Legislature(2021 - 2022)SENATE FINANCE 532
04/20/2022 01:00 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB81 | |
| HB102 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 81 | TELECONFERENCED | |
| *+ | HB 102 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 102
"An Act relating to the state insurance catastrophe
reserve account; and providing for an effective date."
2:25:04 PM
Co-Chair Bishop noted that the committee had heard the
companion bill for HB 102 the previous session and had
heard public testimony.
2:25:54 PM
SCOTT JORDAN, DIRECTOR, DIVISION OF RISK MANAGEMENT,
DEPARTMENT OF ADMINISTRATION, discussed the presentation
"House Bill 102 - Alaska Department of Administration -
Division of Risk Management" (copy on file). He showed
slide 2, "Purpose":
The assets of the Catastrophe Reserve Account
(CATFund) may be used to obtain insurance, to
establish reserves for the self-insurance program, and
to satisfy claims or judgments arising under the
program.
? The purpose is to allow the State to self-insure for
property coverage.
? HB102 will save the state $3M in the first year and
$26M over the next 5 years (est.)
? Due to global property insurance markets hardening
we had a 30% increase in insurance costs from FY20
($5.1M) to FY21 ($6.6M) and FY22 was ($7.1M).
? HB102 is a request to change the Catastrophe Reserve
Account (CATFund) limit from $5,000,000 to $50,000,000
unencumbered.
? Currently the limit on catastrophe coverage that can
be purchased is $50,000,000 for an annual premium. We
can save that annual premium by self-insuring
2:28:20 PM
Mr. Jordan showed slide 3, "What other states are doing?":
• Just pay the higher premiums. Some states are
forced to maintain excess coverage due to
benefits paid by FEMA which requires "Obtain and
Maintain" agreements when FEMA pays for a
catastrophic loss.
• Set up Captive Plans-similar to self-insured
plan.
• Increase Self-Insured Retentions (SIR), in some
states $40M to $50M retention.
• Some states are coming off multi-year premium
price guarantees.
Mr. Jordan spoke to slide 4, "Comparison of premiums paid,
property losses paid, recovery (excess insurance) FY95-
2020":
FY95-FY2020 property premiums paid $59,017,386
FY95-FY2020 property losses paid by DRM $26,145,207
FY95-FY2020 recovery from excess insurance $17,942,815
FY2014 Kodiak Launch Facility loss $15,931,131*
FY2007 DOT-Girdwood Fire $ 835,136
FY2000 Court Plaza Bldg $ 1,176,54
*this type of claim is now excluded from coverage
Mr. Jordan noted that there had been about a $1.9 million
return on an $85 million investment in the losses.
2:32:18 PM
Co-Chair Stedman asked if the premiums were calculated
nation-wide, such as in the flood insurance program. He
thought it would be difficult to get through the regulatory
environment.
Mr. Jordan explained that the state's insurance went both
through the domestic market and the London market, which
came up with the rates. There were models through which the
markets could come up with catastrophic loss rates, and
freely admitted the modelling was not correct. He cited
that the state paid about 7.4 cents per $100.
Senator Wielechowski thought Mr. Jordan indicated that the
state was responsible for $50 million in damages and then
would purchase insurance for any amount beyond.
Mr. Jordan stated that the division's intention was to
fully self-insure the program. With the $50 million
increase proposed in the bill, it would allow the state to
have the same funding it currently purchased for
catastrophic losses (earthquake and flood insurance).
Senator Wielechowski mentioned catastrophic earthquakes in
Anchorage and Fairbanks, and wildfire that destroyed state
facilities. He asked about the state's liability.
Mr. Jordan stated there was no liability component when
considering property losses. He explained that if there was
a catastrophic loss, the state would go to the carrier for
the full limit. If the state did a self-insurance program,
it would have access to the fund at full value and would
probably turn to the Federal Emergency Management Agency
(FEMA) to help reimburse the losses.
Senator Wielechowski hypothesized about a catastrophic
incident in the state with enormous loss of hundreds of
millions. He asked how much the state would be responsible
for under the current insurance and if the state would rely
on FEMA if it was self-insured.
Mr. Jordan answered affirmatively. Currently the state's
catastrophic loss coverage from purchased insurance had a
limit of $50 million. The excess carriers would only pay
$50 million. There was a different retention schedule for
catastrophic versus non-catastrophic losses. He continued
that catastrophic losses were only paid by percentage of
value. He continued that the way the insurance was written,
it would take the loss of many buildings to get $50 million
from the insurance company, whereas with the provisions in
the bill, the state would pay the first dollar out the
door.
2:36:44 PM
Senator von Imhof understood that the deductible was the
first 5 percent of the building, but if the state did not
purchase insurance, it would be liable for the entire $50
million.
