Legislature(1995 - 1996)

02/01/1996 03:31 PM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
               SENATE STATE AFFAIRS COMMITTEE                                
                        February 1, 1996                                       
                           3:31 p.m.                                           
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
 Senator Bert Sharp, Chairman                                                  
 Senator Randy Phillips, Vice-Chairman                                         
 Senator Loren Leman                                                           
 Senator Jim Duncan                                                            
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
 Senator Dave Donley                                                           
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
 SENATE CONCURRENT RESOLUTION NO. 2                                            
 Relating to reimbursement of expenses for residents who travel to             
 the capital city to attend legislative sessions or to testify                 
 before legislative committees.                                                
                                                                               
 SENATE BILL NO. 231                                                           
 "An Act relating to title insurance; and providing for an effective           
 date."                                                                        
                                                                               
 SENATE BILL NO. 217                                                           
 "An Act relating to eligibility for the longevity bonus; and                  
 providing for an effective date."                                             
                                                                               
  PREVIOUS SENATE COMMITTEE ACTION                                             
                                                                               
 SCR 2 - See State Affairs minutes dated 1/26/95.                              
                                                                               
 SB 231 - No previous senate committee action.                                 
                                                                               
 SB 217 - No previous senate committee action.                                 
                                                                               
  WITNESS REGISTER                                                             
                                                                               
 Jamie Parsons, Chairperson                                                    
 Alaska Committee                                                              
 9218 Emily Way, Juneau, AK 99801¶(907)789-9201                                
   POSITION STATEMENT: testified on SCR 2                                      
                                                                               
 Senator Steve Rieger                                                          
 State Capitol, Juneau, Alaska, 99801-1182¶(907)465-3879                       
   POSITION STATEMENT: prime sponsor of SB 231                                 
                                                                               
 Roger Floerchinger, President                                                 
 Yukon Title Company, Inc                                                      
 3241 Riverview Dr., Fairbanks, AK 99709¶(907)456-3474                         
   POSITION STATEMENT: opposed to SB 231                                       
                                                                               
 Joe Faulhaber, Broker                                                         
 Realty, Inc.                                                                  
 105 Adak Ave., Fairbanks, AK 99701¶(907)452-5186                              
   POSITION STATEMENT: opposed to SB 231                                       
                                                                               
 Bryan Merrell, Vice President & Chief Title Officer                           
 First American Title Company of Alaska                                        
 Underwriter,                                                                  
 First American Title Insurance Company                                        
 510 W. Tudor Rd., Ste. 1, Anchorage, AK 99503¶(907)562-0510                   
   POSITION STATEMENT: opposed to SB 231                                       
                                                                               
 Cliff Groh, Attorney                                                          
 Alaska Land Title Association                                                 
 2550 Denali St., Ste. 1700, Anchorage, AK 99503¶(907)272-6474                 
   POSITION STATEMENT: opposed to SB 231                                       
                                                                               
 Jan Nauman                                                                    
 P.O. Box 210506, Auke Bay, AK 99821¶(907)790-4370                             
   POSITION STATEMENT: testified on SB 231                                     
                                                                               
 Michael Price, Attorney                                                       
 Alaska Land Title Association                                                 
 2550 Denali, No. 1700, Anchorage, AK 99503¶(907)272-6474                      
   POSITION STATEMENT: opposed to SB 231                                       
                                                                               
 Steve Jewett                                                                  
 First American Title Insurance Company of Alaska                              
 510 W. Tudor, No. 101, Anchorage, AK 99503¶(907)562-4510                      
   POSITION STATEMENT: testified on SB 231                                     
                                                                               
 Tim Hurley                                                                    
 Western Alaska Land Title Company                                             
 P.O. Box 864, Kodiak, AK 99615¶(907)486-4433                                  
   POSITION STATEMENT: opposed to SB 231                                       
                                                                               
 Mary Ann Rowe, President                                                      
 Kachemak Bay Title                                                            
 3691 Ben Walters Lane, #1, Homer, AK 99603¶(907)235-8196                      
   POSITION STATEMENT: opposed to SB 231                                       
                                                                               
 Jeff Blake, President                                                         
 Alaska Land Title Association                                                 
 Pacific Rim Title Insurance Company                                           
 307 E. Northern Lights, Anchorage, AK 99503¶(907)274-2562                     
   POSITION STATEMENT: testified on SB 231                                     
                                                                               
 Don Koch, Chief                                                               
 Marketing Surveillance, Division of Insurance                                 
 Department of Commerce & Economic Development                                 
 P.O. Box 110805, Juneau, AK 99811-0805¶(907)465-2577                          
   POSITION STATEMENT: testified on SB 231                                     
                                                                               
 Connie Sipe, Director                                                         
 Division of Senior Services                                                   
 Department of Administration                                                  
 3601 C St., Ste. 380, Anchorage, AK 99503-5984¶(907)563-5654                  
   POSITION STATEMENT: representing Governor-prime sponsor of SB 217           
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
                                                                               
