Legislature(1997 - 1998)

03/03/1998 01:38 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
        HB 116 - WORKERS COMPENSATION SELF-INSURANCE GROUP                     
                                                                               
CHAIRMAN LEMAN announced HB 116 to be up for consideration.                    
                                                                               
MS. PATRICIA VINCENT, Kenai Peninsula Builders Association,                    
supported HB 116 which allows them to self-insure for workers                  
compensation with a self-pooling arrangement. This type of                     
legislation has been enacted in over 40 other states; 14 of them               
utilizing the pooling concept.                                                 
                                                                               
MR. MICHAEL HINCHIN, Alaska Timber Insurance Exchange, testified               
that, as a reciprocal, he and MR. PEAL had a letter from Senator               
Kelly which raised a number of questions.                                      
                                                                               
SENATOR KELLY wanted to know how much money they needed to start               
their reciprocal and was it enough.                                            
                                                                               
Number 511                                                                     
                                                                               
MR. MARTIN PEAL, Chairman of the Board of Governors, Alaska Timber             
Insurance Exchange, replied that they were formed in 1980 when the             
requirement was $1,000,000 of capitalization.  The statute has                 
moved that requirement up to $2,000,000.  Their capitalization was             
always monitored closely by the Division of Insurance and they were            
pressured to keep it at a good level with respect to annual                    
premiums.  At one time it was at least 30 percent, but it has been             
changed to 50 percent, which has been very adequate for his group.             
They never encroached the level required by the State.  He said                
their capitalization stands at $6.8 million currently.                         
                                                                               
SENATOR KELLY asked if they ever had to assess the members.                    
                                                                               
MR. PEAL replied that they issue non-assessable policies which                 
means when you write a policy, they use an experience rating                   
system.  The premium is set and is not assessable for the year.                
                                                                               
SENATOR KELLY asked if their ratings were established by a national            
organization or did they do their own.                                         
                                                                               
MR. PEAL said they use a combination.  For classifications where               
they write an extensive amount of business such as in logging, they            
file rates with the State of Alaska that are either below the                  
National Rating organization or above.  For the other classes, they            
typically use organization rates.                                              
                                                                               
SENATOR KELLY asked if they use rates and then go under or above               
compared to an experience factor.                                              
                                                                               
MR. PEAL replied that is correct.  However, those deviations must              
be approved by the Division of Insurance.                                      
                                                                               
SENATOR KELLY asked if he thought this self-insurance pool the                 
Committee was looking at in this committee substitute would work               
like the reciprocal has.                                                       
                                                                               
MR. PEAL replied that he had some significant concerns.  He thought            
the Director of Insurance should have some authority on this.  He              
thought the size of the group was very small and the principle of              
insurance is to spread risk among a larger number of people.  He               
didn't know how the reinsurance would work, because you need                   
adequate stop insurance to stop your losses.  The joint and several            
liability provision of the bill ought to concern anyone who has a              
substantial stake in the pool, in case there is an assessment                  
because of a failure.                                                          
                                                                               
MR. PEAL said they had other questions; one had to do with benefits            
members gain from participating in a reciprocal.  He thought an                
important benefit lies in the fact that the Board and management               
are owners in the timber industry and manage their own safety                  
operations.                                                                    
                                                                               
TAPE 98-9, SIDE B                                                              
                                                                               
Their frequency of accidents today is less than half of what it was            
10 years ago.  The members, after meeting the substantial                      
capitalization requirements and setting conservative reserves, get             
profits returned to them as investment income.  They have very low             
administrative and overhead costs, there being no brokers'                     
commissions.  There is more direct contact with an injured worker              
which brings about a quicker return to work.                                   
                                                                               
MR. HINCHIN said the other benefit that's important is that they do            
return all the net income back to the members.  In 1997 they                   
returned 62 percent of the premiums.  Over a period from 1992 -                
1997 70 percent of the premiums were returned back to the members              
of the Exchange. So, in effect, they paid 30 percent of the                    
established workers compensation rate.                                         
                                                                               
SENATOR KELLY asked if that was because over a period of years they            
established a strong reserve or equity base.                                   
                                                                               
