Legislature(2015 - 2016)BARNES 124
03/30/2016 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB214 | |
| HB372 | |
| HB281 | |
| HB290 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 372 | TELECONFERENCED | |
| *+ | HB 281 | TELECONFERENCED | |
| *+ | HB 290 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 214 | TELECONFERENCED | |
HB 290-EXTENDING THE REAL ESTATE COMMISSION
4:30:35 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 290, "An Act extending the termination date of
the Real Estate Commission; and providing for an effective
date."
4:31:02 PM
LAURA STIDOLPH, staff to Representative Kurt Olson, Alaska State
Legislature, on behalf of Representative Olson, chair of the
House Labor and Commerce Standing Committee, sponsor of HB 290,
informed the committee the bill extends the termination date of
the Real Estate Commission (commission) to 6/30/18. Each year
the Legislative Audit Division, Legislative Agencies and
Offices, reviews state boards and commissions to determine
whether they should be reestablished. She directed attention to
a document provided in the committee packet entitled, "A Sunset
Review of the Department of Commerce, Community & Economic
Development, Real Estate Commission," dated 7/24/15, and said
in the opinion of the auditors, the commission serves the public
interest by licensing real estate brokers, associate brokers,
and salespeople. In addition, the auditors made a
recommendation that the legislature amend the Real Estate Surety
Fund statutes to provide more complete, effective, and efficient
consumer protection to claimants. Ms. Stidolph recalled
legislation in 2008 that required salespersons and brokers to
acquire error and omissions (E&O) insurance if a master policy
held by the commission is in effect. Therefore, since the
commission has been unable to obtain a master E&O policy,
companion proposed legislation seeks to repeal that provision
and establish a two-year sunset date. She advised that the
auditors' other recommendations have been resolved, and urged
support for HB 290.
4:34:25 PM
REPRESENTATIVE JOSEPHSON asked why licensees cannot get E&O
insurance.
MS. STIDOLPH explained that licensees can get E&O insurance, but
they are not required to by statute if the commission cannot
obtain a master policy. The intent is to repeal and sunset the
requirement related to the commission, thus over the next two
years, licensees will be required to obtain E&O insurance to
protect consumers.
REPRESENTATIVE JOSEPHSON surmised that wise licensees get E&O
insurance, but not through a master policy held by the
commission.
MS. STIDOLPH advised that those who cannot get E&O insurance are
in a [high-] risk pool, and were supposed to be covered through
the master policy. In further response to Representative
Josephson, she said she was unsure how a licensee qualifies as
high-risk.
CHAIR OLSON recalled that the real estate [commission] intended
to create a group of real estate licensees and brokers in the
state for the purposes of insurance, but "then there was little
or no follow-through on it, which is why we're where we're at
now ...."
4:38:39 PM
LORI WING-HEIER, Director, Division of Insurance, Anchorage
Office, Department of Commerce, Community & Economic
Development, advised that the related regulations set an
unrealistic limit of $300 on the amount of the premium [of E&O
insurance]. In addition, at this time, the Division of
Insurance has incomplete underwriting data for a master policy,
a pool, or for a request for proposal (RFP).
REPRESENTATIVE COLVER noted that there are many obstacles to
creating a pool for E&O insurance without a business history.
CHAIR OLSON recalled that the real estate industry proposed a
bill based on the model of a national program. Regarding
insurance legislation, he advised using only model laws
sponsored by the National Association of Insurance Commissioners
or the National Conference of Insurance Legislators.
REPRESENTATIVE COLVER stated his preference would be for
individual licensees to disclose whether they carry E&O
insurance. Further, state regulations of this type cause
opposition, especially without compelling case histories to
warrant legislation.
MS. STIDOLPH advised that the real estate industry indicated
that many licensees and brokers carry E&O insurance, except for
the small pool who are unable to obtain coverage; the master
policy would protect the consumer and allow affected businesses
to operate.
4:46:31 PM
REPRESENTATIVE JOSEPHSON asked whether licensees and brokers
fail to get coverage because there is a complaint, or because of
the cost. He stressed that businesses should be fully insured,
and that this a serious problem.
MS. STIDOLPH stated that data is unavailable as to which brokers
and licensees have insurance coverage.
CHAIR OLSON added that the lack of E&O coverage and malpractice
insurance is not limited to the real estate industry.
REPRESENTATIVE COLVER asked whether E&O coverage could be
established in a manner similar to workers' compensation.
MS. WING-HEIER advised an assigned-risk pool is put to bid every
four years through the National Council on Compensation
Insurance; the division rates proposals that are submitted to
the state and assigns a percentage of the worker's compensation
business.