       SCR  2 REIMBURSEMENT FOR TRAVEL TO CAPITAL CITY                       
                                                                               
 TAPE 96-7, SIDE A                                                             
                                                                               
 Number 001                                                                    
                                                                               
 CHAIRMAN SHARP called the Senate State Affairs Committee to order             
 at 3:31 p.m. and brought up SCR 2 as the first order of business              
 before the committee.  The chairman called Senator Randy Phillips             
 to testify.                                                                   
                                                                               
 Number 030                                                                    
                                                                               
 SENATOR RANDY PHILLIPS, prime sponsor of SCR 2, stated that the               
 resolution is basically a suggestion to the City & Borough of                 
 Juneau to reimburse travel expense to Juneau for purposes of                  
 testifying before committees and meeting with their legislators.              
 Senator Phillips related information contained in the Sponsor's               
 Statement.                                                                    
                                                                               
 Number 063                                                                    
                                                                               
 SENATOR LEMAN voiced three areas of concern:                                  
  1) would there be full or partial reimbursement for expenses;                
  2) would buying a block of airline seats be an option;                       
  3) how would this affect the effort to keep air fares                        
     reasonable?                                                               
                                                                               
 Number 108                                                                    
                                                                               
 SENATOR RANDY PHILLIPS responded he envisions that the City &                 
 Borough of Juneau, Legislative Affairs Agency, and the Legislative            
 Council will work out the details.  Hopefully, they can get a block           
 of tickets or a special rate from the Airline, and give people an             
 airline ticket if they have a legitimate reason for coming to                 
 Juneau to talk to their legislators.  The point is access.  CBJ is            
 already spending money on access: they've spent up to $200,000 on             
  Gavel to Gavel .                                                             
                                                                               
 Number 145                                                                    
                                                                               
 JAMIE PARSONS, Chairperson of the Alaska Committee, stated the                
 mission of the Alaska Committee is to enhance Juneau as Alaska's              
 Capital City.  Mr. Parsons stated for the record that the Alaska              
 Committee raises its' own funds for operational expenses.  Several            
 things the committee supports are: two-way video-teleconferencing,            
  Gavel to Gavel  television coverage of legislative meetings and              
 floor sessions and coordinating educational materials, technology             
 education, and transportation access through the new GPS (Global              
 Positioning System) navigational guidance.  The Alaska Committee is           
 also working to secure additional competitive airline service to              
 Juneau and working with the existing carrier to accommodate                   
 legislative needs and fares.  We are also monitoring the Juneau               
 Access Study, which deals with surface access to northern Lynn                
 Canal.  The City & Borough of Juneau is also working to improve               
 housing.                                                                      
                                                                               
 Number 255                                                                    
                                                                               
 MR. PARSONS stated in closing that the Alaska Committee will                  
 continue to work on all issues relating to access, and that the               
 committee does seek the legislature's input and ideas.                        
                                                                               
 CHAIRMAN SHARP stated that, there being no further discussion on              
 SCR 2, the committee would go on to the next item of business.                
                                                                               
                    SB 231 TITLE INSURANCE                                   
                                                                               
 Number 275                                                                    
                                                                               
 CHAIRMAN SHARP brought up SB 231 as the next order of business                
 before the Senate State Affairs Committee and called Senator Rieger           
 to testify.                                                                   
                                                                               
 Number 280                                                                    
                                                                               
 SENATOR RIEGER, prime sponsor of SB 231, began by directing                   
 committee members' attention to a letter (from Jan Nauman) in their           
 bill packets from an individual who had a narrow brush with having            
 to pay for three title insurance policies within the space of a few           
 weeks for some residential property.  That letter is just the most            
 recent in a string of correspondence his office has received over             
 the years questioning the requirement for and the pricing of title            
 insurance.  In the past, one could get a discount on rates paid for           
 title insurance policies when a piece of property was refinanced or           
 when two title policies were issued upon the same piece of                    
 property.  This changed several years ago, when the Division of               
 Insurance handed down a directive denying any ability to discount,            
 with the exception of a less than 20% discount.  Senator Rieger               
 noted that the actual title insurance is just a small fraction of             
 the amount which the consumer pays in premium to the agent.  Claims           
 paid are around 4-5% of the amount paid in premiums.  However, the            
 Division of Insurance has been approving rates which cover a large            
 amount of additional work, such as title searches, which are                  
 activities that the Federal Trade Commission (FTC) has found do not           
 involve insurance.                                                            
                                                                               
 SENATOR RIEGER stated that SB 231 would address the issue in two              
 ways: first, to attempt to prescribe a lower fee for a refinance.             
 The second would be to repeal the Division of Insurance's rate-               
 fixing policy, so that relief to the customer could come through              
 market competition.  Senator Rieger believes the latter approach              
 would be preferable.  So he would not object if Section 1 was                 
 removed, but thinks that approach should be out there for                     
 discussion.                                                                   
                                                                               
