Legislature(2015 - 2016)BARNES 124
03/25/2015 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB114 | |
| HB164 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 114 | TELECONFERENCED | |
| *+ | HB 164 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 164-INSURANCE; RISK MG'T; HOLDING COMPANIES
4:07:16 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 164, "An Act relating to insurance; relating to
risk based capital for domestic insurers and fraternal benefit
societies, including provisions related to insurers subject to
risk based capital and action level event requirements; relating
to review by the director of insurance of an insurer's risk
based capital plan; relating to confidentiality and sharing of
certain information submitted to the director of insurance for
evaluating insurance holding companies, risk based capital, risk
management, and own risk and solvency assessments; clarifying
provisions related to risk based capital plans; relating to
exemptions by the director of insurance for certain domestic and
casualty insurers from risk based capital requirements; relating
to insurance holding companies, including filing requirements,
divestiture, content of statements, and hearings; relating to
registration requirements; relating to transactions within an
insurance holding company system or transactions involving a
domestic insurer; relating to management and examination of
domestic insurers that are part of an insurance holding company
system; adding provisions relating to participation by the
director of insurance in a supervisory college; relating to
civil and criminal penalties for violations of provisions
related to insurance holding companies; relating to provisions
for risk management and own risk and solvency assessments;
relating to operating requirements for controlling insurance
producers; relating to producer-controlled insurers; adding and
amending definitions related to insurers; and providing for an
effective date."
4:07:50 PM
The committee took an at-ease from 4:07 p.m. to 4:12 p.m.
4:12:21 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community, & Economic Development (DCCED), began her
PowerPoint on HB 164, related to insurance. She stated that the
mission of the Division of Insurance is to regulate the
insurance industry to protect Alaskan consumers [slide 1].
4:13:48 PM
MS. WING-HEIER stated that individual state governments are the
primary regulators of insurance. In Alaska, the state regulates
seven domestic insurance companies, including Alaska Vision,
Sunderland Insurance Services, Inc., Alaska Timber Insurance
Exchange that are domiciled in Alaska. The division regulates
close to 1,100 foreign insurance companies.
CHAIR OLSON interjected that foreign insurance companies does
not mean outside the country, but outside Alaska.
MS. WING-HEIER agreed. She named a few major foreign insurance
companies, including State Farm, Geico, Safeco, Premera, and
Aetna qualify but they are not domiciled in the state. She
indicated it was due to the way these companies are
incorporated. The ones [HB 164 would address] under discussion
today are those domiciled within the state.
MS. WING-HEIER said that in 1945, Congress passed the McCarran-
Ferguson Act (15 U.S.C. 1011 - 1015) which exempted: the
business of insurance from most federal regulation, and to this
date insurance has been regulated by states, and state-based
regulation works [slide 3].
MS. WING-HEIER said that the act provided that, " ... [n]o Act
of Congress shall be construed to invalidate, impair, or
supersede any law by any State for the purpose of regulating the
business of insurance ...." However, in 2010, Congress passed
Dodd-Frank with a provision establishing the federal insurance
office. Although it was currently set up as a non-regulatory
agency, it is poised to step in and take over state-based
regulation. She acknowledged that this wasn't something that is
being addressed every day; however, the division is very much
aware of its existence and the authorization it could hold over
the states with federal regulation of insurance. Again, state-
based regulation has been very successful for over 100 years.
4:15:55 PM
MS. WING-HEIER directed attention to slide 4, stating that
during the 2007-2009 financial crisis which hit hard the
financial services industry of which insurance is a part, the
insurance industry was held as a shining example of what worked.
The Independent Insurance Agents & Brokers of America (IIABA)
agreed stating in a 2011 letter to the FIO: "Even during the
most tumultuous of times, state insurance regulators ensure that
insurers are solvent, that claims are paid, and that consumers
are protected. The IIABA remains dedicated to preserving state
insurance regulation." She said that this statement was
powerful enough that the federal Government Accountability
Office put it in its 2013 report to Congress.
4:16:53 PM
MS. WING-HEIER directed attention to slide 5, stating the
National Association of Insurance Commissioners (NAIC) is the
U.S. standard setting and regulatory support organization
created and governed by the chief insurance regulators from the
50 states, the District of Columbia and five U.S. territories.
Through the NAIC, state insurance regulators establish standards
and best practices, of the protocols of the insurance companies,
the producers, the brokers, and the adjustors. Through peer
review, the division monitors companies, brokers, and ourselves,
she said.
MS. WING HEIER acknowledged while much of the business of
insurance is local in nature due to differences of risk and
other factors particular to a local area, the elected or
appointed state government officials who oversee the regulation
of insurance companies and producers in their respective
jurisdiction - the members of the NAIC recognize that there
often is a need for national standards and uniformity.
