Legislature(1999 - 2000)
05/06/1999 02:35 PM Senate HES
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 117-INSURANCE FOR SCHOOL DISTRICTS
CHAIRMAN MILLER brought up SB 117 and a proposed committee
substitute (CS) for consideration, and invited Ms. Mossgrove to
testify.
MS. SUE MOSSGROVE, staff to Senator Taylor and to the
Administrative Regulation Review Committee, explained the bill is
the result of a problem identified in regulation. The CS clarifies
that if a school district is not in a flood plain or a flood prone
area, it does not have to purchase flood insurance. In addition,
language has been added to exempt schools from carrying earthquake
insurance unless they are in an active seismic zone. The
requirement to have earthquake insurance is left to the discretion
of the DOE commissioner. Clear seismic zones ranging from 0-4 have
been mapped out in Alaska. The CS also clarifies that this
amendment to Title 14 applies only to REAAs, not to schools that
are eligible for self-insurance. The CS adds definitions from CFR
44 of flood plain and flood prone areas; the same definitions in
the regulation as well.
SENATOR ELTON asked about earthquake zones and whether a zero
classification is inactive and 1 is active. MS. MOSSGROVE replied
a map exists with the zones laid out, zero being the lowest
potential for earthquake activity. The "ring of fire" is zone 4,
the highest. The zones 0-4 guidelines are set by the building
code.
SENATOR ELTON asked if an REAA school in a 1-4 zone will be
required to carry earthquake insurance while REAA schools in zone
0 will not. MS. MOSSGROVE replied that is correct but the final
decision is left to the commissioner's discretion. Schools in
zones zero and one do not need to carry insurance because no
earthquakes have ever been recorded in those zones.
SENATOR ELTON expressed hesitancy about whether to give different
commissioners the latitude to re-define seismic zones. Zone zero
is easy, but zone one and two are not as clear. He said he is
uncomfortable that the bill does not contain more specifics to
guide the commissioner's decisions.
SENATOR WILKEN agreed with Senator Elton's concern and noted that
Anchorage has 4 or 5 seismic zones within it and that a school
could straddle seismic zones. He suggested the committee re-think
who defines seismic zones, and whether the designation applies to
a school area or a district. He indicated the University of Alaska
has plenty of maps available.
Number 145
MS. MOSSGROVE said she got her information from the University's
website, DNR and the U.S. Geological Survey. The map she used lays
out the seismic zones quite clearly. She was unaware that Anchorage
has different seismic zones within it because it is shown only as
Zone 4 on her map.
SENATOR WILKEN said the Geophysical Institute is currently working
on defining the seismic zones in Anchorage for major structures so
they don't all pay at the Zone 4 level.
SENATOR ELTON asked Ms. Mossgrove to describe the net effect on the
REAAs.
MS. MOSSGROVE said Senator Taylor's intention is to clarify in
statute who has to have insurance, and to allow DOE to apply some
common sense, especially in times of revenue shortages. It is her
understanding that the state currently requires earthquake and
flood insurance for all REAAs. The insurance industry has combined
the two coverages and created a blanket policy to provide a cheaper
rate.
Number 101
SENATOR ELTON asked if that means the pooled insurance will be
higher for non-REAAs if some REAAs no longer have to purchase the
earthquake coverage. MS. MOSSGROVE deferred to DOE to answer that
question.
MR. MICHAEL MORGAN, Facilities Manager for DOE, explained that
current regulation requires flood insurance for all structures in
a flood plain or flood prone area. It also requires earthquake
insurance only for REAAs that are housed in state-owned buildings.
The change will lift the requirement that all REAAs in state-owned
buildings carry blanket earthquake and flood insurance. MR. MORGAN
said the practical effect should net zero, because almost all REAAs
are covered through the Alaska School Insurance Company's (ASIC)
program as part of its broad coverage policy offering earthquake
and flood coverage. When DOE did the regulation two years ago, it
talked to ASIC and AML. ASIC said because of the marketplace, no
cost savings would result if one or two districts wanted out of
earthquake and flood coverage. It should not really increase the
cost of the premium to districts.
Number 056
SENATOR ELTON asked whether, because of the insurance market the
pool is now working in, no net savings to any district wanting to
cancel earthquake coverage may occur. He questioned what will
happen if ASIC begins using another insurance market, and whether,
if this bill passes, the Juneau school district's insurance could
increase because another district dropped out of the pool.
MR. MORGAN replied that if any district pulls out of the pool the
insurance rates of the remaining members would be affected. He
could not say how that would balance out over the long term. Mr.
Morgan said DOE is uncomfortable being put in the position of
determining seismic zones, and he agrees with the comments made by
both Senators Elton and Wilken.
SENATOR ELTON asked if the risk that other districts' insurance
rates will increase if this bill is enacted is insignificant. MR.
MORGAN said he believes "this will have really no effect on other
districts."
SENATOR WILKEN asked if any REAAs are not in state-owned
facilities. MR. MORGAN said some REAAs have asked for title to the
land and buildings under AS 14.08.151 which requires DOE to convey
the title if requested. Some REAAs have already taken title to
land and buildings.
SENATOR WILKEN asked if the REAAs assume the maintenance and
operating costs when they take title. MR. MORGAN said REAAs do
that whether or not they have title.
