Legislature(2005 - 2006)

03/27/2006 02:03 PM JUD

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HB 439 - INSURANCE PRODUCT REGULATION COMPACT                                                                                 
2:03:49 PM                                                                                                                    
CHAIR McGUIRE  announced that the  first order of  business would                                                               
be HOUSE BILL NO. 439, "An  Act relating to authorizing the state                                                               
to join with other states  entering into the Interstate Insurance                                                               
Product  Regulation  Compact  and   authorizing  the  compact  to                                                               
supersede  existing statutes  by approving  standards, rules,  or                                                               
other  action under  the  terms  of the  compact."   [Before  the                                                               
committee was CSHB 439(L&C).]                                                                                                   
REPRESENTATIVE COGHILL,  speaking as the sponsor,  explained that                                                               
this legislation allows  Alaska to enter into a  compact in which                                                               
states come  together for  the purposes of  aligning some  of the                                                               
application procedures  for life insurance  annuities, disability                                                               
income,   and  long-term   care   products.     He  related   his                                                               
understanding   from   a   National   Conference   of   Insurance                                                               
Legislators (NCOIL)  meeting that  if states don't  address this,                                                               
the federal  government will.   Twenty-some states,  he remarked,                                                               
have  already joined,  but 26  states must  come together  before                                                               
[the  compact]  becomes effective.    The  legislation creates  a                                                               
single point  of filing for  the states involved in  the compact,                                                               
which would  benefit Alaska  because it would  merely have  to be                                                               
aware of and supportive of  those standards.  From the consumer's                                                               
perspective, annuities and life  insurance policies would be more                                                               
portable across  state lines.   This  legislation would  give the                                                               
compact some authority to [establish]  the uniform standards with                                                               
which the  state would  have to  comply.   He specified  that the                                                               
[compact] would  define the products  and the state  would follow                                                               
suit with those products.                                                                                                       
2:06:55 PM                                                                                                                    
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce,  Community, &  Economic Development  (DCCED), clarified                                                               
that 21 states have passed  the proposed interstate compact.  She                                                               
referred to the  "Speed to Market" initiative,  which attempts to                                                               
encourage [states]  to find  better ways to  get products  to the                                                               
consumer.  She  pointed out that the model  compact was developed                                                               
by  the National  Association of  Insurance Commissioners  (NAIC)                                                               
and  was  vetted for  about  four  years with  attorneys  general                                                               
around  the  country  and insurance  regulators.    This  vetting                                                               
process was  meant to ensure that  the compact meets the  laws of                                                               
the various  states entering the  compact.  Ms.  Hall highlighted                                                               
that entering into  the proposed compact will  hopefully fend off                                                               
attempts at  federal regulation  of insurance.   She  opined that                                                               
insurance should be regulated by  the states, particularly when a                                                               
state is the  size of Alaska.  She noted  that consumers are able                                                               
to  call  her office  daily  with  various complaints,  and  this                                                               
wouldn't  occur  if the  federal  government  were in  charge  of                                                               
regulating insurance.                                                                                                           
2:09:31 PM                                                                                                                    
MS.  HALL then  turned to  the  basic structure  of the  compact,                                                               
which proposes to create a  commission with a representative from                                                               
each state  in the compact;  typically that  representative would                                                               
be  a state's  chief  regulator.   She  explained that  insurance                                                               
products would have to be  vetted by this commission and approved                                                               
by two-thirds  of the  members of the  commission to  be adopted.                                                               
The commission will  also establish standards.   She informed the                                                               
committee that states  can opt out of the standards  in two ways:                                                               
through  legislative   action  or   through  regulation   by  the                                                               
insurance  regulator.    She  pointed   out  that  the  insurance                                                               
regulator only  has 10 days after  the adoption of a  standard to                                                               
file notice  that the state  isn't going to adopt  the particular                                                               
standard.   Ms. Hall reminded  the committee that  the commission                                                               
becomes operational only  if at least 26 states or  40 percent of                                                               
the  premium  volume  in  the  country join  the  compact.    She                                                               
explained  that products  covered are  both individual  and group                                                               
life  insurance, annuities,  disability  income [insurance],  and                                                               
long-term care [insurance].                                                                                                     
MS.  HALL  explained that  were  the  state  to  be part  of  the                                                               
