Legislature(1999 - 2000)
03/29/2000 01:20 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 398 - LIFE AND HEALTH INSURANCE GUARANTY ASSN REPRESENTATIVE GREEN announced the first order of business would be HOUSE BILL NO. 398, "An Act relating to the Alaska Life and Health Insurance Guaranty Association." Number 0068 JOHN MANLY, Staff to Representative John Harris, Alaska State Legislature, presented the bill on behalf of the sponsor. At the last committee hearing, testimony had indicated that there was confusion on what the bill does, he noted. Mr. Manly referred to a handout titled "Summary of Principal Changes to the NAIC Life and Health Insurance Guaranty Association Model Act" and indicated it should help explain what the bill does. He turned to Mr. John George to help explain the bill further. Number 0150 JOHN GEORGE, Lobbyist for American Council of Life Insurers, came before the committee to testify. He had spoken on the bill last week, he said, and instead of repeating himself he would prefer that the committee hear from an expert, Mr. Robert Sweeney. He noted that there was a proposed amendment, which is very important for technical reasons. He explained that there was a misinterpretation of the bill drafter going from NAIC [National Association of Insurance Commissioners] model language to Alaska statute language. He said Robert Sweeney had worked hard with NAIC in coming up with the model Act, and had worked hard with the bill sponsor in coming up with the bill. Number 0271 ROBERT SWEENEY, Representative, American Council of Life Insurers, testified via teleconference from an off-net site in Washington, D.C. He referred committee members to the handout referenced above, which explains the concepts set forth in a series of amendments to the NAIC Life and Health Insurance Guaranty Association Model Act, he said, an Act that is very technical and somewhat arcane. MR. SWEENEY noted the following changes to the Act: it facilitated the implementation of guaranty association benefits more promptly and efficiently, thereby providing benefits to policyholders more expeditiously and at a lower cost; it clarified a number of provisions which could foster delay by promoting litigation; and it provided additional benefits to policyholders. Mr. Sweeney said that a further amendment clarified the appropriate coverage limits on equity indexed products, which he indicated is a relatively new innovation in the insurance marketplace. Number 0384 REPRESENTATIVE ERIC CROFT asked Mr. Sweeney whether the amendment clarifies a number of provisions that could foster delay by promoting litigation or clarifies a number of provisions which, if not fixed, could foster delay by promoting litigation. MR. SWEENEY replied that the amendment clarifies a number of provisions that would eliminate frivolous and costly litigation in many areas. Number 0428 REPRESENTATIVE CROFT asked Mr. Sweeney to indicate a few of the policy calls in the bill that might be controversial. He conveyed his understanding that most of what is in the bill is for technical and updating purposes. MR. SWEENEY replied he wouldn't say that anything in the bill is controversial. There are issues in this area that are controversial, but due to some unique Alaska code provisions the amendment does not ask Alaska to adopt certain provisions. For example, Alaska does not have a tax offset for assessments paid into the guaranty association. There are some substantive issues in the bill. The amendment shifts the responsible guaranty association for structured settlement annuities - which are given in a payout after a civil litigation - from the state of residence of the owner to the state of residence of the payee, in order to evenly spread the amounts paid by different state guaranty associations. That same shift would apply to unallocated annuity contracts, which are covered under the Alaska guaranty association statute. The amendments also give the Alaska State Life and Health Insurance Guaranty Association the authority to play an active role in determining how assets are distributed in insolvency, which is entirely appropriate given the fact that they are often the largest creditor involved. The amendments also allow for the state guaranty association to propound a solvency plan. Number 0645 REPRESENTATIVE CROFT asked Mr. Sweeney whether he is right in saying that the main challenge to the life and health guaranty association is the transfer to another person, while in comparison the main challenge to property is to "wrap it up." MR. SWEENEY replied that is a fair characterization. The primary distinction between the property and casualty fund, and the life and health guaranty association is the movement of a block of business to a solvent carrier in order to continue payments to beneficiaries and annuitants. Number 0707 REPRESENTATIVE ROKEBERG noted that there was testimony in the House Labor and Commerce Committee