SENATOR ELTON noted the issue raises an especially interesting
question because if a school building originally served 13 students
and now serves eight, the school building is no longer classified
as a school under the formula.
MR. MORGAN agreed that a student population must consist of more
than 10 students in order for a school to exist. Regarding the
question of what happens to the ownership issue when titles are
transferred, MR. MORGAN stated titles are transferred with their
underlying restrictions on deeds. Deeds acquired by the state from
the BIA usually contain a restriction requiring the land to be used
for school purposes. The REAA could probably rent or lease the
school building and keep the land.
CARL ROSE, Executive Director of the Association of Alaska School
Boards (AASB) and President of the Alaska Public Entity
Insurance Company (APEIC), formerly the Alaska School Insurance
Company (ASIC) until two years ago. ASIC was domiciled in Vermont
because it was created as a pool before the Alaska insurance
pooling laws were enacted; two years ago ASIC decided to domicile
in Alaska.
MR. ROSE discussed the background of this issue. In 1985, most of
the REAAs were unable to obtain insurance. The AASB created, under
its charter, a pool of property values within the REAAs and small
school districts, to take to market. At that time, AASB was
looking at premium prices in the area of $1.25 per $100 of
coverage. By the year 1991, AASB was able to drive that price down
to 21 cents per $100. As an insurance company, APEIC has suffered
over $36 million in losses as a result of total loss fire damage
and a few floods. After paying $36 million in damages, APEIC's
premium rates only increased to 41 cents per $100, and they
continue to decrease. At present, insurance companies are making
money on investments and the focus is not on underwriting but on
getting the premiums to invest. When the investment climate
begins to tail off, insurance companies will be forced to focus on
underwriting and the industry is cyclical. Regarding how APEIC
came up with the idea of providing earthquake and flood insurance,
REAAs were required, under their use permits, to provide that
coverage it they did not take possession of the buildings. That
scheme acted as the footprint for the APEIC so that the REAAs could
get coverage. As a result, APEIC was able to get the coverage at
a fairly low rate because it spread the cost to those outside of an
earthquake zone, similar to the Universal Service Fund in relation
to telephone rates. SB 117 will not have a net impact on the REAAs
that exist right now. The insurance industry looks at Alaska as an
active seismic area, although some areas of Alaska are not active.
APEIC differentiates between the two. With respect to REAAs, MR.
ROSE did not think SB 117 would have an effect. He said he
understood at one point in time, a group of people who did not need
earthquake coverage wanted to be exempted from the requirement.
Because of the state of the market, the insurance industry has
adopted a quality-added atmosphere: the industry is trying to
offer broad coverage for the lowest possible premium to attract
consumers. The net result is that if the Legislature segments the
market and no longer requires certain schools to have coverage, the
premium rates on those who do need the coverage would be driven up.
MR. ROSE repeated that regarding REAAs, he does not believe SB 117
will change anything in existence right now but he questioned
whether newly acquired buildings would be required to have the
insurance. Two insurance pools are available in the state: AML and
APEIC. Both are trying to provide broad areas of coverage. He
believes SB 117 does clarify what people will be required to do and
the industry is positioned to provide the coverage.
SENATOR ELTON asked if Yakutat no longer purchases flood insurance
because it is not in a flood plain, whether its insurance rates
will remain the same so that no other pool member's rates will be
affected.
MR. ROSE replied that is an accurate assessment. Yakutat is not an
REAA so it is not required to provide this coverage right now.
APEIC's broad policies include earthquake and flood coverage. He
noted Yakutat did not want that coverage, but it was part of the
broad package. He repeated that the quality-added approach taken
by the insurance industry is to provide as much coverage as
possible for the premium dollar. He noted the savings would be
minuscule if a specific coverage was broken out because purchasing
large quantities of insurance as a pool provides more buying power.
MR. MORGAN said his reading of the committee substitute is that the
current requirement in regulation that cities, boroughs and
municipalities in a flood plain or flood prone area carry coverage
would not change.
CHAIRMAN MILLER asked if Mr. Morgan's reading of the original bill
was that Yakutat would not have to purchase coverage. MR. MORGAN
said that is correct; if a school is not located in a flood plain
or flood prone area, it will not be required to be covered for
such.
SENATOR WILKEN moved to adopt CSSB 117(HES), Version H. There
being no objection, CSSB 117(HES) was adopted in lieu of the
original bill.
SENATOR ELTON stated he believes a definition of "seismic zone"
should be included in the bill. SENATOR WILKEN agreed.
MS. MOSSGROVE noted the drafter specifically included the word
"active" when referring to a seismic zone because Alaska as a whole
is considered to be a seismic zone.
CHAIRMAN MILLER thought the committee would be more comfortable
clarifying the different zones and their ratings to determine which
zones should and should not be covered.
SENATOR WILKEN suggested asking the drafter to define "active
seismic area" within the bill so that a reference exists.
CHAIRMAN MILLER suggested Senator Wilken, Senator Taylor, Mr.
Morgan and Mr. Rose get together and come up with a solution.
CHAIRMAN MILLER stated there being no other business to come before
the committee, the Senate HESS Committee was adjourned.
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