Legislature(2005 - 2006)BELTZ 211

05/02/2006 01:30 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 392(L&C) am Out of Committee
Moved HB 382 Out of Committee
Moved HCR 34 am Out of Committee
Moved CSHCR 4(JUD) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Including But Not Limited to:
Moved SCS CSHB 150(L&C) Out of Committee
Heard & Held
Moved CSSB 241(L&C) Out of Committee
              SB 241-JOINT INSURANCE ARRANGEMENTS                                                                           
CHAIR  BUNDE announced  CSSB 241(L&C),  version G,  to be  up for                                                               
consideration. He  moved to  adopt Amendment  1 and  objected for                                                               
discussion purposes.                                                                                                            
                      A M E N D M E N T 1                                                                                   
OFFERED IN THE SENATE                          BY SENATOR BUNDE                                                                 
     TO:  CSSB 241(   ), Draft Version "G"                                                                                      
Page 15, following line 22:                                                                                                     
     Insert a new subsection to read:                                                                                           
          "(d)  The state is not liable for, and does not                                                                       
     guarantee or insure, the obligations of an association of                                                                  
     employers or its members, or an association of self-insured                                                                
     employers or its members, under this chapter."                                                                             
He explained that his concern was  that if this bill becomes law,                                                               
he did  not want the  state to  become liable if  joint insurance                                                               
arrangements become unsuccessful or defaulted.                                                                                  
CHAIR  BUNDE  removed  his  objection.   There  were  no  further                                                               
objections; and so Amendment 1 was adopted.                                                                                     
ROBERT  VOGEL,   Pro-Group  Management,  said  he   was  a  plant                                                               
administrator for  self-insured groups in Nevada  and New Mexico.                                                               
He offered to answer questions.                                                                                                 
CHAIR  BUNDE asked  if he  was aware  of any  self-insured groups                                                               
that didn't have the reserves to sustain them and defaulted.                                                                    
MR.  VOGEL  replied  that he  runs  four  different  self-insured                                                               
groups and in the  last 12 to 13 years about  two or three groups                                                               
have  run  into  problems.  The   most  notable  were  Associated                                                               
Industries  of  Kentucky   and  Tennessee  Truckers  Association.                                                               
However, during that time the  assessments were made upon members                                                               
and claims were paid and no one went without payments.                                                                          
He explained  that the United  States has had thousands  of these                                                               
groups over the  last 40 years in over 37  states. Several groups                                                               
have had problems, but he  pointed out that hundreds of insurance                                                               
companies  have had  much bigger  problems during  that time,  as                                                               
3:03:50 PM                                                                                                                    
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce,  Community  &  Economic Development  (DCCED)  said  she                                                               
wanted to  discuss some policy  issues today. She said  that this                                                               
committee has  had a  lot of  talks about  workers' compensation,                                                               
which in  itself is  a compromise  between labor  and management.                                                               
Employees got  immediate benefits, both  medical and wages,  in a                                                               
no fault  system. Employers got  an exclusive remedy  for on-the-                                                               
job injuries  so they  are not tied  up in  expensive litigation.                                                               
These  days she  is seeing  in their  debates that  labor is  not                                                               
supporting any kind  of reform to the  current system; management                                                               
wants out of the system and describing it as broken.                                                                            
MS.  HALL   said  she  had   four  primary  concerns   with  this                                                               
legislation: liquidity,  the lack  of a  guarantee fund,  who has                                                               
the liability, and  no requirement for licensing  of adjusters or                                                               
a process to deal with insolvent groups.                                                                                        
MS.  HALL took  exception to  Mr.  Vogel's comment  about who  is                                                               
going  to  pay.  She  understood  the  Associated  Industries  of                                                               
Kentucky  had  a court-ordered  assessment  of  $90.7 million  of                                                               
which its members  paid about $68 million in  cash and promissory                                                               
notes. So,  she was not  sure there  was sufficient money  to pay                                                               
the assessment.                                                                                                                 
The  bill  still has  no  provision  for requiring  licensing  of                                                               
claims adjusters. This  would bring some oversight.  Title 21 has                                                               
specific provisions for rehabilitation and oversight.                                                                           
3:06:53 PM                                                                                                                    
She wanted  to rebut  some comments  that have  been made  in the                                                               
past months. It's  been indicated that the director  would have a                                                               
huge  amount of  authority because  he can  decline applications.                                                               
However,  she  would  assume  if   the  Legislature  passes  this                                                               
legislation, it's  because they think  it's a good idea.  She did                                                               
not think they  would want a director who would  just decline all                                                               
the applications because he/she  didn't like the legislation. She                                                               
didn't think that could be called authority.                                                                                    
She emphasized that the two  financial requirements that are most                                                               
critical that  are found  in most  other states  are missing  - a                                                               
guarantee mechanism of some sort and a liquidity requirement.                                                                   
MS. HALL said she has watched  the marketplace for the past three                                                               
years and how it tried to  attract new companies. Since Alaska is                                                               
such a  small market, in most  areas we are last  in the country.                                                               
So,  Alaska needs  an  environment that  is  conducive to  people                                                               
doing business. When it allows  cherry picking, such as this bill                                                               
would provide,  it is  further damaging  the marketplace  and its                                                               
attractiveness  to insurers.  They  have  heard testimony  saying                                                               
they wouldn't let everybody in, only the good risks. She asked,                                                                 
     Well, what does that do  with the rest of our business?                                                                    