MR. PEAL answered that it was a combination of factors.  They have             
strong capitalization, strong reserves that have built up over time            
and have been invested, and they tend to set conservative rates                
knowing that a profit will be returned.                                        
                                                                               
Number 540                                                                     
                                                                               
SENATOR KELLY asked how their members pay for their premium.                   
                                                                               
MR. PEAL answered that they pay monthly.                                       
                                                                               
SENATOR KELLY asked why monthly instead of quarterly.                          
                                                                               
MR. PEAL answered that quarterly payments are too risky for                    
collecting premiums.  When you write a policy and the premiums                 
don't come in, you have to give notice which runs another 30 days              
before you can send a notice of cancellation.  In an industry where            
premiums are pretty large, that can mount up pretty fast.                      
                                                                               
SENATOR KELLY asked what their deposit premium was for someone                 
joining the organization.                                                      
                                                                               
MR. PEAL answered about 30 percent of estimated annual premiums.               
                                                                               
SENATOR KELLY asked if that had always been the case.                          
                                                                               
MR. HINCHIN answered that he had been there for the last 10 years.             
It is adjusted as membership grows or decreases.                               
                                                                               
SENATOR KELLY asked if they have to pay monthly premiums also.                 
                                                                               
MR. PEAL explained you pay monthly premiums based upon the payrolls            
an employer pays.  During the first two years a person is a member             
of the Exchange, they are also surcharged 20 percent of their                  
premiums, so they are essentially paying 120 percent.  That 20                 
percent goes into their own capital account with the Exchange.                 
After the two year period, a member has approximately 70 percent of            
their annual premium on deposit with the Exchange.                             
                                                                               
SENATOR KELLY asked him what he thought of the provision in the                
self-insurance pool that only requires a five percent premium                  
deposit to join the group.                                                     
                                                                               
MR. PEAL explained that that five percent has only to do with their            
own guarantee fund.                                                            
                                                                               
SENATOR KELLY asked how one becomes a member of a pool under the               
committee substitute.                                                          
                                                                               
MR. PEAL answered there is a provision in there for a deposit of 25            
percent of the premium for the first year, but it goes on to say               
that it would be consumed as the first year's premiums.                        
                                                                               
SENATOR KELLY asked if in his group, do they pay 30 percent up                 
front, but do they also pay the entire premium the first year plus             
20 percent.                                                                    
                                                                               
MR. PEAL said that is correct until the capital account is built up            
to the level it is supposed to be.                                             
                                                                               
SENATOR KELLY asked how the capital account worked for the member.             
                                                                               
MR. PEAL explained that is the capitalization of the Exchange.                 
                                                                               
SENATOR KELLY asked if they established their capital by using the             
30 percent on first year deposits.                                             
                                                                               
MR. PEAL answered that the capital account is separate from that,              
although the Division of Insurance looks at the combination of the             
capital account and the deposit premium when looking at the                    
soundness and capitalization of the Exchange.                                  
                                                                               
MS. MARIANNE BURKE, Director, Division of Insurance, addressed the             
profitability of workers compensation in this State with copies of             
the 1996 profitability report prepared by the National Association             
of Insurance Commissioners, by state and five territories, for                 
workers compensation.  Alaska worker compensation for 1996 return              
on net worth was 12.7 percent. Country-wide including the five                 
territories was 12.4 percent.  Of the 55 entities, 30 were at the              
same profitability or higher than Alaska.                                      
                                                                               
CHAIRMAN LEMAN asked if it was possible that one carrier could have            
been a lot higher than the average, like 22 percent.                           
                                                                               
MS. BURKE answered that it's possible, but looking at the annual               
statements that are filed with the Division, the five top writers              
in the State did not have profitability of those high numbers.                 
                                                                               
Number 458                                                                     
                                                                               
SENATOR KELLY asked if she was concerned about the capitalization              
requirements of this plan as compared to the reciprocals which are             
obviously in place and working well.                                           
                                                                               