REPRESENTATIVE COLVER observed that E&O coverage is more like a
bank loan and is based on professional expertise, experience,
and credit, versus "a straight occupational percentage."
4:50:20 PM
MS. WING-HEIER advised that E&O coverage is based on a number of
underwriting factors related to each individual's experience,
which is the data the division is lacking.
REPRESENTATIVE LEDOUX recalled previous testimony that other
businesses - such as doctors and lawyers - do not have E&O
coverage, and questioned why the legislation is focused on the
real estate industry.
MS. STIDOLPH noted that [House Bill 357, passed in the Twenty-
Fifth Alaska State Legislature (2008)] had two parts: 1.) the
realty recovery fund was turned into the realty surety fund,
which shifted responsibility from the Real Estate Commission to
the court system to recover funds; 2.) licensees were required
to have E&O insurance.
CHAIR OLSON, in response to Representative LeDoux, explained the
legislation was sought by the industry, and became statute in
2008, but is not working. He described some of the ongoing
problems for the industry and for some consumers.
REPRESENTATIVE LEDOUX questioned whether the Legislative Audit
Division would normally delve into the topic of education
requirements for a certain profession.
4:54:40 PM
KRIS CURTIS, Legislative Auditor, Legislative Audit Division,
Legislative Agencies and Offices, responded that the audit
division performs sunset reviews following the legislative
oversight process. She said the division would not look at the
education requirements of an occupation, but at the ability of a
commission to protect the public interest and regulate its
industry. The audit concluded that the Real Estate Commission
is serving the public interest generally, and did not recommend
termination; however, the audit did recommend a six-year
extension if the commission can obtain E&O insurance by January
[2016], and a four-year extension if not. Ms. Curtis pointed
out the E&O requirement became effective in 2010, but
regulations were not effective until October 2014, thus this is
an extensive lag in response to the legislation. Although there
were many reasons given for the delay, the audit concluded the
reasons were inadequate.
REPRESENTATIVE LEDOUX remarked:
I was just trying to figure out whether I should be
reading anything into the fact that legislative audit
hadn't recommended an increase of educational
requirements or an increase of the amount of time that
somebody has to serve as a licensee before they became
a broker. ... And it sounds like you're saying "no."
4:58:08 PM
MS. CURTIS directed attention to page 5 of the aforementioned
audit that was provided in the committee packet, and said [House
Bill 357 in 2008] changed a consumer protection that was in
place. In the past, the division's sunset audits had been
critical of the real estate recovery fund, which limited claims
awards by the Real Estate Commission to $15,000, and in 2007,
the division recommended improving the surety fund. In 2008,
the law was changed - which made it harder for consumers to
collect on a claim - because they had to gain a costly ruling
through the court system; however, the bill also required
insurance to better protect the public. Ms. Curtis advised
that in the matter of providing insurance, the commission has
failed to serve the public interest. Another finding of the
audit was that the investigations conducted by the Division of
Corporations, Business and Professional Licensing, Department of
Commerce, Community & Economic Development were not done in a
timely manner; there were long delays and some cases were closed
without sufficient reason. Therefore, two recommendations were
made: 1.) procure E&O insurance; 2.) improve the timeliness of
the investigations. Ms. Curtis restated the division's
recommendation of a shorter extension, and asked the commission
to demonstrate its ability to obtain E&O insurance.
REPRESENTATIVE JOSEPHSON asked for the source of the monies in
the real estate recovery fund.
MS. CURTIS directed attention to page 15 of the audit, and said
the fund comes from a fee per licensee, which is currently set
at $30, and changes biannually according to the balance in the
fund. In fiscal years 2011 (FY 11) and FY 12, no claims were
paid.
5:03:38 PM
REPRESENTATIVE COLVER asked how difficult it is for small
brokers to obtain E&O insurance.
5:04:05 PM
ERROL CHAMPION, chair, Industry Issue Key Work Group, Alaska
Association of REALTORS, said licensees are independent
contractors, so there are differing operating policies in how
each office conducts business. A licensee may elect to stay a
licensee, or to advance to the position of associate broker and
then to a broker, and only one broker is allowed per office.
Mr. Champion said because of the independent contractor status,
brokers should have E&O insurance as there are no performance
reviews, and the right to terminate someone's employment is
stipulated by the Real Estate Commission. He opined those who
do not have E&O insurance generally work alone in a small
community, and it is difficult to qualify for insurance, but
most large brokerage houses have insurance.
5:06:44 PM
REPRESENTATIVE HUGHES moved to report HB 290 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 290 was reported out of the
House Labor and Commerce Standing Committee.