compact, filings  could still be  made to the Alaska  Division of                                                               
Insurance  or   through  the  commission.     This   attempts  to                                                               
streamline  the   process  while  maintaining  standards.     The                                                               
standards  the  compact  proposes  to adopt  appear  to  be  more                                                               
protective  than  the  standards   Alaska  currently  has.    For                                                               
example, for all  products, there will be a  minimum 10-day right                                                               
to examine, and Alaska law  doesn't require this.  Also, although                                                               
Alaska law specifies that [language  pertaining to] products must                                                               
not  be   ambiguous  or  misleading,   the  state   doesn't  have                                                               
"readability"  standards, nor  does Alaska  require a  "no lapse"                                                               
guarantee or have premium disclosure  standards.  In other words,                                                               
the  commission  is  attempting   to  provide  stronger  consumer                                                               
protections than  what Alaska has.   Generally speaking, products                                                               
filed  in Alaska  are fairly  common across  the country  because                                                               
it's more expensive for an  insurance company to develop separate                                                               
products for  each state.   She relayed that [the  division] will                                                               
accept higher standards than [current]  statute requires, and the                                                               
compact  provides   a  mechanism   for  approval  that   is  more                                                               
streamlined; furthermore,  the NCOIL and the  National Conference                                                               
of  State Legislatures  (NCSL) have  adopted a  motion to  accept                                                               
[the compact].                                                                                                                  
2:13:34 PM                                                                                                                    
REPRESENTATIVE  GARA  inquired  as  to  what  would  prevent  the                                                               
commission  from   reducing  an  individual's   rights  regarding                                                               
insurance contracts.  He recalled  that when he represented those                                                               
who purchased disability policies,  the insurance companies would                                                               
find amazing ways not to pay on the disability.                                                                                 
MS.  HALL  opined  that  it  would  be  difficult  to  pass  weak                                                               
standards, given  that the commission will  consist of regulators                                                               
whose primary  mission is consumer  protection.  She  pointed out                                                               
that the enforcement  of the standards remains  with each state's                                                               
division  of  insurance,  and  the compact  is  merely  a  filing                                                               
mechanism  through  which  to   obtain  approval  for  particular                                                               
REPRESENTATIVE GARA inquired as to  what would happen if language                                                               
was  included  specifying  that   the  division  won't  agree  to                                                               
standards  that provide  for  a lesser  level  of protection  and                                                               
rights for policyholders than Alaska law would.                                                                                 
MS. HALL  said that she  didn't believe such  additional language                                                               
would result  in anything  negative.  She  then pointed  out that                                                               
the legislature  has the opportunity  to opt out of  a particular                                                               
standard, but  that assumes that  the legislature knows  that the                                                               
standard exists.                                                                                                                
REPRESENTATIVE  GRUENBERG  asked  whether there  is  an  official                                                               
interpretation of each section of the compact.                                                                                  
MS. HALL  said that  she hasn't seen  any official  commentary at                                                               
this  point,  although  she  offered  to  provide  Representative                                                               
Gruenberg with the position papers and analysis by NAIC.                                                                        
REPRESENTATIVE  GRUENBERG  offered   his  understanding  that  an                                                               
interstate  compact is  a contract  between states,  which has  a                                                               
priority below federal  law but above state law.   He relayed his                                                               
further understanding  that these  contracts can't be  amended or                                                               
withdrawn from except as specified in the contract.                                                                             
2:20:39 PM                                                                                                                    
MS.  HALL   offered  her  understanding  that   HB  439  includes                                                               
provisions allowing both for withdrawal  from the compact and for                                                               
non-participation in a particular standard.                                                                                     
REPRESENTATIVE  GRUENBERG  asked  whether   the  compact  can  be                                                               
REPRESENTATIVE COGHILL pointed out that  the amendments to HB 439                                                               
thus far  have not  been to  the text  of the  compact.   He then                                                               
relayed his  belief that  the state  can make  laws that  it will                                                               
enforce outside  of this compact,  and that the state  won't give                                                               
up that much sovereignty.   Representative Coghill said he shares                                                               
the [concern]  that the  state might  wish to  go in  a different                                                               
direction than the compact with regard to consumer protection.                                                                  
MS. HALL,  in response to  a question, reiterated that  the state                                                               
regulatory  agency has  the  ability  to opt  out  of a  standard                                                               
proposed by  the commission  by giving notice  within 10  days of                                                               
the notice of  the adoption of the standard.   She also explained                                                               