MS. BURKE answered that she is extremely concerned.  The two                   
successful reciprocals in the State (since 1980 and 1983) have all             
started out with cash and marketable securities.  The Timber                   
Exchange started out with a $300,000 deposit of cash under a tri-              
party agreement with the Director of the Exchange and the Bank.                
The money was actually in the bank which could only be accessed                
with the agreement of the three parties.  In addition, they had                
$825,000 in cash and marketable securities that was owned by the               
Exchange.  When you compare that to the bill before them, the                  
closest amount to the $300,000 held in the bank would be the                   
$450,000 security bond which is only accessible when the entity                
becomes insolvent.                                                             
                                                                               
SENATOR KELLY asked where the cash comes from to operate in this               
plan.                                                                          
                                                                               
MS. BURKE answered that they have to have a minimum of their first             
year's premium which is 25 percent of $500,000.  That is their                 
premium that they pay up front.  There is no equivalent to the                 
capitalization that was addressed by the reciprocal.                           
                                                                               
SENATOR MACKIE asked if the $125,000 up front was to pay for                   
administration and to pay for any claims that come up the first                
year.                                                                          
                                                                               
MS. BURKE responded that according, to this bill of the $125,000,              
70 percent is available to pay claims.  The remaining 30 percent is            
to be used to pay for administrative costs including the cost of               
the safety program, payroll audit, and other administrative charges            
they may have.  Their total amount of minimum premium for the year             
is $500,000 to get started, of which they would have 70 percent.               
But that must cover all claims plus reinsurance.  For reinsurance,             
the lower you get as an attachment point, the premium gets higher.             
                                                                               
SENATOR KELLY asked if that is what is called reinsurance.                     
                                                                               
MS. BURKE answered that is correct.                                            
                                                                               
SENATOR MACKIE asked if the reinsurance would cover any claims that            
would exceed the amount that was available to pay any claims.                  
                                                                               
MS. BURKE clarified that stop loss (reinsurance) will pay at what              
is known as an attachment point.  So if you have five accidents                
that cost $10,000 each, you would be paying the full $50,000,                  
because the attachment wouldn't occur until $10,000 is met for each            
one.  Different industries are different in this regard.  Some have            
small claims with a lot of frequency with a low dollar value;                  
others have few claims, but very high dollar value.                            
                                                                               
MS. BURKE said that Senator Kelly had asked how the capitalization             
in 1980 compared to today's dollars and she applied the Anchorage              
consumer price index to that.  The equivalent today would require              
$2,340,000 in cash and marketable securities in the ownership of               
the organization itself.                                                       
                                                                               
CHAIRMAN LEMAN said he thought the inflation was overstated a                  
little bit.  He thought it would be safe to say $2,000,000.                    
                                                                               
MS. BURKE said the guarantee fund, if you did business in Alaska,              
and there are over 500 who are licensed to write workers'                      
compensation here, are on the hook for 2 percent of their direct               
premiums written each year.  In the case of the Timber Exchange,               
for 1996, their direct premium was $8.4 million.  One company would            
have to pay $168,000 into the guarantee fund, should the need                  
arise.  All 500 companies that write workers' compensation in                  
Alaska are on the line each year.  It is the ultimate safety net.              
If a licensed insurance company or a reciprocal becomes insolvent,             
the payments to the injured worker are seamless.  The injured                  
worker does not know the company is insolvent, because the                     
guarantee association steps in and makes sure those payments are               
continued.  The money to make those payments is assessed against               
them on an as needed basis.                                                    
                                                                               
The guarantee fund in the committee substitute calls for a five                
percent, one-time only assessment.  For the first year, if they                
have their minimum premium, that would be $25,000.  There is no way            
to project how much premium they will have in the future.  She                 
could only address the minimums that are provided for in this bill.            
The guarantee association has worked throughout the country for as             
long as anyone has been tracking this.                                         
                                                                               
Number 383                                                                     
                                                                               
SENATOR MACKIE asked if in the first year there would be $500,000              
from which 70 percent would be available to pay claims.                        
                                                                               
MS. BURKE said that is correct.                                                
                                                                               
SENATOR MACKIE asked if he is an injured worker and files a claim              
that exceeds that amount of money, what steps would follow.                    
                                                                               