Mr. Jordan stated that with excess insurance on
catastrophic losses, the state was required to pay 5
percent of a buildings value for a catastrophic loss. Under
the self-insurance scenario, risk management would pay the
first dollar out the door to agencies that had losses out
of the catastrophic loss fund. If there was a $5 million
loss on a $100 million building, it would be paid out of
the fund.
Senator von Imhof asked about if the whole $100 million
building was lost to fire.
Mr. Jordan stated that the fund would pay up to $50
million, and the state would likely turn to FEMA for
support on the additional amount. He reminded that it would
be similar to the current scenario since $50 million was
the most that insurance would pay.
Senator von Imhof referenced the earthquake in November of
2018, and she imagined the losses exceed $50 million across
Southcentral Alaska.
Mr. Jordan stated that the losses to the state did not
exceed $50 million but the losses to all of the state did
exceed $50 million.
Senator von Imhof asked if the state had been able to
collect from FEMA in the scenario.
Mr. Jordan affirmed that there were a few agencies that had
gone to FEMA. He explained that FEMA had a requirement that
the Risk Management Division could not request the funds;
rather, the occupying agency of the building had to do the
request. He mentioned that the Department of Corrections
and the Department of Transportation and Public Facilities
had to go directly to FEMA.
Co-Chair Bishop asked if there had to be a federal disaster
declaration in order to apply to FEMA.
Mr. Jordan knew that Department of Military and Veterans
Affairs stepped in for disasters, but he did not know if
there had to be a disaster declaration.
Co-Chair Bishop asked if Mr. Jordan could respond to the
question in writing.
Mr. Jordan agreed.
Senator Wielechowski asked if the bill would apply to the
University or the Court System.
Mr. Jordan affirmed that the bill would apply to the Court
System, but the University had its own program.
Senator von Imhof asked if the State Insurance Catastrophe
Reserve Account could be swept.
Mr. Jordan did not know the answer. He offered to get the
answer from the Office of Management and Budget.
Senator von Imhof wanted to know if the fund could be swept
and the reasoning behind the fund status.
2:40:25 PM
PALOMA HARBOUR, FISCAL MANAGEMENT PRACTICES ANALYST, OFFICE
OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, replied
that the fund was not subject to the sweep because it spent
without further appropriation. Once there was money in the
fund, the actual expenditures from the fund did not require
further appropriation.
Mr. Jordan advanced to slide 5, which showed a bar graph
entitled "10-year History of Property Premiums/Losses,"
which illustrated the property premiums the state had paid
to losses and included FY 12 to FY 22. He pointed out that
in most years premiums far exceeded what had been paid in
losses, with the exception of FY 15 when the Crystal Lake
Hatchery burned down and there was a $4.4 million loss.
He pointed out that in FY 21 there was nearly zero premium
because the previous year the state had been unable to get
insurance because the market had not been able to meet the
states capacity of $7.8 billion worth of property. In FY
22, the state had about a $7.1 million premium. There were
losses in the current year that had not been recorded at
the time the report was run.
Mr. Jordan referenced slide 6, "10-year history of property
premiums/losses," which showed a table and a graph entitled
'10-year History of Property Premiums/Losses.' He pointed
out the blue line showed the state had about $34 million in
losses over the ten-year period. The orange line showed the
property losses.
Mr. Jordan showed slide 7, "Lapse Appropriations Summary":
The State Insurance Catastrophic Reserve Fund, Fund #
3209, (Cat Fund) is part of the General Fund and Other
Non-segregated Investments (GeFONSI). The GeFONSI are
funds that have been pooled together for investment
purposes. The Cat Fund is part of the Non-MOU group,
which allows for the interest earned to be deposited
back into the General Fund.
Mr. Jordan noted that he had a fiscal note he could
address.
2:44:03 PM
AT EASE
2:44:31 PM
RECONVENED
Co-Chair Bishop set an amendment deadline of Friday, April
22nd at 5 oclock.
HB 102 was HEARD and HELD in committee for further
consideration.
Co-Chair Bishop discussed the agenda for the following day.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 81 Sponsor Statement 1.28.21.pdf |
HFIN 4/15/2021 9:00:00 AM SFIN 4/20/2022 1:00:00 PM |
HB 81 |
| HB 81am Sectional Analysis Version I.A 2.7.22.pdf |
SFIN 4/20/2022 1:00:00 PM |
HB 81 |
| HB 81am Summary of Change 2.9.22.pdf |
SFIN 4/20/2022 1:00:00 PM |
HB 81 |
| HB 81 Presentation SFIN HB81 NPSL 4.20.22.pdf |
SFIN 4/20/2022 1:00:00 PM |
HB 81 |
| HB102-DOA-DRM SFIN 2022 draft changes per Sen FIN 04182022.pdf |
SFIN 4/20/2022 1:00:00 PM |
HB 102 |
| HB 81 SFIN_HB_81_Committee_Follow-up_5.3.22.pdf |
SFIN 4/20/2022 1:00:00 PM |
HB 81 |