4:17:41 PM
MS. WING-HEIER said the NAIC, working with regulators, promotes
national standards, uniformity, reciprocity, and consistency at
the national level through the development of model laws and
regulations.
MS. WING-HEIER said much of the work of the NAIC is conducted
through its committees, task forces, working groups, or
subgroups. Alaska sits on two subcommittees: Property and
Casualty Insurance, and Market Regulation and Consumer Affairs
C&D) committee, and 14 task forces, 3 liaison committees,
including the American Indian and Alaska Native Liaison
Committee, which she chairs; and numerous working groups. The
committee level is where the discussion most likely begins in
the consideration of a new model law.
MS. WING-HEIER said the NAIC members dedicate significant to
educating consumers and the industry to support a model that has
been adopted by the membership. Model laws are developed by
drafting procedures that entail a rigorous process providing
notice and opportunity for consumer groups and industry to
comment. She said they take years to develop to the point at
which they are presented to groups such as this committee.
MS. WING-HEIER said that both the parent committee, such as the
Property and Casualty Committee, Finance Committee, or the
Health Committee, with oversight for the subject area of a model
law and the entire membership of the NAIC must adopt any
proposed model law by a two-thirds majority vote. The state in
most cases is not required to adopt the model law except in the
circumstances such as the one today, which is the adoption of
the NAIC financial regulation standards & accreditation program
[slide 6].
4:20:07 PM
MS. WING-HEIER said the mission of the NAIC's financial
regulation standards & accreditation program is to establish and
maintain state regulator standards to promote sound insurance
company financial solvency regulation [slide 7]. Although it
seems simple, but the state has seven domestic and 1,100 foreign
insurance companies it monitors. The Department of Commerce,
Community & Economic Development is a rather small department
and with that many insurers, the state needs to be able to rely
on its counterparts in other states to ensure that the insurance
companies who are coming to Alaska to sell insurance to Alaskans
meet a certain standard of financial solvency. In turn, other
insurance commissioners or directors must be able to trust that
insurance companies who are domiciled in Alaska doing business
in the Lower 48 are also to financially solvent. Lastly, but
equally important is consumer protection because an insurance
company must be financially solvent to meet its contractual
policy obligations to pay claims in the event of a loss to pay
claims.
4:21:39 PM
MS. WING-HEIER directed attention to slide 8, and said that the
accreditation program provides a process whereby solvency
regulations of multi-state insurance companies can be enhanced
and adequately monitored. As mentioned earlier, it is important
for a small state that the insurance companies domiciled here or
those operating here but domiciled in another state are being
adequately regulated for financial solvency by the domiciliary
state.
4:22:16 PM
MS. WING-HEIER said that Alaskan consumers could be negatively
impacted as companies may decide not to operate in Alaska due to
the duplicative examination costs incurred by operating in a
non-accredited state. Thus, if Alaska loses its accreditation
and companies had to bear the expense of having every state
conducting an examination of their financial records and could
not accept theirs, they could elect to not to be domiciled in
Alaska, which would reduce the number of insurers, a reduction
in employment and in premium taxes paid to the state.
4:23:04 PM
CHAIR OLSON asked how much income the division generates each
year.
MS. WING-HEIER answered that the division generates
approximately $55 million plus $7 million in fees collected from
producers in the insurance companies. In further response to a
question, she said last year the division's budget was $7.5
million and that the division is receipt-supported by the fees
collected from insurance companies.
4:23:48 PM
MS. WING-HEIER stated the accreditation was for a five year
period. One of the key components of the financial solvency
regulation accreditation review will be a determination by the
NAIC accreditation review team that the state has the necessary
solvency laws and regulations to protect consumers and guarantee
funds [slide 9]. She reported that the division was due for an
interim audit in June 2015. She feared the division will not
pass, which was why HB 164 is important.
4:24:43 PM
MS. WING-HEIER felt responsible for three provisions in HB 164
that should have been addressed two or three years ago, but she
was not certain why the division did not request the changes.
She referred to pages 2-8 to AS 21.14, related to risk based
capital in the bill. Basically, this language would change the
method of measuring the minimum amount of capital appropriate
for an insurer to support its overall business operations in
consideration of its size and risk profile. Capital provides a
cushion to an insurer against insolvency and RBC will limit the
amount of risk a company can take. Thus these provisions all
pertain to solvency. She said this should have been effective
January 1, 2015. She acknowledged other provisions should have
been effective on January 2014 and January 2016.
4:25:38 PM
REPRESENTATIVE LEDOUX related her understanding that in order to
be accredited the legislature must pass HB 164.
MS. WING-HEIER answered yes.
4:25:52 PM
REPRESENTATIVE LEDOUX surmised that if the state is not
accredited all sorts of problems happen.
MS. WING-HEIER answered yes.