MS. BURKE explained that a worker files a claim, and as long as the            
group has the cash (not net worth) to pay, the injured worker would            
be paid timely and the injured worker wouldn't know what the status            
of the company was.  If there was a series of accidents or injuries            
that are below the reinsurance figure and the money is exhausted,              
the next step would be to go to the guarantee fund of $25,000.  If             
that is exhausted, the members can be assessed for additional                  
premiums.  This bill does not provide that money to be on deposit,             
but to be in assets.                                                           
                                                                               
SENATOR MACKIE asked who has the ability to assess them, themselves            
or the Director.                                                               
                                                                               
MS. BURKE replied both. If they don't pay it promptly, it falls to             
the Director to assess it.  If those funds are exhausted and they              
can get no other funds from the builders, there is joint and                   
several liability which could be considered analogous to the                   
guarantee fund, and the other insured members would have to step               
forward and convert their assets to cash.  If that is exhausted and            
the company is insolvent, the State of Alaska would step in,                   
according to the legislation, call down the $450,000 security that             
is available - only when they are insolvent.  Then the State would             
have to take over payment of the claims.  If that were inadequate,             
she didn't know where the money would come from.                               
                                                                               
SENATOR MACKIE asked if they would be litigating personal assets               
and those kinds of things.                                                     
                                                                               
MS. BURKE responded that since this isn't an insurance company, it             
doesn't have the protection of liquidation.  It would go into                  
bankruptcy.                                                                    
                                                                               
SENATOR KELLY asked to see the section on the $25,000 limit on the             
guarantee fund.  Someone indicated it was Section 160 on page 10.              
                                                                               
SENATOR MACKIE commented that $25,000 is five percent of $500,000.             
                                                                               
SENATOR KELLY remarked that was a one-time only assessment.                    
                                                                               
MS. BURKE indicated both comments were right.                                  
                                                                               
SENATOR KELLY asked if she felt that was sufficient to protect                 
injured worker's medical bills and pay given the cash flow                     
scenario.                                                                      
                                                                               
MS. BURKE responded that she didn't feel it was anywhere near                  
adequate.                                                                      
                                                                               
SENATOR KELLY asked what she thought would be adequate.                        
                                                                               
MS. BURKE replied that she would tie it to a percentage of their               
premium assessable every year, but she would like to add that                  
guarantee associations have been used one time in the State of                 
Alaska in the past 10 years.  It is the capitalization up front                
that protects the workers.  The money on deposit can make the                  
worker whole on a timely basis and is built up over time.  When the            
Timber Exchange started, they had 40 percent of their premium that             
they put in as capitalization in addition to the money they were               
required by statute to put up.  The profitability of insurance                 
companies is in large measure to their investments.  Her quote of              
profitability includes profits on investments, as well.  Twelve                
percent, or 12.7 percent, it will vary.  There will be years when              
they make more money and there will be years when they make no                 
money.  They need capitalization to earn the return on investments             
to help smooth it out.                                                         
                                                                               
Number 267                                                                     
                                                                               
MS. ROBIN WARD, Executive Director, Alaska Homebuilders                        
Association, said the New Mexican self-insurance pool, which is                
very successful, started when they had 800 statewide members of                
their trade association.  Alaska Homebuilders have 892 members.                
                                                                               
MR. ALLAN WILSON, member, Alaska Homebuilders Association, said he             
is a builder here in Juneau.  He has spent some time with a firm               
called Towers Perrin, the second largest reinsurer in the world.               
A gentleman he has been working with currently works with six other            
homebuilder pools in the country. With a handout he explained the              
cost of the reinsurance is 10 - 15 percent of the premium base; in             
this case $50,000 - $75,000.  He thought that was a significant                
number since other higher numbers had been quoted during the                   
hearing.  The stop loss insurance has two parts to it.  There's                
specific excess insurance which is per claim and goes on for the               
duration of the claim, even if it goes for five years to                       
$5,000,000.  The second portion is the aggregate, excess insurance             
and the specific insurance applies to that premium amount.  This               
insurance kicks in and pays everything from there and up to an                 
amount that is agreed to by the Director and the trustees of the               
pool.  The cost, whether it's $1,000,000 or $5,000,000 is neither              
here nor there.                                                                
                                                                               