 Number 365                                                                    
                                                                               
 ROGER FLOERCHINGER, President, Yukon Title Company, Inc., stated              
 that if SB 231 is adopted, it will have negative consequences for             
 anyone who owns, wants to purchase, or seeks to refinance a home.             
 SB 231 will prohibit title insurance companies from charging more             
 than $75 to issue a title insurance policy to the same person or              
 the person's lender within 15 years and removes existing                      
 prohibition on title insurance companies discounting their                    
 published rates.  But title insurance companies cannot issue a                
 title policy for $75; that amount will not cover the title                    
 companies' cost.  If those kinds of policies cannot be sold, except           
 at a loss, title insurance agencies will be unwilling to issue                
 them.  Mr. Floerchinger contends that refinancing of existing homes           
 will be the most affected, and refinancing may become unavailable.            
                                                                               
                                                                               
 Number 395                                                                    
                                                                               
 MR. FLOERCHINGER stated that the second portion of SB 231, which              
 modifies the rules regarding the rates title insurers are allowed             
 to charge, would simply make tariff rates the highest allowable               
 rate.  Mr. Floerchinger thinks that in certain types of markets,              
 competition is not an effective market regulator.  He stated that,            
 since there are a limited number of underwriters, it is important             
 that those underwriters retain adequate reserves to cover potential           
 losses.  Over the last decade, the number of title insurance                  
 companies issuing title insurance policies has dropped from seven             
 to two in Alaska.  While there are several title insurance                    
 agencies, the policies they offer are issued by just two insurance            
 underwriters.  Mr. Floerchinger foresees the loss of independent              
 agencies from the market in Alaska, with all the consequences one             
 would expect from a monopoly.  Because of this scenario, every                
 state strictly regulates the title insurance industry.  He stated             
 that SB 231 would impose an arbitrary fixed limit on the price of             
 one product, while removing existing regulatory constraints in                
 other areas.  Mr. Floerchinger asserted that the status quo works,            
 and stated that SB 231 is a bad idea and will have precisely the              
 opposite effect of that intended.                                             
                                                                               
 Number 408                                                                    
                                                                               
 SENATOR LEMAN stated he understands the concern about competition.            
 But he noted that in 1989 representatives of Alascom explained to             
 him why intrastate competition would be bad for Alaskans.  He                 
 didn't believe them at the time, and is glad there is competition.            
 He finds it hard to understand why we can't translate that same               
 thought into all businesses.  Senator Leman asked Mr. Foerchinger             
 why, since such a small fraction of the business is for insurance             
 purposes, the service portion of the business shouldn't be                    
 competitive.                                                                  
                                                                               
 Number 427                                                                    
                                                                               
 MR. FOERCHINGER responded that the margins of profit are already              
 marginal.  The way the bill is written, it will not allow the                 
 industry to increase those rates in instances where it's justified.           
 SB 231 only allows for decreases in the rates.  Something like this           
 would put the small guys out of business.  He doesn't think that              
 title insurance will become unavailable in Alaska, but he does                
 think that one will find an environment where insurance is only               
 provided by national companies, probably examined and underwritten            
 outside the state of Alaska.  He does not think there will be                 
 independent companies offering the services currently offered.                
                                                                               
 Number 450                                                                    
                                                                               
 SENATOR LEMAN asked if it would be possible to free up part of the            
 industry, allowing the market to establish its' own rate, with                
 perhaps the exception of the actual title insurance portion.                  
                                                                               
 Number 456                                                                    
                                                                               
 SENATOR RIEGER thinks that would be a reasonable approach to the              
 issue: that there is an insurance component and a service                     
 component.  The reason for the filing of a rate and then having the           
 ability to go lower was that sometimes the closing process can be             
 a highly charged, emotional situation and he wanted to prevent                
 excessive rates.  But he is open to discussion on that point.                 
                                                                               
 Number 470                                                                    
                                                                               
 JOE KAULHABER, Principal Real Estate Broker, Realty, Inc., stated             
 though he is representing himself before the committee, he has a              
 resolution from the Greater Fairbanks Board of Realtors opposing SB
 231.                                                                          
                                                                               
 SENATOR RANDY PHILLIPS noted that committee members have a copy of            
 that resolution in their bill packets.                                        
                                                                               
 MR. FAULHABER stated that he doesn't have any answers; the problem            
 is a complex one.  But he is concerned that the bill as presented             
 would be very disruptive to the real estate industry.  Formerly, he           
 had his own escrow division within his company.  It was very                  
 expensive and it didn't work very well, because it was mixing a               
 marketing function with an accounting function.  When the title               
 companies in Fairbanks became sophisticated enough to take that               
 function over, that was actually the first year Mr. Faulhaber                 
 experienced profitability in his own business.  If this bill is               
 passed, he believes the title insurance companies would be hampered           
 to the point where services delivered to the unsophisticated                  
 residential customer would diminish significantly.                            
                                                                               
