                                                                 
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Sponsor of SB 13.                                                                                         
Ms. Sarah McNare Grove                                                                                                          
Property Casualty Actuary                                                                                                       
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Commented on SB 13.                                                                                       
ACTION NARRATIVE                                                                                                              
TAPE 03-28, SIDE A                                                                                                            
CHAIR CON BUNDE called the Senate Labor and Commerce Standing                                                                 
Committee meeting to order at 2:20 p.m. Present were Senators                                                                   
STEVENS and SEEKINS.                                                                                                            
2:21 - 2:23 p.m. - at ease                                                                                                      
        CSHB 214(JUD)-PUNITIVE DAMAGES AGAINST EMPLOYERS                                                                    
CHAIR BUNDE announced CSHB 214(JUD) to be up for consideration.                                                                 
MS. SARAH NELSON, staff to Representative Samuels, sponsor, said                                                                
she had no further comments to make.                                                                                            
SENATOR SEEKINS moved to pass CSHB 214(JUD) with attached fiscal                                                                
note from committee. SENATORS STEVENS, SEEKINS and BUNDE voted                                                                  
yea and it passed from committee.                                                                                               
           SB 186-CHARITABLE GAMING/ELECTRONIC GAMING                                                                       
                      SB 178-STATE LOTTERY                                                                                  
CHAIR BUNDE announced that they would next consider SB 186 and                                                                  
SB 178, but Senator Taylor, sponsor, wanted to comment first.                                                                   
SENATOR TAYLOR said of both bills:                                                                                              
     ...were  sponsored   for  the  purpose   of  generating                                                                    
     revenue  for  the  State  of   Alaska,  as  opposed  to                                                                    
     generating  revenue  only   through  taxation  and  fee                                                                    
     increases. I  have always been an  opponent of taxation                                                                    
     and  fee increases  and  felt that  at  least this  was                                                                    
     another option.  Both lottery, which  is one  bill, and                                                                    
     video gaming,  which is the  other bill,  would provide                                                                    
     somewhere in the  neighborhood, I think conservatively,                                                                    
     of  $60  million to  $70  million  worth of  additional                                                                    
     revenue that we would not have  to go out and do in the                                                                    
     form  of   taxes.  But,  I've   been  informed   by  my                                                                    
     leadership that  I've discussed  this matter  with just                                                                    
     today,  that they  don't  wish those  items  - or  have                                                                    
     indicated to me  that those items will not  pass and it                                                                    
     just seems  a waste  of our  time to  discuss something                                                                    
     and work on  it and try to fabricate a  better bill and                                                                    
     so on that's  not going to be given  the opportunity to                                                                    
     pass  anyhow,  since the  Majority  seems  dead set  on                                                                    
     taxes  and additional  fee increases  as their  revenue                                                                    
     sources. With  that, Mr.  Chairman, I  would appreciate                                                                    
     it. I  thank you  very much  personally for  taking the                                                                    
     time  to schedule  these  matters and  I  know that  we                                                                    
     share  some  commonality  in  reaching  for  additional                                                                    
     revenue sources,  but I don't  believe that's  going to                                                                    
CHAIR BUNDE said he looked forward to getting more information                                                                  
on these issues and set SB 186 and SB 178 aside.                                                                                
SENATOR FRENCH arrived at 2:25 p.m.                                                                                             
         CSSSHB 184(L&C)-INDIVIDUAL DEFERRED ANNUITIES                                                                      
CHAIR   BUNDE   announced   CSSSHB   184(L&C)  to   be   up   for                                                               
SENATOR SEEKINS moved to adopt Amendment 1.                                                                                     
CHAIR BUNDE objected  for discussion purposes and  asked Ms. Seay                                                               
to explain it.                                                                                                                  
MS. WILLOW SEAY,  staff to Representative Coghill,  sponsor of HB                                                               
184, explained  that the  amendment had been  added on  the House                                                               
floor and that the sponsor would  feel more comfortable if it was                                                               
removed because it adds confusion to the bill.                                                                                  
MS.  KATIE  CAMPBELL,  Life  and   Health  Actuary,  Division  of                                                               
Insurance,  explained that  the amendment  proposed on  the House                                                               
floor  was intended  to make  sure that  it would  only apply  to                                                               
contracts that  are issued after  the effective date of  the act.                                                               
So  if anyone  has an  annuity  contract today,  it won't  change                                                               
CHAIR BUNDE announced that there  were no objections to Amendment                                                               
1 and it was adopted.                                                                                                           
SENATOR SEEKINS moved to pass  SCSSS CSHB 184(L&C) from committee                                                               
with its attached fiscal note.  SENATORS FRENCH, SEEKINS, STEVENS                                                               
and BUNDE voted yea and HB 184 passed from committee.                                                                           
        SB  13-INSURANCE DISCRIMINATION BY CREDIT RATING                                                                    
CHAIR BUNDE announced  SB 13 to be up for  consideration and that                                                               
the  committee  had heard  from  the  sponsor and  the  insurance                                                               
industry, and would now hear from the administration.                                                                           