indicating some contention about the use of the word "intervene" on page 13, line 20, of CSHB 398(L&C). He asked Mr. George to discuss the process he went about in dealing with the director of the Division of Insurance [Department of Community & Economic Development] to implement this bill. He said it is important that the committee members understand that the bill has been fully reviewed by the director and that the process was a mutual and balanced effort. Number 0800 MR. GEORGE replied that the NAIC model Act is a product of the National Association of Insurance Commissioners, and has been worked on continually and consistently by all of the states and industry members, for years, in order to come up with a plan that will work generically in all states. It is up to the director or commissioner of each state to get the model Act adopted. In Alaska, there were 21 points of discussion with the Division of Insurance in relation to the NAIC model Act. Of those, 20 points were worked out to where there is complete agreement. He said: [There was] one thing that we agreed not to agree on, and that was when going to court, the bill that was proposed said that the guaranty association could appear in those proceedings. We wanted to add the word, "appear or intervene," or "and intervene." That was the amendment in Labor and Commerce, ... to add "intervene" in a couple of places. Other than the word "to intervene," I believe we have 100 percent agreement with the Division of Insurance on the wording in this bill, and it's not because we started out that way; it's because we worked diligently, and I do give a lot of credit to the Division of Insurance and also the ACLI [American Council of Life Insurers] staff for coming together and coming up with those agreements. The last thing I wanted to do is bring a bill in here with 21 talking points with the Division of Insurance and have those discussions in this committee. Number 0920 REPRESENTATIVE ROKEBERG asked Mr. Sweeney whether the amounts covered by the guaranty association have been revised in the bill in any particular area. MR. SWEENEY replied there were no changes made to the amounts. It was determined by the NAIC that it was not necessary at this time. He noted that there were some increases to the amounts several years ago in the last round of amendments. REPRESENTATIVE ROKEBERG asked Mr. Sweeney whether he was part of the negotiating team for Alaska. MR. SWEENEY replied, "Yes." REPRESENTATIVE ROKEBERG asked Mr. Sweeney to describe any changes made from the NAIC model Act to accommodate the director of the Division of Insurance. MR. SWEENEY explained that there were several instances when he was able to talk to the director and agree to a few points that the division felt were very important. He doesn't have the most recent version of the bill before him, he noted, so he cannot speak further to any other changes. He deferred to Mr. George. MR. GEORGE said he isn't sure that he could point out the changes. REPRESENTATIVE ROKEBERG withdrew his question. He said he'd wanted to make the point that there was active bargaining with the director of the Division of Insurance because he has to implement a substantial part of what is in the bill. Number 1064 REPRESENTATIVE KERTTULA said: This may be a question for Mr. Ridgeway [Deputy Director, Division of Insurance, Department of Community & Economic Development], but in looking at the legislation it looks like there's a number of exemptions to ... the coverage. And, I'm looking at page 4 of the bill, and so, again, it may be better to Mr. Ridgeway. But it looks like if a person who normally would be covered has any coverage by an association of another state, they're exempted from coverage here, and I just wondered why it's any coverage and it's not drafted to be the part of the coverage that is provided by the other association. ... I just wondered if there might be circumstances where another association gave half the coverage but not all the coverage. Number 1114 MR. SWEENEY replied that the provision is inserted purely to avoid instances of duplicate coverage, in order to defray the Alaska Life and Health Guaranty Association of potentially paying a covered individual or entity when another state is already covering that individual or entity. Number 1162 REPRESENTATIVE KERTTULA said she can understand that. She specified that she was troubled by the word "any." There seems to be a distinction between those who receive partial coverage, she said. The language reads, "that part of an unallocated annuity contract that is not issued ...." MR. SWEENEY replied that the word "any" is not intended to be misleading; it is meant to get at the very situation he had described earlier. It is not meant to [imply] that a person would not receive coverage in one state. Number 1216 REPRESENTATIVE KERTTULA asked Mr. Sweeney whether the removal of the word "any" would damage the bill. She