Several other factors affect the cost of the excess insurance - who            
your third party administrator is, the people who do your actuarial            
work, the administrators, the more experienced they are, the                   
cheaper the insurance becomes.  The 10 - 15 percent rate can be                
reduced even beyond that point.                                                
                                                                               
MR. WILSON said there are seven reasons they have for choosing this            
option as opposed to the options Mr. Block suggested at the last               
hearing.  The profits remain with the industry, the lack of site               
safety programs is vital to these organizations and getting workers            
back quicker with less legal involvement (by 70 percent).  In all              
three alternatives Mr. Block presented there are no incentives to              
provide a safe workplace.  In the proposal, everyone pays the same             
rates.  He thought the expensive premiums were barriers put up by              
big companies to keep entities like the Alaska Homebuilders out of             
the market.  He thought it was important for their long term                   
profitability that they get some control over some of these issues.            
                                                                               
Number 152                                                                     
                                                                               
REPRESENTATIVE PETE KOTT, sponsor, passed a handout to the                     
Committee that explained the process for paying solvent and                    
insolvent claims.  He noted that the reinsurance was a major aspect            
of this bill and is somewhat different from the Timber Exchange's.             
He reiterated how much control the Division of Insurance has over              
this program.  A group applying for self insurance must prove to               
the Director that the organization consists of at least 10 members.            
They must have payment by each member equal to 25 percent of their             
annual premium and they must show the Director a net worth of                  
$1,000,000 and show a security amount in the total of $450,000,                
must have aggregate insurance as required by the Director, and                 
provide the Director premiums of at least half a million dollars               
the first year and $750,000 in subsequent years.                               
                                                                               
The Director is also involved with the joint and several liability             
of members, the fidelity bonds, a performance bond, the certificate            
of approval, examination of the books, review of the annual                    
financial statements and require additional reports and premiums.              
Refunds from the pool are made only after approval of the Director.            
The reserve plan is on approval of the Director.  This is the                  
amount of leverage the Division has over this particular group.  He            
referred the Committee to page 10 for the financial requirements.              
He said he is very comfortable with this proposal.                             
                                                                               
Number 41                                                                      
                                                                               
CHAIRMAN LEMAN  the security amount of $450,000 on page 2 seems to             
be low without them being liquid assets.  Another concern is the               
joint and several provision, because he thought that would scare               
off members to join and without adequate members, they wouldn't get            
capitalized initially to get off and running.                                  
                                                                               
REPRESENTATIVE KOTT explained that the $450,000 deposit can be made            
in many different forms and is the amount required of 80 percent of            
the other states.                                                              
                                                                               
TAPE 98-10, SIDE A                                                             
                                                                               
He thought each individual member would make their own decision                
about joining.  The drawing feature about this group is that they              
have the ability to do self-checking on members and he thought                 
members who had more to lose would eventually benefit.                         
                                                                               
CHAIRMAN LEMAN said he wanted this group to succeed and was                    
pointing out his concerns.                                                     
                                                                               
MS. WARD said she has found that in all other states the joint and             
several provision has been an advantage, because they can watch                
over each other's safety program and things like that.                         
                                                                               
SENATOR KELLY asked where the Alaska State Homebuilder's                       
Association's form came from and what's it supposed to show.                   
                                                                               
REPRESENTATIVE KOTT said this is a listing to find out what the                
losses were from this particular group to insure there would be the            
ability to pay those claims.  This is one page selected at random              
and it's not entirely accurate.                                                
                                                                               
SENATOR KELLY pointed out that it is pretty incomplete, because                
they are awfully small numbers.  However, it does show the                     
volatility of claims every year.  In 1992 for only 10 companies                
it's $66,000, in 1993 it's $22,000, in 1994 it's $70,000, in 1995              
it's $53,000, in  1996 it's back to $25,000, and he guessed that               
1997 was an up year.                                                           
REPRESENTATIVE KOTT said it does look volatile, but when you                   
average them out, it still falls well below the capitalization                 
required by the bill.                                                          
                                                                               