MS. LINDA HALL, Director, Division  of Insurance, said she wanted                                                               
to comment on the state of the insurance marketplace in Alaska:                                                                 
     If you  had an  opportunity to  review the  Division of                                                                    
     Insurance report on credit  scoring, there are listings                                                                    
     in  the  back of  that  report  of insurance  companies                                                                    
     doing  business in  Alaska.  These  are rather  lengthy                                                                    
     lists of insurance companies and  it appears to suggest                                                                    
     that  there are  large numbers  of insurance  companies                                                                    
     writing  business   here.  In   fact,  the   number  of                                                                    
     companies with  active writings in the  state is really                                                                    
     quite small.  In the most  recent annual report  of the                                                                    
     division,  the top  two  writers  of private  passenger                                                                    
     insurance - between the two  of them - write 42 percent                                                                    
     of  our market.  There  are then  seven companies  that                                                                    
     have less  than a  2 percent market  share. So  we have                                                                    
     really  not   a  lot  of  companies   actively  writing                                                                    
     business here.                                                                                                             
     In the  homeowners market the  top two  companies write                                                                    
     approximately 65  percent of  our insurance  market. We                                                                    
     then  drop  to  percentages  of 6  percent  with  eight                                                                    
     companies  writing  less  than   one  percent  of  that                                                                    
     market.  So,  in  general,  we  don't  have  very  many                                                                    
     private  passenger  or  homeowners  companies  actively                                                                    
     writing  business and,  in my  opinion, this  creates a                                                                    
     fairly fragile market place.                                                                                               
CHAIR BUNDE asked if she could comment about our loss profit                                                                    
ratio in Alaska and whether it is a reasonable place to do                                                                      
MS. HALL answered that the next part of her testimony would                                                                     
address rates and losses:                                                                                                       
     Rates  for  personal  insurance  have  been  increasing                                                                    
     nationally and  we're seeing similar trends  in Alaska.                                                                    
     In 2001 the rates that  we saw in the private passenger                                                                    
     homeowners  markets  ranged  in  the  5  percent  to  8                                                                    
     percent  increases. In  2002, many  of those  increases                                                                    
     were in double digits. Those numbers are in Alaska.                                                                        
     Last week,  I received from a  national organization of                                                                    
     other insurance  regulators information  that indicated                                                                    
     in March  of 2003 the  consumer price index had  an 8.9                                                                    
     percent  increase in  auto insurance  rates nationally.                                                                    
     So,   we're  seeing   fairly  dramatic   increases  in,                                                                    
     particularly, auto insurance. That  does lend the rate,                                                                    
     Mr.  Bunde,  to losses  and  to  loss trend.  In  2001,                                                                    
     private passenger  lines in Alaska, Alaskans  [were] in                                                                    
     the top  five companies in  the number of losses  - the                                                                    
     total dollar  amount of  losses - in  the country  - we                                                                    
     were in the top five states with losses.                                                                                   
     There  also  was  an  overall  writing  deficit  of  18                                                                    
     percent.  So, the  companies writing  business here  on                                                                    
     the underwriting basis  had an 18 percent  deficit - an                                                                    
     overall negative return on net  worth of 6 percent. So,                                                                    
     auto  insurance companies  in Alaska  are losing  money                                                                    
     and at  a greater  rate than most  other states  in the                                                                    
     The 2001  homeowners market  faired better.  Alaska was                                                                    
     in  approximately the  middle of  the range  with an  8                                                                    
     percent  underwriting   profit.  So,  there   was  some                                                                    
     profitability in  those lines. Some of  the loss trends                                                                    
     that  have  hit  other  areas  of  the  country  really                                                                    
     haven't hit here. For example,  and I'm sure you've all                                                                    
     read,  there   have  been  mold  claims.   Mold  is  an                                                                    
     increasing  cause of  loss to  the insurance  industry.                                                                    
     That  really hasn't  hit Alaska  - mold  resulting from                                                                    
     water  damage or  construction defects  that result  in                                                                    
     mold - and it can be toxic.                                                                                                
     We  also, as  we  look at  those  issues, see  specific                                                                    
     unique  Alaska characteristics.  Sometimes the  cost of                                                                    
     loss adjustment  is higher here  because of  travel. We                                                                    
     tend to  have higher  cost of auto  repair; we  tend to                                                                    
     have  higher  medical  costs. I've  heard  one  of  the                                                                    
     health  insurance  people  estimate  for  me  that  our                                                                    
     medical costs  in Alaska  are approximately  30 percent                                                                    
     higher  than  they are  in  Washington.  So, there  are                                                                    
     higher costs  of insurance here  due to those  types of                                                                    
     factors. And, I  bring some of that up  because I would                                                                    