 MR. FAULHABER informed the committee that the first thing a real              
 estate company does when marketing a property is to ask a title               
 company for an abstracted title.  Prior to the current good                   
 service, it used to take 90-120 days to get a preliminary                     
 commitment for title insurance.  It was not uncommon to have five             
 and six-month closings.  This causes a lot of suffering.  As                  
 Senator Rieger noted, selling or buying a personal residence is a             
 very emotional experience.  The biggest suffering is often                    
 unnecessary because it's something that could have been handled,              
 but it comes in the form of a surprise.                                       
                                                                               
 MR. FAULHABER thinks that if rates are deregulated to allow                   
 negotiation, commercial clients, who are more sophisticated, would            
 negotiate their rates down, while consumer rates for houses would             
 go up.  Those rates probably wouldn't be negotiated.  Once again,             
 the people who could least afford to pay the most would be paying             
 a larger pro rata share.                                                      
                                                                               
 Number 505                                                                    
                                                                               
 BRYAN MERRELL, Vice President and Chief Title Officer, First                  
 American Title Company of Alaska, Underwriter for First American              
 Title Insurance Company, stated that if SB 231 passes, it will                
 radically change the way the business of title insurance is                   
 conducted in the state by deregulating rates.  To his knowledge,              
 not a single state has enacted a similar statute.  Currently, title           
 insurance agencies are required to treat all customers equally,               
 which puts all title insurance agents and underwriters on a level             
 playing field.  Mr. Merrell thinks that the only customers who                
 would be able to negotiate rates under SB 231 would be the larger-            
 volume customers.  He does not think it will be the average                   
 homeowner who will benefit.                                                   
                                                                               
 MR. MERRELL noted that other rates in real estate transactions are            
 negotiable, including the survey, the appraisal, the engineer's               
 report, well and septic inspections, lender's origination fees, and           
 the interest rate on the mortgage.  While the costs of these                  
 components are almost never successfully negotiated for the typical           
 homeowner's real estate transaction, they are always negotiated in            
 a large commercial transaction involving a real estate developer.             
 Mr. Merrell thinks the effect of SB 231 would be to allow                     
 significant reductions in rates charged to large commercial                   
 customers and real estate developers, while the rates charged to              
 the homeowner would likely increase to offset the loss of revenue             
 resulting from negotiating commercial rates.  The maximum rate                
 created by SB 231 will not prevent this inevitable outcome.  If               
 this bill is passed, the title insurance industry will remain a               
 regulated industry.  The Division of Insurance will continue to               
 have the obligation to prevent the lack of regulation from creating           
 failure in the industry.                                                      
                                                                               
 MR. MERRELL stated that the $75 fee to add an additional insured to           
 a policy would not give the type of insurance that lenders are                
 seeking when they come to the title companies for a refinance                 
 policy.  Adding the insured will not protect a party who is either            
 buying a new property or lending against the property after the               
 date of the policy.  The current charge to add an insured to a                
 policy under the current rate schedule is $50, so SB 231 would                
 actually increase that cost.                                                  
                                                                               
 MR. MERRELL stated that currently, competition among title                    
 insurance companies is based upon services rendered.  We would like           
 competition to continue upon those lines, and not on rates.  We               
 would like to keep the playing field level with the current rate              
 schedule.                                                                     
                                                                               
 Number 555                                                                    
                                                                               
 CLIFF GROH, Alaska Land Title Association, stated he has been                 
 associated with the title insurance industry for 30 years as an               
 attorney.  Mr. Groh said that SB 231 will not solve the problems of           
 the title insurance industry.  To solve Senator Rieger's problem of           
 refinancing houses, you should confer with the industry and the               
 Division of Insurance.  There is a model Title Insurance Act.  The            
 legislature should consider that possibility.  SB 231 is                      
 approaching the problem backwards.  The reason the industry is                
 regulated is to ensure that there will be enough money to pay the             
 companies that are taking the risks, and enough money to pay the              
 underwriters.  Mr. Groh suggested just dealing with the question of           
 refinancing.  He does not believe that SB 231 is workable, because            
 the underwriters will not let the agents set the rates.                       
                                                                               
 TAPE 96-7, SIDE B                                                             
                                                                               
 Number 585                                                                    
                                                                               
 JAN NAUMAN stated she is present to inform the committee of the               
 consumer's side of the title insurance issue.  She noted that the             
 letter to which Senator Rieger referred was from her.  She stated             
 that her experience with the title insurance company was very                 
 different from that portrayed by the previous testifiers.  Ms.                
 Nauman repeated to the committee her experience, as outlined in her           
 letter.  All three transactions on the same piece of property                 
 required three different title insurance policies.  She was told              
 that, not only was she purchasing three consecutive title insurance           
 policies, but that each policy voided the prior policy.                       
                                                                               