that  [the commission]  has been  meeting and  reviewing products                                                               
for almost  two years, and that  once the commission is  in force                                                               
and  operational,  those  proposed  standards would  have  to  be                                                               
adopted by  two-thirds of the  directors on the commission.   Ms.                                                               
Hall pointed out that the  standards being discussed will pertain                                                               
to product filings.                                                                                                             
REPRESENTATIVE GRUENBERG asked how notification will occur.                                                                     
MS. HALL  said she  wasn't sure that  the commission  has adopted                                                               
operating rules yet.                                                                                                            
2:26:41 PM                                                                                                                    
REPRESENTATIVE  GRUENBERG asked  whether  the  notification by  a                                                               
state opting  out has  to be  mailed within  10 days  or received                                                               
within 10 days.                                                                                                                 
MS.  HALL pointed  out  that given  that the  state  sits on  the                                                               
commission, the  state representative would vote  on the standard                                                               
and thus would  be aware of the situation and  the upcoming vote.                                                               
In response to  questions, she reiterated that  two-thirds of the                                                               
members of the commission must  approve [the standards]; that the                                                               
number of members of the  commission is dependent upon the number                                                               
of states  that join; and that  at least 26 states  must join for                                                               
the commission  to be operational.   She went on to  clarify that                                                               
if 40  percent of  the premium  volume in  the country  joins the                                                               
compact, the commission would be operational.                                                                                   
REPRESENTATIVE ANDERSON,  speaking as  the chair  of the  Labor &                                                               
Workforce  Development  Committee  of   the  NCSL,  informed  the                                                               
committee that the NCSL endorsed  this [compact].  He then turned                                                               
attention  to  page 13,  line  20,  which  outlines the  opt  out                                                               
provision.   The  provision includes  language indicating  that a                                                               
compacting  state  can  opt  out  when  it  determines  that  the                                                               
standard  "does   not  provide  reasonable  protections   to  the                                                               
citizens  of  the State,  given  the  conditions in  the  State".                                                               
Therefore,  Representative Anderson  opined, Alaska  isn't locked                                                               
into anything, and HB 439 is a good step for Alaska.                                                                            
REPRESENTATIVE COGHILL said that he  didn't want to surrender the                                                               
state's  right  to take  care  of  its  consumers.   He  posed  a                                                               
situation in  a which  an insurance  agent/company saw  a problem                                                               
with  the commission,  and  inquired as  to  how the  legislature                                                               
would come to know  about it.  He further inquired  as to how the                                                               
legislature would come to know if  a consumer had a problem.  The                                                               
aforementioned  will   impact  the   language  of   the  proposed                                                               
conceptual  amendment  included  in  the  committee  packet;  the                                                               
proposed conceptual amendment read as follows:                                                                                  
     The state shall  not agree to rules  promulgated by the                                                                    
     commission that  provide for  a materially  lower level                                                                    
     of  protection,   or  materially  lesser   rights  than                                                                    
     provided to Alaska  policyholders and policy applicants                                                                    
     than otherwise provided by Alaska law.                                                                                     
2:34:08 PM                                                                                                                    
JOHN GEORGE, Lobbyist  for the American Council  of Life Insurers                                                               
(ACLI),  said   that  essentially  all  of   the  life  insurance                                                               
companies in the  U.S. are members of the ACLI.   He informed the                                                               
committee  that  the  ACLI requested  that  this  legislation  be                                                               
introduced  because it's  important consumer  legislation and  it                                                               
makes it much easier for  life insurance companies to do business                                                               
and  bring new  products to  market.   As  mentioned earlier,  it                                                               
makes sense for life insurance  to be practically the same across                                                               
the nation.  This [compact]  would allow life insurance companies                                                               
to respond  nationally and get new  products to the market.   Mr.                                                               
George  noted that  the "escape  clauses" were  carefully written                                                               
such  that a  state can  opt out  of a  specific [standard].   He                                                               
further noted that  the life insurance industry  will be policing                                                               
[the  commission]  because  it wants  a  uniformly  high  quality                                                               
standard.  Given that all the  states vote on [the standards], he                                                               
assured the committee that there will be good standards.                                                                        
REPRESENTATIVE GRUENBERG posed a  hypothetical situation in which                                                               
[compact  commissioners] from  around  the country  meet and  are                                                               
"wined and  dined and lobbied  to death" by a  particular company                                                               
