Legislature(2005 - 2006)CAPITOL 17

03/01/2006 03:15 PM LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 402 MARRIAGE BROKERS AND ADVERTISERS TELECONFERENCED
Moved CSHB 402(L&C) Out of Committee
*+ HB 424 MORTGAGE LENDING TELECONFERENCED
Heard & Held
*+ HB 439 INSURANCE PRODUCT REGULATION COMPACT TELECONFERENCED
Moved CSHB 439(L&C) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 416 BUSINESS LICENSE FEE TELECONFERENCED
Moved CSHB 416(L&C) Out of Committee
HB 439-INSURANCE PRODUCT REGULATION COMPACT                                                                                   
                                                                                                                                
4:14:48 PM                                                                                                                    
                                                                                                                                
ACTING  CHAIR KOTT  announced  that the  next  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."                                                                                   
                                                                                                                                
4:15:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHN  COGHILL, Alaska State  Legislature, sponsor,                                                               
informed the  committee that  HB 439  was introduced  by request.                                                               
He said that the National  Association of Insurance Commissioners                                                               
(NAIC)  has a  model  act which  allows states  to  enter into  a                                                               
compact for insurance products.   He said that the different life                                                               
insurance  products   are  diverse,  as  different   states  make                                                               
different  laws which  effect the  sale and  management of  these                                                               
products.   He stated that the  industry is looking for  areas in                                                               
which the regulations  can be better aligned.  He  said that this                                                               
can  be done  by  federal  law or  by  creating compacts  between                                                               
states.   He  said  that there  are currently  20  states in  the                                                               
compact, and  26 are needed  to create  the compact.   He offered                                                               
his understanding  that there are  17 states  considering joining                                                               
the compact.  He explained that  Section 1 of the bill adopts the                                                               
Interstate Insurance Product Regulation  Compact.  He referred to                                                               
Sections  2 and  3, stating  that  these sections  are no  longer                                                               
necessary, and  suggested an amendment to  remove these sections.                                                               
He explained  that page  2 of  the bill  includes the  reason for                                                               
joining the compact.  This  includes promoting and protecting the                                                               
interests  of the  consumer.   He  expressed that  these are  all                                                               
reasons for his promotion of the compact.                                                                                       
                                                                                                                                
4:19:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL, in  response to a question,  said that he                                                               
would like to remove  Sections 2 and 3 on page  23.  He explained                                                               
that  this   is  currently  happening,   and  therefore   is  not                                                               
necessary.   He  said that  the  compact will  not supersede  the                                                               
state, and added  that it is an agreement for  the description of                                                               
insurance products.                                                                                                             
                                                                                                                                
4:21:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked what  types of insurance would be                                                               
included in the compact.                                                                                                        
                                                                                                                                
REPRESENTATIVE COGHILL  referred to page 5,  which specifies life                                                               
insurance and long-term insurance issues.                                                                                       
                                                                                                                                
4:22:55 PM                                                                                                                    
                                                                                                                                
ACTING CHAIR  KOTT, referring  to a  memo from  Legislative Legal                                                               
and  Research   Services,  asked  if  the   issue  regarding  the                                                               
unconstitutionality of the compact had been addressed.                                                                          
                                                                                                                                
REPRESENTATIVE  COGHILL  replied  that  the  compact  contains  a                                                               
severability provision, which is very clear.                                                                                    
                                                                                                                                
JOHN GEORGE, American Council of  Life Insurers (ACLI), explained                                                               
that the  state does  relinquish some  authority to  the compact;                                                               
however, the state also retains the  ability to take it back.  He                                                               
said that the insurance companies  have the option of filing with                                                               
the state rather than the compact.   He said that if the Division                                                               
of Insurance  does not  agree with guidelines  or rules  that the                                                               
compact  sets, the  bill  includes a  provision  that allows  the                                                               
Division of Insurance  to opt out.  In  addition, the legislature                                                               
has the ability  to repeal membership in the compact.   In regard                                                               
to the question of constitutionality,  he said that a policy form                                                               
approved  by the  compact does  not preclude  an individual  from                                                               
asking  the  division to  hold  a  hearing.    He said  that  the                                                               
statutes clearly  state that  any aggrieved party  may ask  for a                                                               
hearing and  the director  can call  a hearing at  any time.   He                                                               
added  that   the  compact  gives   notice  before   adoption  of                                                               
standards,  which  allows  time  to hold  hearings  if  they  are                                                               
needed.                                                                                                                         
                                                                                                                                
MR. GEORGE  said that  the products that  would be  covered under                                                               
the compact  are those which  have a long-term  relationship with                                                               
the consumer.   He explained  that auto and  homeowner's policies                                                               
are generally one  year.  He said  that if a person  is living in                                                               
Alaska,  it  is  appropriate  for Alaska  to  have  jurisdiction;                                                               
however, for those people who have  moved to the state from other                                                               
parts of the  country, their life insurance  policy may originate                                                               
from the  previous state.   He  said that  it is  appropriate for                                                               
life insurance  policies to be  fairly consistent,  regardless of                                                               
where it is purchased.  He  opined that when an insurance company                                                               
is creating  a new  product, it  will first go  to states  with a                                                               
larger population  and come to  Alaska last, making  residents of                                                               
the state wait for years before having access to the product.                                                                   
                                                                                                                                
4:26:29 PM                                                                                                                    
                                                                                                                                
MR. GEORGE  went on  to say  that the  compact was  formulated by                                                               
NAIC  and  has   been  studied  and  approved   by  the  National                                                               
Conference of  Insurance Legislators  (NCOIL).  He  reiterated an                                                               
earlier  comment that  six more  states  are needed  to make  the                                                               
compact effective,  and said "We  would urge  you to be  the 21st                                                               
state."                                                                                                                         
                                                                                                                                