suggested the word "complete" instead. REPRESENTATIVE GREEN responded: I would have a bit of a problem with that because if, then, you say "coverage," then you add one of ten pieces covered. Would that suffice under here, as opposed to, say, 30 percent or ...? ...I think that's what I'm reading "any" to mean, but that may not be in fact what it is. MR. SWEENEY said he thinks that Representative Green is correct. Number 1272 REPRESENTATIVE KERTTULA asked Representative Green whether he likes the word "any" better than the word "complete." REPRESENTATIVE GREEN replied that he isn't sure. He just doesn't want to remove the word "any." Number 1338 STAN RIDGEWAY, Deputy Director, Division of Insurance, Department of Community & Economic Development, came before the committee to testify. As Mr. George has indicated, there were 21 points of discussion and 20 points were agreed on. The division supports the bill. In response to Representative Kerttula's question, he said he doesn't have an answer; he would do some research and get back to her. It is his understanding, however, that the language was taken directly from the NAIC model Act. He thinks that there is a reason for the word "any" instead of the word "complete." Number 1375 REPRESENTATIVE ROKEBERG stated that there are different types of coverage, and the word "any" is appropriate. He doesn't have a problem with it. REPRESENTATIVE ROKEBERG asked Mr. Ridgeway whether he is aware of the proposed amendment in relation to the determination of the principal place of business. MR. RIDGEWAY affirmed that. REPRESENTATIVE ROKEBERG asked Mr. Ridgeway whether the Department of Community & Economic Development has a problem with the proposed amendment. MR. RIDGEWAY replied, "No." Number 1410 REPRESENTATIVE GREEN, noting that there were no further testifiers, closed the hearing to public testimony. Number 1415 REPRESENTATIVE ROKEBERG made a motion to adopt Amendment 1, version 1-LS1376\I.2, Ford, 3/22/00. There being no objection, Amendment 1 was adopted. It read as follows: Page 3, line 9, following "chapter": Insert ", whichever occurs first" Page 27, line 20, through page 28, line 12: Delete all material and insert: "Sec. 21.79.170. Determination of principal place of business. The principal place of business of a plan sponsor consisting of (1) a single employer or an employee organization is that state in which the plan sponsor exercises the direction, control, and coordination of the operations of the entity, as determined by the association in its reasonable judgment by considering the following factors: (A) the state in which the primary executive and administrative headquarters of the entity are located; (B) the state in which the principal office of the chief executive officer of the entity is located; (C) the state in which the board of directors or a similar governing body of the entity conducts the majority of its meetings; (D) the state in which the executive or management committee of the board of directors or a similar governing body of the entity conducts the majority of its meetings: (E) the state from which the management of the overall operations of the entity is directed; and (F) in the case of a benefit plan sponsored by affiliated companies making up a consolidated corporation, the state in which the holding company or controlling affiliate has its principal place of business as determined using the factors described in (A) - (E) of this paragraph; however, if more than 50 percent of the participants in the benefit plan are employed in a single state, that state is considered to be the principal place of business of a plan sponsor that is a single employer or an employee organization; (2) two or more employers or employee organizations is that state in which the employers or employee organizations have the largest investment in the benefit plan." Number 1436 REPRESENTATIVE ROKEBERG made a motion to move CSHB 398(L&C), version 1-LS1376\I, as amended, out of committee with individual recommendations and attached zero fiscal notes. REPRESENTATIVE GREEN stated: The concern I would have with that, then, is if Mr. Ridgeway comes back with something, even though that is you say the word in the model bill [is], "any". Is there any concern among any of the members of the committee that they would like to know for sure that ... that takes care of our concerns, our mutual concerns? REPRESENTATIVE KERTTULA replied that if the chairman of the House Labor and Commerce Committee [Representative Rokeberg] agrees that there is a problem, then it can be taken care of on the floor of the House of Representatives. REPRESENTATIVE ROKEBERG indicated that he wouldn't object, if there is a problem. REPRESENTATIVE GREEN asked whether there was any objection to moving the bill out of committee. There being none, CSHB 398(JUD), moved from the House Judiciary Standing Committee.
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