     like to  make sure  that we keep  the Alaska  market in                                                                    
     mind as we discuss this issue.                                                                                             
MS. HALL iterated the division's  mission, which is threefold: to                                                               
develop,   interpret   and   enforce   insurance   statutes   and                                                               
regulations; to protect and educate  the consumer; and to enhance                                                               
the  insurance business  market. With  those goals  in mind,  she                                                               
offered her views on the credit scoring issue:                                                                                  
     One, there  appears to be some  significant correlation                                                                    
     between  credit  history  and   losses.  I  think  this                                                                    
     appears to be a valid  predictor of losses. It's a tool                                                                    
     that I don't feel should  be totally banned. However, I                                                                    
     strongly  feel  that  any  use  of  credit  scoring  in                                                                    
     insurance   should   be  accompanied   by   appropriate                                                                    
     consumer protections.  There are a variety  of specific                                                                    
     measures to  be considered  as policy  decisions. These                                                                    
     would include  things like prohibitions  on the  use of                                                                    
     discriminatory  factors  -   income,  age,  zip  codes,                                                                    
     ethnic  groups,   marital  status  -  those   types  of                                                                    
     prohibitions.  Prohibitions  against  consideration  of                                                                    
     the  absence  of  credit,  prohibitions  against  using                                                                    
      collection accounts with medical industry codes and                                                                       
        other restrictions as deemed appropriate by the                                                                         
      Foremost on my mind on this issue is the requirement                                                                      
     that credit-scoring models for underwriting and rating                                                                     
     be filed with the Division of Insurance for approval.                                                                      
CHAIR BUNDE asked, "How do we achieve that?"                                                                                    
MS. HALL  replied that insurance  companies make filings  and the                                                               
process is outlined in statute.                                                                                                 
CHAIR  BUNDE asked  if legislative  action would  be required  to                                                               
achieve the proprietary information that she recommends.                                                                        
MS. HALL  replied that she  thought the requirement to  file with                                                               
the division  should be  in the bill.  Currently rates  are filed                                                               
and underwriting factors are not filed  and both need to be filed                                                               
with   credit  scoring.   She  encouraged   them  to   make  that                                                               
information confidential.                                                                                                       
CHAIR BUNDE commended that as an amendment to the sponsor.                                                                      
MS. HALL  said the filing  requirement would provide  the ability                                                               
for  the division,  as the  industries' regulating  authority, to                                                               
review the models  to prevent some of the secret  score black box                                                               
allegations. She also suggested  instituting a dispute resolution                                                               
process for  consumers and  to have them  deal directly  with the                                                               
insurance company  rather than the credit  reporting bureaus. She                                                               
thought they would respond in a  timelier manner.  There has been                                                               
testimony about  how long it  takes to correct  inaccurate credit                                                               
reports with some of the agencies.                                                                                              
Her  final recommendation  was  using  Washington State  language                                                               
that requires  consideration of substantive  underwriting factors                                                               
in addition to credit. Some bills  she has seen prohibit the sole                                                               
use of  credit. She urged  them to try  to reach a  middle ground                                                               
with legislation  that provides protection for  Alaskan consumers                                                               
and allows insurance  companies to use credit as one  of the many                                                               
tools in evaluating risk.                                                                                                       
CHAIR  BUNDE  said that  some  companies  that testified  in  the                                                               
committee indicated that  if there is a rate change  or if credit                                                               
scoring affects a rate, they  will notify the consumer. He didn't                                                               
know  if all  companies do  that and  asked if  she thought  that                                                               
should be required in this legislation.                                                                                         
MS. HALL replied that legislation  should address notification of                                                               
adverse action.                                                                                                                 
SENATOR COWDERY asked  if her division had  access to proprietary                                                               
information  from  companies  that  indicate  how  they  use  and                                                               
determine their credit scores now.                                                                                              
MS. HALL replied no.                                                                                                            
SENATOR COWDERY asked if they should.                                                                                           
MS. HALL replied yes.                                                                                                           
SENATOR  STEVENS  asked her  to  talk  a  little more  about  the                                                               
dispute resolution process.                                                                                                     
MS. HALL responded that she  didn't have a specific proposal, but                                                               
Alaska statute has a rating  mechanism that allows an insured who                                                               
feels rates  have been inappropriately  or improperly  applied to                                                               
appeal to  the insurance  company and she  thought that  could be                                                               
expanded to allow  a consumer to appeal to  the insurance company                                                               