 MS. NAUMAN stated that the title insurance company wanted $970 for            
 what they freely admitted was two-minutes worth of work, at which             
 point she got rather excited.  As a consumer, the most frightening            
 part to her is that the existing tariffs do not cause title                   
 insurance to be administrated equitably.  Her second problem is               
 with the fact that the reissuing of title insurance causes the                
 consumer to be damaged: if one purchases a house for a higher                 
 price, then one has title insurance for the whole transaction; the            
 subsequent purchase of a loan or a rollover of a loan causes the              
 purchaser to be insured for a lesser amount.  The third thing she             
 has a problem with is that the existing statutes allow collusion to           
 exist between title insurance companies and banks.  When she was              
 asked for her third title insurance payment, the title insurance              
 company claimed to be an agent of the bank.  Since both she and the           
 bank already had insurance, what was that third policy for?  Ms.              
 Nauman stated that her experience was disappointing, and whatever             
 the changes made in statute, hopefully consumers won't be left                
 hanging out to dry like she was.                                              
                                                                               
 Number 508                                                                    
                                                                               
 MICHAEL PRICE, Attorney, Alaska Land Title Association, testifying            
 from Anchorage, stated he speaks in opposition to SB 231.  He                 
 informed the committee that there are only two national                       
 underwriters in Alaska.  There are approximately 20 Alaskan                   
 companies, that he thinks will be impacted negatively by SB 231.              
 He related settlement costs of a recent refinancing in which he was           
 involved, in which title insurance composed only 10% of the                   
 refinancing costs.  Mr. Price stated that the base title insurance            
 rates have not changed since 1968.                                            
                                                                               
 Number 463                                                                    
                                                                               
 SENATOR RIEGER asked Mr. Price if the base rate to which he is                
 referring is a percentage of the mortgage.                                    
                                                                               
 MR. PRICE responded that it is a dollar-per-thousand figure.                  
                                                                               
 SENATOR RIEGER thinks that the thousands of dollars of a typical              
 mortgage must have changed since 1968.                                        
                                                                               
 MR. PRICE responded that the value of property has changed, but not           
 the rate charged by the title insurance industry.                             
 Number 455                                                                    
                                                                               
 STEVE JEWETT, First American Title Insurance Company of Alaska,               
 testifying from Anchorage, stated that every commitment his company           
 offers has a liability factor also.  Sometimes lenders will                   
 actually use offers for a report or a policy of some sort.                    
                                                                               
 Number 445                                                                    
                                                                               
 TIM HURLEY, Western Alaska Land Title Company, testifying from                
 Kodiak, stated opposition for SB 231.  He doesn't think the bill's            
 consequences have been researched, nor does he think it will                  
 effectively address the needs of the industry users.                          
                                                                               
 Number 430                                                                    
                                                                               
 MARY ANN ROWE, President, Kachemak Bay Title, testifying from                 
 Homer, does not think SB 231 has been thoroughly analyzed.  She               
 thinks the bill will have severe negative effects on the real                 
 estate and mortgage industry.  She thinks the current regulations             
 do work.  Ms. Rowe stated that if the industry is deregulated,                
 underwriters will no longer be able to afford underwriting in                 
 Alaska.  She does not think the cost for title insurance is out of            
 line with the product the consumer receives, and that SB 231 would            
 be a lose-lose situation in all cases.                                        
                                                                               
 Number 395                                                                    
                                                                               
 JEFF BLAKE, Pacific Rim Title Insurance, President of Alaska Land             
 Title Association, testifying from Anchorage, repeated comments               
 made in a letter written to Cliff Groh, which he believes was                 
 forwarded to the committee.  Mr. Blake informed the committee that            
 New Mexico has enacted a law similar to what SB 231 intends, but              
 the rates do go up and down to try to keep agents in the state.               
 Mr. Blake also commented that two of his jobs disappeared when                
 underwriters left the state.  He stated that on a refinancing, the            
 insurance that's issued at that point insures the lien of a                   
 specific security instrument.  If that instrument is reconveyed and           
 satisfied, it doesn't transfer over.                                          
                                                                               
 Number 363                                                                    
                                                                               
 DON KOCH, Chief of Market Surveillance, Division of Insurance,                
 Department of Commerce & Economic Development, stated they have               
 some concerns with the legislation.  The first concern is with the            
 repealer section, which would repeal the rate standards for title             
 insurance.  Those standards basically say that the rates shall not            
 be excessive, shall not be inadequate, and shall not be unfairly              
 discriminatory.  It then provides for establishing a title rate as            
 a maximum.  The trouble the division would have with that is that             
 there would be no way to tell what that maximum should be.  There             
 would be no standard with which to establish a rate.  If the public           
 was to see a rate there as a maximum, the natural assumption would            
 be that since the Division of Insurance has approved it, that is              
 the approved rate.  But that rate may not meet any of the standards           
 we're talking about.                                                          
                                                                               