CHAIR OLSON acknowledged that was the reason HB 164 is being
fast-tracked.
4:26:04 PM
MS. WING-HEIER said the risk-based capital provides the cushion
to protect solvency. The risk-based capital compares risk based
on a ration of the risk to capital. This means the division
knows the company has enough capital for underwriting, other
investments to ensure claims can be paid when Alaskan consumers
submit the claims.
4:26:36 PM
MS. WING-HEIER directed attention to slide 11, to insurance
holding companies, on pages 8-16 of the bill, which must be
effective in 2016 in order for the state to pass accreditation.
Referring back to the financial crisis in the Lower 48, many
people probably heard of AIG [American International Group],
which was a holding company. She said what brought down AIG was
not its insurance operations, but aircraft leasing and other
investments that AIG had made. The foregoing provisions would
allow the state to review other operations insurance companies
have and not allow them to invest insurance dollars in other
operations. She added that this language does require other
reporting mechanisms, but that she essentially described what
the holding company provisions of this bill would accomplish.
4:27:42 PM
CHAIR OLSON asked whether the financial crisis was also due to
substandard mortgages.
MS. WING-HEIER answered yes.
4:27:51 PM
MS. WING-HEIER directed attention to slide 12, to Risk
Management and Own Risk Solvency Assessment (ORSA). She
described this as enterprise risk management that would require
insurance companies to report to the state on confidential
investments, as well as their risk management framework, to
allow the state to see the how the companies are judging
themselves. Although these provisions are not yet in the NAIC
[National Association of Insurance Commissioners] model law,
they have been proposed and the division anticipates these
provisions will be adopted this fall.
4:28:41 PM
MS. WING-HEIER stated that the controlling insurance producer
provisions should have been effective on January 1, 2014.
Basically, these provisions would provide additional guidelines
for businesses between the controlled insurers and controlling
producers necessary for fiduciary and oversight reasons, for
example, when an insurance producer owns the insurance company
[slide 13].
4:29:07 PM
MS. WING-HEIER suggested that this bill needs to pass this year
since the provisions must be in place by January 2016.
CHAIR OLSON commented that the director has only been on the job
for a little over one year, approximately 15 months.
4:30:01 PM
REPRESENTATIVE LEDOUX directed attention to Section 1 of the
bill and asked whether maritime policies were indemnity policies
and if they will be included in the bill.
MS. WING-HEIER answered yes; for domestic companies, but
generally speaking maritime insurance falls under surplus lines
placement, typically offered through Lloyds of London.
4:30:56 PM
CHAIR OLSON commented that he did not believe any domestic
insurer writes maritime coverages for at least 15 years.
REPRESENTATIVE LEDOUX asked whether Alaska National Insurance
offers it.
CHAIR OLSON offered his belief the last one was Pacific Marine
Underwriting Managers Ltd.
4:31:16 PM
MS. WING-HEIER said some incidental policies may be written, but
it was not their main line of business for any of the foregoing
companies.
CHAIR OLSON acknowledged that Alaska National Insurance writes
some incidental coverage, and Longshoremen and Harbor Workers
coverage, but he did not believe they offered offshore unless it
would be workers' compensation for people working on the oil
platforms.
MS. WING-HEIER suggested that Sunderland Insurance Services,
Inc. may write some.
CHAIR OLSON said he stands corrected.
4:31:45 PM
REPRESENTATIVE HUGHES asked how much business insurance
companies domiciled in Alaska provide outside Alaska.
MS. WING-HEIER answered that Sunderland Insurance Services does
some, but Alaska National Insurance probably does the most and
operates in Idaho, California, Louisiana, and are likely looking
to expand. She suggested that the others are content to be in
Alaska.
4:32:44 PM
REPRESENTATIVE HUGHES noted that obvious this is needed sooner
rather than later. She asked whether anything in the bill that
was not related for accreditation.
MS. WING-HEIER answered no; that the bill was limited strictly
to accreditation and financial solvency for domestic insurance
companies in Alaska.
4:34:36 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on HB 164.
4:35:00 PM
REPRESENTATIVE HUGHES moved to report HB 164 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 164 was reported from the
House Labor and Commerce Standing Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB164 ver A.PDF |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |
| HB164 Sponsor Statement.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |
| HB164 Sectional Analysis.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |
| HB114 ver A.PDF |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Sponsor Statement.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Sectional Analysis.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Fiscal Note-DOA-DRM-03-20-15.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Fiscal Note-DOLWD-WC-03-27-15.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Supporting Documents-Research Report 2-4-15.PDF |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB114 Supporting Documents-Intestate Statutes.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 114 |
| HB164 Supporting Documents-DOI Presentation-3-25-15.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |
| HB164 Fiscal Note-DOA-DOI-3-24-15.pdf |
HL&C 3/25/2015 3:15:00 PM |
HB 164 |