that wants  product "X."  He  asked if it would  make it somewhat                                                               
more  difficult for  consumers to  protect themselves  if product                                                               
"X" wasn't good for consumers.                                                                                                  
MR. GEORGE opined that it would  probably be easier today to wine                                                               
and dine  individual state insurance regulators  today and obtain                                                               
low standards  in each  state individually than  it would  to get                                                               
low standards passed through the compact.                                                                                       
REPRESENTATIVE GARA  offered his understanding that  Ms. Hall has                                                               
no objections  to the  proposed conceptual  amendment as  long as                                                               
Legislative Legal and Research Services  makes it work within the                                                               
context of the legislation.                                                                                                     
MR. GEORGE, in response to a  question, said that he doesn't have                                                               
a problem  with the proposed  conceptual amendment so long  as it                                                               
doesn't void  the compact.   He acknowledged that  everyone wants                                                               
good protection for the public.                                                                                                 
2:38:34 PM                                                                                                                    
REPRESENTATIVE  COGHILL mentioned  that  he  doesn't want  lesser                                                               
standards  or  less consumer  protection,  and  opined that  it's                                                               
probably good policy  if the language in  the proposed conceptual                                                               
amendment  makes  "them"  come  back  to  the  legislature.    He                                                               
suggested his  understanding that  as it  won't void  the compact                                                               
and proposes  a high hurdle,  he wouldn't object to  the proposed                                                               
conceptual amendment, because he agrees with the concept of it.                                                                 
REPRESENTATIVE  ANDERSON  objected  to  the  proposed  conceptual                                                               
amendment, and stated  that the matter could be  addressed on the                                                               
House floor.   He opined  that there could  be a loophole  in the                                                               
proposed conceptual  amendment wherein someone  could continually                                                               
challenge  and make  the  compact ineffective.    He relayed  his                                                               
preference  to  have  Legislative  Legal  and  Research  Services                                                               
research  the matter  and  provide a  memorandum,  and that  they                                                               
leave any [necessary] amendment for the House floor.                                                                            
REPRESENTATIVE  COGHILL  concurred  and   offered  to  work  with                                                               
Representative Gara on that issue.                                                                                              
CHAIR McGUIRE  posited that typically there's  standard pro forma                                                               
language included in  a compact.  She expressed  concern that the                                                               
proposed  conceptual amendment  is  a bit  vague, and  questioned                                                               
whether  any  difference  in  its  language  from  the  compact's                                                               
language would [void] the compact.                                                                                              
MR. GEORGE suggested that rather  than modifying the compact, the                                                               
regulator could simply be given  instructions to specify when the                                                               
state should opt out of a standard.                                                                                             
REPRESENTATIVE  GARA   clarified  that   is  what  he   meant  to                                                               
accomplish with the proposed conceptual amendment.                                                                              
REPRESENTATIVE  ANDERSON  inquired  as  to whether  it  would  be                                                               
possible to get a memorandum  from Legislative Legal and Research                                                               
Services regarding the appeal process.                                                                                          
REPRESENTATIVE  COGHILL said  he would  rather have  any amending                                                               
language drafted by Legislative Legal and Research Services.                                                                    
REPRESENTATIVE  GARA   announced  that  he  wouldn't   offer  the                                                               
proposed conceptual amendment, and  will work with Representative                                                               
Coghill  on the  legislation.   He  suggested  that perhaps  [the                                                               
commission]   could  be   required   to   send  the   legislature                                                               
notification that a particular standard  has been adopted so that                                                               
the  legislature  would know  that  it  would have  to  introduce                                                               
legislation to address the situation.                                                                                           
CHAIR  McGUIRE  and  REPRESENTATIVE COGHILL  indicated  agreement                                                               
with that suggestion.                                                                                                           
2:44:57 PM                                                                                                                    
CHAIR McGUIRE,  upon determining no  one else wished  to testify,                                                               
closed public testimony on HB 439.                                                                                              
REPRESENTATIVE  ANDERSON  announced  that  committee  staff  will                                                               
contact  Legislative Legal  and Research  Services to  assess the                                                               
state and  legislature's liability and the  state's attachment to                                                               
the compact.                                                                                                                    
REPRESENTATIVE  ANDERSON moved  to  report CSHB  439(L&C) out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.   There  being  no  objection, CSHB  439(L&C)  was                                                               
reported from the House Judiciary Standing Committee.                                                                           

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