 MR. KOCH stated that the second concern with the repealer is the              
 unfair discrimination.  There is also an unfair discrimination                
 section in our Unfair Trade Practices Act, which does not go away.            
 So that creates a dilemma, because the title rate would have those            
 standards removed, but they would still exist in the Unfair Trade             
 Practices Act, which would arguably still apply.  Mr. Koch thinks             
 this issue needs to be addressed.                                             
                                                                               
 Number 337                                                                    
                                                                               
 MR. KOCH stated  that the division's paramount concern as                     
 regulators is the solvency of the insurers.  There are currently              
 only two title insurers writing title insurance policies in the               
 state.  There are ten title insurers admitted to do business in the           
 state.  There have been a progression of companies "hopping out of            
 here".  An additional concern of deregulation of rates is the                 
 potential for the creation of a monopoly, or a monopoly in certain            
 areas.  The division would have trouble dealing with that.                    
                                                                               
 Number 315                                                                    
                                                                               
 MR. KOCH stated that there is a provision in the FTC Act that                 
 basically says the search and examination portion of the title                
 insurance operation is not the business of insurance.  What some              
 states have done is to deregulate the search and examination                  
 portion of the rate.  Currently in Alaska, the way the law is                 
 structured, the entire rate is subject to filing.  This has created           
 a dilemma for some time.  The division has been trying to develop             
 a methodology with which to test existing standards.  The division            
 has held numerous meetings with the industry, and we have had                 
 hearings.  The hearings resulted in the order in 1992 where we said           
 all the discounts are disapproved because the division had no way             
 to support anything we were being told.  There is no support.  As             
 long as those two rates come together in the way they currently do            
 under our statute, it will probably remain almost an impossibility            
 to develop a reasonable standard.                                             
                                                                               
 Number 304                                                                    
                                                                               
 MR. KOCH stated it is currently the belief of the division that the           
 title insurer portion of the rate, about 10-12%, is inadequate for            
 their needs.  The 88-90% of the rate that goes to the title                   
 insurance agent for title insurance pieces of the operation is                
 probably excessive.  The reason for this belief is that the                   
 examinations we've done to test the rebate statutes found that                
 there is a very heavy subsidy for non-title services, such as                 
 escrow settlement and closing operations.  The subsidies found in             
 the Anchorage bowl area ranged from 29-64%.  That meant that the              
 escrow charges were not meeting the cost of delivering that                   
 service.  They are integrated services, you can't have one without            
 the other.  He is merely pointing out that if you push down one               
 button, another one will pop up someplace, and he's not sure what             
 the ultimate cost will be.  He doesn't raise issue with the                   
 statement that the overall cost of operating a title agency is                
 marginal, but the allocations within the structure of those                   
 agencies are probably priced in such a way that there is probably             
 too much coming in from the title side, and too little coming in              
 from the escrow side.  Mr. Koch stated he is providing the                    
 committee with an article he wrote a few years ago that was                   
 published in the journal of insurance regulation.  It is a primer             
 on title insurance for the regulator.  It addresses some regulatory           
 concerns.                                                                     
                                                                               
 Number 270                                                                    
                                                                               
 CHAIRMAN SHARP stated that the committee would be gathering all the           
 information available.                                                        
                                                                               
 Number 260                                                                    
                                                                               
 MR. KOCH stated that two possible options would be to preserve the            
 rate structure for the title insurance portion.  The other would be           
 to develop a rate structure for the title insurer that considers              
 everything they need to remain in business, and apply a similar               
 methodology to the title insurance agent.  The division will flesh            
 out those alternatives and give the committee more concrete                   
 information.                                                                  
                                                                               
 Number 245                                                                    
                                                                               
 CHAIRMAN SHARP stated he would look forward to that information.              
 He noted that testimony has indicated that the market availability            
 for title insurance services has dwindled considerably in the past            
 ten years.  He would not want to see a monopoly develop.                      
                                                                               
 Number 238                                                                    
                                                                               
 SENATOR LEMAN asked Mr. Koch if the challenge is more with the                
 insurers, about there being a danger of a monopoly developing.  Is            
 the division not able to disaggregate the costs sufficiently.  Are            
 the services so intertwined with the insurance that they can't be             
 separated?                                                                    
                                                                               