REPRESENTATIVE  ROKEBERG,  referring  to the  sponsor  statement,                                                               
asked if health insurance would be covered.                                                                                     
                                                                                                                                
MR. GEORGE replied that it would not.                                                                                           
                                                                                                                                
4:27:54 PM                                                                                                                    
                                                                                                                                
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce,  Community, &  Economic  Development (DCCED),  informed                                                               
the committee  that she  would not  be taking  a position  on the                                                               
bill, but  would provide comments.   She said that  the financial                                                               
service  marketplace  is  changing and  insurance  companies  are                                                               
forming banks,  which are then  selling insurance products.   She                                                               
stated that Alaska  has a very mobile population.   She said that                                                               
the NAIC  has attempted  to do a  "speed-to-market", in  order to                                                               
get the  products to  the consumer  as quickly  as possible.   In                                                               
regard  to federal  regulation, she  opined that  Alaska is  more                                                               
likely to have accessibility on a state level.                                                                                  
                                                                                                                                
MS.  HALL  explained  that  it   has  delegated  the  [Interstate                                                               
Insurance  Product  Regulation  Commission]  to  develop  uniform                                                               
standards.   She  said that  these standards  must be  adopted by                                                               
two-thirds of the majority of the  member states.  She noted that                                                               
the legislature  may decide  to opt  out if  a standard  does not                                                               
meet the  needs of  the state.   She said that  this can  also be                                                               
done by  regulation and  opined that this  process would  be more                                                               
complicated.   In  regard to  the  number of  states required  to                                                               
create  a  compact, she  said  that  it  requires 26  states,  or                                                               
sufficient  states  to  have  40  percent of  the  premium  of  a                                                               
product.    She said  that  the  four  products included  in  the                                                               
compact are:   life insurance; annuities;  disability income; and                                                               
long-term care insurance.                                                                                                       
                                                                                                                                
REPRESENTATIVE  LEDOUX asked  how  the products  included in  the                                                               
compact is determined.                                                                                                          
                                                                                                                                
MS.  HALL  replied  that  it  is  her  understanding  that  these                                                               
products are  the most  mobile policies.   She opined  that these                                                               
are  most  likely  the  easiest   to  regulate.    In  regard  to                                                               
developing  standards, she  said that  this is  a process  led by                                                               
state regulators.   She stated  that there was some  concern that                                                               
the compact  would adopt  the regulations of  the state  with the                                                               
lowest standards.  In regard  to giving the insurance company the                                                               
ability to  choose whether it  files with  the state or  with the                                                               
compact, she  said that there  was some concern that  the insurer                                                               
may choose  the route with  the lowest standards to  comply with.                                                               
She  stated that  the compact  appears to  have higher  standards                                                               
than  the state,  which include  a 10-day  free look  and minimum                                                               
readability standards.  She said  that while Alaska currently has                                                               
general  product  standards,  it  does  not  have  a  readability                                                               
standard.   She said that the  standards that are being  set have                                                               
potential  to provide  greater consumer  protection than  current                                                               
law.                                                                                                                            
                                                                                                                                
MS. HALL went on to highlight  that page 22, Section 1 points out                                                               
which areas  would still  be reserved  to the  states.   She said                                                               
that while she  did not request that the bill  be introduced, she                                                               
believes that there  is potential to provide  benefits to Alaskan                                                               
consumers.                                                                                                                      
                                                                                                                                
MS.   HALL,  in   response   to  a   question,   said  that   the                                                               
interpretation of the standard is  challenged more often than the                                                               
standard itself.   She opined that the state  still maintains the                                                               
ability to enforce this.                                                                                                        
                                                                                                                                
4:38:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  asked  what  the  state's  course  of                                                               
action would be if the compact  takes up an issue that is outside                                                               
the state's policy and the state decides to opt out.                                                                            
                                                                                                                                
MS. HALL opined that the legislature would vote on the issue.                                                                   
                                                                                                                                
REPRESENTATIVE ROKEBERG asked  if Ms. Hall [would  agree with the                                                               
bill passing.]                                                                                                                  
                                                                                                                                
MS. HALL replied that [she would.]                                                                                              
                                                                                                                                
REPRESENTATIVE  GUTTENBERG noted  that Ms.  Hall is  a member  of                                                               
NAIC and  asked if she  feels confident  that the state  would be                                                               
well represented [by the other members of the NAIC.]                                                                            
                                                                                                                                
MS. HALL replied that she does.                                                                                                 
                                                                                                                                
4:41:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG asked if the bill has a fiscal note.                                                                    
                                                                                                                                
MS.  HALL offered  her understanding  that  the original  funding                                                               
will be  provided by NAIC;  however, the majority of  the funding                                                               
will come from filing fees.                                                                                                     
                                                                                                                                
ACTING CHAIR KOTT  closed public testimony.  He  noted that there                                                               
is a proposed amendment from the sponsor.                                                                                       
                                                                                                                                
REPRESENTATIVE  ROKEBERG  made a  motion  to  adopt Amendment  1,                                                               
which  would remove  Sections  2-3.   There  being no  objection,                                                               
Amendment 1 was adopted.                                                                                                        
                                                                                                                                
4:44:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LYNN  moved to report  HB 439, as amended,  out of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.   There  being no  objection,  CSHB 439(L&C),  was                                                               
reported from the House Labor and Commerce Standing Committee.                                                                  
                                                                                                                                

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