03/13/1997 01:33 PM Senate L&C

                                                                               
               SB 119 FRATERNAL BENEFIT SOCIETIES                             
                                                                              
  CHAIRMAN LEMAN  called the Senate Labor and Commerce Committee               
 meeting to order at 1:33 p.m. and announced  SB 119  to be up for             
 consideration.                                                                
                                                                               
  MR. RICHARD KLEVEN,  Assistant Vice President, Law Division,                 
 Lutheran Brotherhood, said they are a fraternal brotherhood society           
 and he is here on behalf of the National Fraternal Congress of                
 America, an association of approximately 90 fraternal benefit                 
 societies.  He said they support SB 119 which will revise our                 
 statute that regulates them.  They have done this in a number of              
 other states and they have essentially the model law that's before            
 the Committee in 34 other states to date.                                     
                                                                               
 Alaska has six fraternals: the Knights of Columbus, Independent               
 Order of Foresters, Sons of Norway, Aid Association for Lutherans,            
 Lutheran Brotherhood, and Woodmen of the World.                               
                                                                               
 Fraternals are membership groups and are very accountable to their            
 members.  They exist to benefit the members and their communities             
 providing them with individual life and annuity insurance.  They              
 must also have a system of local lodges, by law.  Fraternals exist            
 for social and fellowship reasons, but also to provide services to            
 communities like local volunteer units.                                       
                                                                               
 The reason a new section on fraternal orders is needed is because             
 in the 30 years since the fraternal code was passed there has been            
 a lot of change - at the economic level and federal level,                    
 especially with taxation and securities regulation which has had an           
 effect on insurers.  Some provisions need to be modernized so                 
 fraternals can continue to provide the same service.                          
                                                                               
 The proposed legislation allows fraternals to write variable life             
 and annuity products.  It gives some flexibility in the code as new           
 products are developed in the life and health insurance industry              
 that fraternals can use (with the approval of the director of the             
 Insurance Division).  It provides clearer language regarding the              
 ability of fraternals to have subsidiaries as long they are                   
 organized to further the fraternal purposes of the organization.              
 It will clarify how members can use their insurance to meet their             
 own estate or tax planning needs.  It also makes it clear that                
 fraternals are subject to the same insurance and regulatory                   
 practice rules as are other life insurers.  It also gives the                 
 director of the Division of Insurance clearer and stronger                    
 authority over them.  The language is also modernized to flow                 
 better in terms of interpretation.                                            
                                                                               
 This legislation will not change the essential character of what              
 fraternal orders are and won't have any appreciable change in their           
 presence in the market for insurance.                                         
                                                                               
 MR. KLEVEN said that two amendments would be offered, one from the            
 Department regarding conforming the law to the Kassenbaum-Kennedy             
 law that was passed regarding health insurance last summer.  The              
 other amendment deals with intermediate assembly and he believes it           
 is a technical amendment.  It clarifies that if a society has an              
 intermediate assembly (a group of delegates that's elected to elect           
 the higher level group) that those people have to be members.                 
                                                                               
  SENATOR MACKIE  moved to adopt amendment #1.  There were no                  
 objections and it was so adopted.                                             
                                                                               
  MR. DON KOCH,  Division of Insurance, supported SB 119.  He said             
 they have worked with Mr. Kleven and have done a number of internal           
 reviews including financial and Department of Law.  He explained              
 the reason for conforming with the Kassenbaum-Kennedy, Public Law             
 104-191, was there will be a number of requirements placed on                 
 insurers and their group health plans as to portability of those              
 plans and there were no references in this proposal that would                
 reflect the appropriate sections of the insurance code that would             
 be needed to comply with the KK bill, and therefore, State statutes           
 and fraternal benefit societies.  MR. KOCH explained that insurance           
 is not the primary focus of a fraternal; it is almost incidental to           
 things they do.                                                               
                                                                               
 SENATOR MACKIE moved to adopt amendment #2 as corrected (line 15              
 the reference is corrected to AS 21.54).  There were no objections            
 and it was so ordered.                                                        
                                                                               
 SENATOR MACKIE moved to pass CSSB 92(L&C) from committee with                 
 individual recommendations and the accompanying $0 fiscal note.               
 There were no objections and it was so ordered.