 Number 226                                                                    
                                                                               
 MR. KOCH responded that there are some states that do not regulate            
 what the title agencies do.  However, the one thing that must be              
 realized is that there is a greater diversity in how states deal              
 with title insurance than any other kind of insurance.  The                   
 monopoly that we are initially concerned with is the monopoly that            
 could occur in the title agent market.  Another concern is that the           
 search and examination portion is considered by the FTC to be their           
 turf.  Because of that, the title industry gets downright paranoid            
 when they hear "FTC".  If the last two insurers in the state feel             
 like we're under the looking glass from the FTC, they might start             
 to think a little differently about whether they want to stay in a            
 state the size of Alaska.  It is also significant to note that 88-            
 90% of title insurance premiums stay in Alaska.  The division did             
 find that for the most part, none of the title insurance agencies             
 believed in the discounts.  They were simply used to gain a                   
 temporary niche in the market place.                                          
                                                                               
 Number 156                                                                    
                                                                               
 SENATOR RIEGER asked Mr. Koch if the division has a position or               
 inclination that the amount of discount currently allowed for                 
 refinancing is excessively low.                                               
                                                                               
 MR. KOCH stated the division believes that the refinancing rate               
 should be subject to some kind of discount, but we haven't allowed            
 any, except for short-term discounts.  We don't know where the                
 number should be.  We have told title insurers and people who call            
 us that it is the division's intent that short-term discounts,                
 which are 20%, should also apply to refinancing.  Some agencies               
 have not interpreted it that way, but we have tried to correct that           
 interpretation.  So that 20% discount is available, though he is              
 not sure that is enough of a discount for a refinancing.                      
                                                                               
 CHAIRMAN SHARP thanks Mr. Koch for his testimony and stated that SB
 231 will be set aside for at least two to three weeks.  The                   
 committee will try to give ten days to two weeks notice on                    
 rescheduling of the bill.                                                     
                                                                               
           SB 217 INCOME LIMITS FOR LONGEVITY BONUS                        
                                                                               
 SENATOR SHARP brought up SB 217 as the next order of business                 
 before the Senate State Affairs Committee and called a                        
 representative of the administration to give an overview of the               
 legislation.  The chairman announced that no action will be taken             
 on the bill at this date.                                                     
                                                                               
 Number 090                                                                    
                                                                               
 CONNIE SIPE, Director of the Division of Senior Services,                     
 Department of Administration, representing the prime sponsor,                 
 stated that SB 217 would change the longevity bonus statute to                
 eliminate Alaska Senior Citizens with high incomes.  Ms. Sipe                 
 related information contained in the sponsor's statement.  One of             
 the things the administration decided while trying to make budget             
 reductions that affected seniors, was that we should try to make              
 reductions in a way that would impose the least hardship on                   
 seniors.  SB 217 is in addition to the phase-out program, it does             
 not replace the phase-out program.  The income limitation is not              
 needs based.  The bill will probably affect 1,500-2,000 people.  If           
 a senior's income drops, that senior can become eligible again for            
 a longevity bonus.  The second portion of SB 217 would address                
 bonus recipients who spend little of the year in Alaska.                      
                                                                               
 TAPE 96-8, SIDE A                                                             
                                                                               
 Number 001                                                                    
                                                                               
 MS. SIPE continued with the administration's overview of SB 217.              
 She stated that about half of the feedback the administration has             
 received regarding the legislation has been supportive.  Many of              
 the people who have been in support of the legislation have                   
 suggested lowering the income ceiling.  Though there has been both            
 support and opposition, she believes SB 217 was the best proposal,            
 and that it could be simply administered.  Administration on an               
 honor basis is the intention.  The longevity bonus program has                
 always been administered on an honor basis, with only those people            
 who gave us indication to believe they were defrauding the program,           
 or those people who were reported for fraud being investigated.               
 This program is run with three clerks.                                        
                                                                               
 Number 038                                                                    
                                                                               
 CHAIRMAN SHARP asked if the program can really be processed by                
 three people.                                                                 
                                                                               
 MS. SIPE responded that the program processes, every single month,            
 a bonus sign-off from every single person.  We have to physically             
 open the envelopes and enter the data into the computer.  We will             
 create one more computer field, and we feel we can handle that.  We           
 can send two extra sheets of paper in any one envelope for the same           
 amount of postage.  She thinks the administration could handle it             
 with no additional resources if the legislation is kept as simple           
 as it is currently written.  If more hardship exemptions are made             
 or more verifications are required, then it would get more                    
 difficult.                                                                    
                                                                               
 Number 064                                                                    
                                                                               
 CHAIRMAN SHARP asked Ms. Sipe if dividends received from regional             
 (native) corporations are tax exempt from federal income taxes and            
 would not be included in gross income.                                        
                                                                               
 MS. SIPE responded that is a question she has asked the drafting              
 attorney, and she is waiting for a reply.  Veteran's benefits and             
 disability benefits are not taxable, so they wouldn't be included             
 in gross income.                                                              
 SENATOR LEMAN thinks native corporation dividends would not be                
 taxed.                                                                        
                                                                               
 SENATOR RANDY PHILLIPS asked Ms. Sipe if administration will be               
 based on faith.                                                               
                                                                               