SENATOR KELLY responded that there are only 10 companies showing               
here. It doesn't show how much in premiums they pay.  He said that             
someone was telling him that last year he had $135,000 claim.  He,             
himself, had a heart attack last year and if that had happened                 
during working hours, he could have pressed in court for worker's              
compensation claiming stress, and some of those are being                      
recognized.  That was a $70,000 medical bill not counting lost                 
time.  It can happen to anyone in this group; it's not uncommon.               
Medical payments are expensive as heck.  If a worker gets unlucky              
and falls under one of these groups that's undercapitalized, there             
can be a big problem.                                                          
                                                                               
REPRESENTATIVE KOTT agreed and explained that the chart was                    
provided for illustration purposes only.  The bill does call for 10            
employers and they would have to come up with half a million                   
dollars in premiums.  He said the reinsurance would kick in, if he             
had a heart attack.                                                            
                                                                               
SENATOR KELLY responded that there are a million heart attacks in              
the United States each year and courts have allowed those types of             
claims during working hours to be workers' compensation claims.                
                                                                               
He told Ms. Ward he found that to form a self-insurance group in               
New Mexico, they need a net worth of $3 million and the employers              
must have been in business for five years and asked if she would               
object to having those provisions in the Alaska law.                           
                                                                               
MS. WARD answered yes.  In New Mexico their original legislation               
was $1 million and this proposal also calls for being in business              
for five years.                                                                
                                                                               
SENATOR KELLY asked where the five year business requirement was               
and hoped that it was in Alaska.  He asked if it means the employer            
or the association has to have been in business for five years.                
New Mexico says the employers.  He doesn't care about the                      
association; he's worried about the employers who are supposed to              
be paying the premiums to protect the workers.                                 
                                                                               
Number 110                                                                     
                                                                               
SENATOR KELLY moved a conceptual amendment saying that you have to             
have been an employer in the State of Alaska for five years before             
you're eligible to join one of these insurance pools.                          
                                                                               
MS. WARD said this is the first time anyone mentioned the employer             
and it was their intention that the association needed to be in                
business for five years, because they are afraid that other                    
employers would go out and start another trade association and                 
immediately self pool.  They trust the trustees of their group to              
decide who will be allowed into it.                                            
                                                                               
SENATOR KELLY said he got the information about the New Mexico                 
statute from the National Council on Compensation Insurance as he              
requested in the last meeting.  They have some concerns about the              
bill and this is one of them.  If someone has been in business up              
here for five years, that's probably a pretty stable person.  He               
would not be as concerned with other provisions in the bill, if                
that were the case.  He did not trust the Board of Trustees, whose             
sole line is volume, to be any kind of a judge.                                
                                                                               
REPRESENTATIVE KOTT opposed the amendment because if he had a good             
track record for even one year, he thought he should be allowed to             
enter this group.  The Board will take into consideration a number             
of factors.  He did not think it business friendly to exclude                  
someone from another state who has a good record.                              
                                                                               
SENATOR KELLY responded that until they can prove they can stay in             
business for five years, they can go out like everybody else and               
buy their workers' compensation insurance from an insurance company            
or a reciprocal, or they could self-insure.  They don't have to                
join this particular association.  If he wants to make the                     
association work with weak capitalization requirements, he should              
look at the provisions in the New Mexico law that make it work and             
one of those is the five year provision.  Maybe that's the basic               
reason it's working there.  We can't just take the good aspects                
without taking some of the reasons behind why it worked.  This is              
clearly  criteria on how they select their membership.  He thought             
they should at least establish a three year standard.                          
                                                                               
REPRESENTATIVE KOTT said he didn't want to be business unfriendly.             
                                                                               
SENATOR KELLY said he was not concerned with the Homebuilders and              
the protection they would have; he is concerned about the employees            
of the Homebuilders that the legislators are trying to protect                 
under the workers compensation law of the State of Alaska.                     
                                                                               
SENATOR MILLER moved to amend the amendment by changing five years             
to three years.  There were no objections and it was so ordered.               
                                                                               
MR. PAUL GROSSI, Director, Division of Workers Compensation,                   
informed the Committee for an employer to be self insured in                   
Alaska, he has to have been in business here for five years.                   
                                                                               
SENATOR KELLY added, but you also have to have the $5 million net              
worth.                                                                         
                                                                               