if incorrect credit information was used.                                                                                       
SENATOR SEEKINS asked  if she would be able to  give them an idea                                                               
of profit and loss for the last five years.                                                                                     
MS. HALL  answered that she  couldn't answer that right  now, but                                                               
could get that information for him.                                                                                             
SENATOR  SEEKINS  asked  what   companies  presently  use  credit                                                               
scoring in Alaska.                                                                                                              
MS. HALL  replied that they have  a list that is  fairly lengthy.                                                               
She offered to provide him with the list.                                                                                       
SENATOR SEEKINS asked for the names of the major companies.                                                                     
MS. HALL replied  that Allstate Insurance, AIG,  Geico and Safeco                                                               
use credit information for  underwriting; USAA, General Casualty,                                                               
Leader - Progressive use it for rating.                                                                                         
SENATOR SEEKINS asked  who the two major insurers  are that cover                                                               
45 percent of business.                                                                                                         
MS. HALL replied Allstate and State Farm.                                                                                       
SENATOR  SEEKINS  asked  if  Allstate  uses  it  and  State  Farm                                                               
MS. HALL replied that both of them use it for underwriting.                                                                     
SENATOR FRENCH  asked how many  different variables  an insurance                                                               
company  takes  into account  when  it  sets someone's  insurance                                                               
MS. HALL deferred that query  to their property casualty actuary,                                                               
Sarah McNare Grove, who reviews those filings.                                                                                  
SENATOR FRENCH said  he continues to hear that  credit scoring is                                                               
an important  tool and  he wondered how  many tools  there really                                                               
MS. SARAH  MCNARE GROVE, Property Casualty  Actuary, replied that                                                               
it would  depend on the company,  but the kind of  variables that                                                               
are used for private passenger  auto insurance, for instance, are                                                               
the age of  the driver, the make of the  vehicle, driving record,                                                               
and gender. In addition to that, some companies add credit.                                                                     
SENATOR FRENCH  said then that  he understands that there  may be                                                               
as few as five variables.                                                                                                       
MS. GROVE replied yes, that's possible.                                                                                         
SENATOR  FRENCH asked  if some  companies get  a little  more in-                                                               
depth than that.                                                                                                                
MS. GROVE replied that it varies.                                                                                               
SENATOR  FRENCH  asked  when  credit   scoring  became  a  common                                                               
practice in the industry.                                                                                                       
MS. GROVE  replied that  the first filing  happened in  Alaska in                                                               
approximately 1997 or '98.                                                                                                      
SENATOR FRENCH asked if before 1997-98, rates were going up.                                                                    
MS. GROVE  replied that she  didn't remember, but would  get that                                                               
information for him.                                                                                                            
SENATOR FRENCH responded  that he would be  interested in looking                                                               
back 10 years on the profit  and loss statements - mainly because                                                               
three  years  ago  we  entered  into  a  major  bear  market  and                                                               
everybody has  had a hard  time making money, not  just insurance                                                               
companies.  He  wanted  to  make  sure they  were  not  hiding  a                                                               
cyclical loss behind one tool.                                                                                                  
MS.  GROVE replied  that one  of the  other reasons  the division                                                               
would  very much  like  to have  rating  and underwriting  models                                                               
filed is to provide for a full  range of review of those types of                                                               
factors used  in rates to  make sure  that what's being  filed is                                                               
really  appropriate.  Profitability  would certainly  be  one  of                                                               
those review items.                                                                                                             
SENATOR FRENCH asked  what Ms. Hall did before  she recently took                                                               
this job.                                                                                                                       
MS. HALL replied that she has  been in the insurance industry for                                                               
17  years  in  Alaska;  she   was  an  insurance  agent  and  has                                                               
represented Alaska  on a National  Board of Insurance  Agents and                                                               
felt  that she  has  a  broad perspective  of  what is  occurring                                                               
SENATOR COWDERY said  that she didn't have  access to information                                                               
about  how  insurance companies  determine  rates,  but that  she                                                               
would like to and asked what the legislature could do to help.                                                                  
CHAIR BUNDE  interrupted and said  he had  an idea. He  asked for                                                               
the  assurance of  the sponsor  and  the chair  of the  Judiciary                                                               
Committee (where SB 13 goes  next) to work together to strengthen                                                               
this  bill  and make  it  more  consumer friendly  while  keeping                                                               
insurance profitable, and  said he wanted to move the  bill on to                                                               
the next committee.                                                                                                             
SENATOR SEEKINS  moved to pass  SB 13, version D,  from committee                                                               
with  individual   recommendations.  SENATORS   FRENCH,  STEVENS,                                                               
SEEKINS and BUNDE voted yea and SB 13 passed from committee.                                                                    
CHAIR BUNDE adjourned the meeting at 2:55 p.m.                                                                                  

Document Name Date/Time Subjects