 MS. SIPE responded that is how the program is currently run.  There           
 has been audit after audit, and very little fraud is found among              
 this population.  Senior citizens tend to be really honest.                   
                                                                               
 SENATOR RANDY PHILLIPS commented it was one thing to prove you're             
 65 and living in the state.  It is another thing to prove income.             
 People are more secretive about income than age.                              
                                                                               
 Number 109                                                                    
                                                                               
 MS. SIPE replied that people will not be asked to disclose their              
 income, but to declare themselves above or below a limit.                     
                                                                               
 SENATOR RANDY PHILLIPS asked how she's going to prove something               
 like that.                                                                    
                                                                               
 MS. SIPE responded that one of the side benefits of the limit that            
 the governor set, was that it is felt that at that income level               
 there is less incentive to want to hedge.                                     
                                                                               
 SENATOR RANDY PHILLIPS commented it would be interesting to see how           
 many people hedge on PFD applications.  He thinks it is about 10%.            
                                                                               
 MS. SIPE replied that her division has worked with the PFD Division           
 and done cross-runs, and they don't find that percentage in the               
 longevity bonus program.                                                      
                                                                               
 SENATOR RANDY PHILLIPS thinks it will be harder to prove whether or           
 not someone's cheating on the income requirements than on presence-           
 in-the-state requirements.  He has a hard time accepting the so-              
 called honor system, based on these income levels.                            
                                                                               
 CHAIRMAN SHARP commented maybe that's because Senator Phillips is             
 so young.  He asked Ms. Sipe about the second part of the bill                
 regarding required presence in the state.                                     
                                                                               
 MS. SIPE responded that if a person is out more than 90 days in a             
 row, they are out of the program.  But the program currently does             
 not have a cumulative time requirement, like in the permanent fund            
 dividend program.                                                             
                                                                               
 Number 170                                                                    
                                                                               
 CHAIRMAN SHARP asked for confirmation that the benefit will be tied           
 strictly to income, and not net worth.                                        
                                                                               
 MS. SIPE replied that is correct.  She also mentioned that a side-            
 benefit of the income requirement in SB 217 would result in almost            
 a two-million dollar savings impact in the public assistance                  
 budget.  The hold-harmless state replacement of lost federal                  
 supplemental social security income to the lowest income elders in            
 our state would no longer be necessary.  The Social Security Act              
 allows states to set up programs that benefit seniors, disabled,              
 etcetera, as long as there is any kind of means or asset test.                
 That impact was not planned when we were working on this bill.  We            
 were looking at what we could do to contribute to the budget                  
 situation.                                                                    
                                                                               
 Number 188                                                                    
                                                                               
 CHAIRMAN SHARP asked if the administration explored the possibility           
 or received input on acceptability of an across-the-board                     
 reduction.                                                                    
                                                                               
 MS. SIPE responded that was considered, but we felt that would take           
 $25 or $50 or whatever from some people who were among the neediest           
 of seniors.                                                                   
                                                                               
 CHAIRMAN SHARP stated he hears from many people who tell him they             
 would rather take equal cuts, than dividing and conquering on one             
 end or the other of the benefit.                                              
                                                                               
 Number 210                                                                    
                                                                               
 SENATOR RANDY PHILLIPS commented that in earlier testimony, Ms.               
 Sipe stated SB 217 was not meant to be a needs-based test.  But now           
 you say something different.                                                  
                                                                               
 MS. SIPE replied that what she was saying is that she has been                
 asked if people with less than $60,000 or $80,000 are considered              
 needy in Alaska.  We do not.  The governor's philosophical approach           
 was not to say that was a level of need.  It is to find a                     
 comfortable area where we feel that most people with that income              
 would not be harmed by the loss of the longevity bonus.  You will             
 see from the fiscal note that that benefit to public assistance               
 came in later.  It happens to be a side-benefit of this decision,             
 but it was not done in order to make the program needs based.  In             
 fact, we are still waiting for written verification from the                  
 federal agencies that even income limits as high as $60,000 and               
 $80,000 meet their tests.  They have only told us that verbally.              
                                                                               
 Number 245                                                                    
                                                                               
 CHAIRMAN SHARP stated he wants to review other possible one-time              
 monies received by individuals or families that possibly should be            
 considered in the $60,000 or $80,000 income limit.  He's still                
 waiting to hear back from IRS officials.  The chairman announced              
 that SB 217 will be set aside.                                                
 SENATOR RANDY PHILLIPS asked the chairman if he is receiving a                
 longevity bonus.                                                              
                                                                               
 CHAIRMAN SHARP responded he won't be 65 until 1998, so reduction              
 and termination of the longevity bonus is already in the cards for            
 him.  He announced that SB 217 will be brought up again when more             
 information is received.                                                      
                                                                               
 Number 265                                                                    
                                                                               
 CHAIRMAN SHARP adjourned the Senate State Affairs Committee meeting           
 at 5:21 p.m.                                                                  
                                                                               

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