MR. GROSSI said that is right.                                                 
                                                                               
Number 278                                                                     
                                                                               
CHAIRMAN LEMAN asked if there was further discussion on the amended            
amendment.  SENATORS KELLY, MACKIE, MILLER, and HOFFMAN voted yes;             
CHAIRMAN LEMAN voted no, and the amendment passed.                             
                                                                               
SENATOR KELLY said on page 4, line 6, he thought it was normal to              
have an errors and omissions policy for Corporate Boards of                    
Directors, too, and made a motion to add "Trustees" after                      
"Administrator."  He didn't think it would be that expensive to add            
and it could help someone down the road somewhere.  There were no              
objections and it was so ordered.                                              
                                                                               
SENATOR KELLY said on page 10, line 2 that he had real concerns                
about the quarterly installments as did the Timber Exchange.  Since            
most of the homebuilders are going to be working seasonally and                
since there would be only two quarters of the year in which they               
would pay, a person could just pay the first quarter and then bail             
out and head south and not pay the second quarter.  If they have to            
pay on a monthly basis, the Trustees would have a greater ability              
to get that money before someone else, like a supplier or bank,                
liens it.  He moved to delete "or quarterly installments" and                  
insert "monthly."   He said it also increased the capitalization.              
There were no objections and it was so ordered.                                
                                                                               
Number 337                                                                     
                                                                               
SENATOR KELLY asked how the penalties on page 11 equated with the              
penalties in reciprocal laws.                                                  
                                                                               
MS. BURKE answered that she had prepared a side by side in which               
that is addressed.                                                             
                                                                               
SENATOR MACKIE said they referred to AS 21.47.180.                             
                                                                               
MS. BURKE said that the penalties required for a reciprocal are the            
same as for any other insurance entity - $2,500 per violation                  
compared to $500 in the proposal.  It can go up to $25,000 as                  
compared to $5,000 in the aggregate.                                           
                                                                               
SENATOR KELLY asked if there could be a penalty after a notice of              
opportunity for hearing and another set of penalties upon a finding            
in the bill.                                                                   
                                                                               
MS. BURKE explained that the process is that they assess penalties             
and, based on the results of a hearing, assess additional                      
penalties.                                                                     
                                                                               
SENATOR KELLY asked if there were additional penalties in the                  
reciprocal.                                                                    
                                                                               
MS. BURKE answered that there were the same requirements of $2,500             
and $25,000.                                                                   
                                                                               
SENATOR KELLY said what's lower in the committee substitute is the             
initial after notice and opportunity penalty and the difference is             
$2,000 and $20,000.                                                            
                                                                               
MS. BURKE answered yes; and added that the reciprocal is also                  
subject to $100 per day late filing fees for any of their required             
reports.                                                                       
                                                                               
SENATOR KELLY asked if the self insurance would not pay.                       
                                                                               
MS. BURKE said that is correct.                                                
                                                                               
SENATOR KELLY said he thought those amounts were a little low.  If             
you want these things done properly, you have to make time to do               
things like filing taxes, etc.  He wasn't sure a civil penalty not             
to exceed $500 would be enough incentive to force people to do                 
these things on time and stay out of trouble.  He thought the                  
number should be somewhere between what's proposed in the CS and               
the reciprocal.                                                                
                                                                               
SENATOR MACKIE said he would like to research that issue in the                
next committee, because he doesn't know that much about it.                    
                                                                               
It was noted that the proposal goes to Judiciary and Finance                   
Committees, also.                                                              
                                                                               
SENATOR KELLY said that he doesn't object to the self insurance                
pool concept, but he objects to what he considers to be the lack of            
capitalization protection for injured workers.                                 
                                                                               
Number 337                                                                     
                                                                               
SENATOR MILLER moved to pass SCSHB 116(am) from Committee with                 
individual recommendations.  SENATOR KELLY objected because he                 
didn't feel quite ready.  There were no further objections and the             
motion carried by a vote of four to one.  SENATORS LEMAN, MILLER,              
HOFFMAN, and MACKIE voted yes; SENATOR KELLY voted no.                         

Document Name Date/Time Subjects