     What are we  going to have left for them?  You do and I                                                                    
     do  receive on  a  regular  basis concerns,  complaints                                                                    
     about  the assigned  risk pool.  And we  can't have  an                                                                    
     assigned  risk pool  without  insurance companies,  but                                                                    
     that is  a market of  last resort  and I don't  want to                                                                    
     see  our  businesses  end  up  with  no  really  viable                                                                    
She related  that as  a regulator, she  receives a  magazine. She                                                               
just  watched  Ohio's  workers'   compensation  fund  invest  $50                                                               
million  in rare  coins,  $1 million  of  which were  inventoried                                                               
badly and stolen  for all practical purposes.  These are examples                                                               
of the need for real regulatory oversight.                                                                                      
3:09:50 PM                                                                                                                    
MS. HALL  said Alaska's  marketplace is  improving slowly.  As an                                                               
example, its  assigned risk  pool marketshare  has gone  down for                                                               
the  first time  in a  number of  years to  15 percent;  when she                                                               
started it was  at 19 percent. For the first  time in eight years                                                               
in 2005,  Alaska's assigned  risk pool did  not lose  money. That                                                               
means  it is  breaking-even and  it's  no longer  a detriment  to                                                               
insurers thinking about coming here to do business.                                                                             
On  guarantee funds  assessments, she  said that  suggestions had                                                               
been made  to increase those  up to 4  percent, but for  2006 the                                                               
guarantee fund did  not do an assessment. This will  take a while                                                               
to appear  on workers'  comp policies,  because it's  assessed at                                                               
renewal. Through  a variety  of means,  such as  really reviewing                                                               
claims,   looking  at   judicious  settlements   of  claims   and                                                               
recoupments from insolvent insurer  states, they have accumulated                                                               
enough  money, that  they  did not  feel it  necessary  to do  an                                                               
assessment in 2006. This is another good sign in a marketplace.                                                                 
Thirdly,  she is  seeing  is an  increased  interest in  Alaska's                                                               
market and  she hasn't had a  chance to see any  effects from the                                                               
2005 reform  legislation yet.  That takes time  to work  into the                                                               
MS. HALL said  that she has seen the results  of reforms in other                                                               
states. In California  from July of '03 to January  '06 there was                                                               
a 46  percent decrease in  workers' comp premiums that  appear to                                                               
be  directly  related  to  workers' comp  reform,  a  60  percent                                                               
decrease over what it would have  been without it. Last week, she                                                               
saw rates for  Pennsylvania had dropped about $100  million - due                                                               
to reform. Those are predominantly  workplace safety reforms. She                                                               
encouraged them:                                                                                                                
     There are things  we can do. And I would  submit to you                                                                    
     that we  have not had  a lot  of support for  work comp                                                                    
     reform and  now we  have a number  of groups  that just                                                                    
     want to carve  themselves out of it. I  think that does                                                                    
     a disservice to businesses  that don't have the ability                                                                    
     to form  self-insured groups. I  would submit to  you -                                                                    
     and while  I can't make amendments,  I have amendments.                                                                    
     If we  really want  to do something  for work  comp, we                                                                    
     need to  do something  for the cost  of the  system. It                                                                    
     doesn't  matter who  writes the  check to  pay for  the                                                                    
     claim, if it continues to escalate in cost.                                                                                
     We   had  a   proposal  last   year  that   was  highly                                                                    
     controversial  and  I thought  if  I  was going  to  be                                                                    
     controversial  today, I  might as  well continue  that.                                                                    
     Put the  A-Con guidelines in!  I mean that is  a proven                                                                    
     in other states' cost  saving mechanisms. Probably more                                                                    
     realistically,  I   would  propose  you   have  already                                                                    
     extended  the Work  Comp Task  Force. That  is extended                                                                    
     through next year. And I  would propose this is a topic                                                                    
     that has been on the  agenda.... There has not been any                                                                    
     recommendation;  there   has  not  been   any  results.                                                                    
     Certainly Senator  Seekins could  speak to  that better                                                                    
     than I.  But I would propose  that we put this  back in                                                                    
     where  we put  everything else  dealing with  work comp                                                                    
     reform as  opposed to passing  this bill. With  that, I                                                                    
     would be happy to answer questions.                                                                                        
An  unidentified speaker  asked if  there was  a House  companion                                                               
CHAIR BUNDE replied yes, HB 51.                                                                                                 
3:14:49 PM                                                                                                                    
SENATOR BEN STEVENS  didn't disagree with anything  she said, but                                                               
he  said the  Legislature hasn't  been able  to pass  reform that                                                               
would seriously  reduce rates  and has also  tried to  arrest the                                                               
increasing  rates. So,  the reason  he  supports the  bill is  to                                                               
support the  entities that  are paying  the increased  rates that                                                               
aren't actually causing or having  increased claims. He asked how                                                               
else they could be given relief.                                                                                                
3:17:04 PM                                                                                                                    
CHAIR BUNDE  asked Mr. Vogel why  he decided not to  use licensed                                                               
adjusters in his plan.                                                                                                          
MR. VOGEL replied that the original  House bill did not specify a                                                               
licensed examiner. He assumed that  an examiner would be licensed                                                               
and HB 51 has been amended to include that.                                                                                     
CHAIR BUNDE  moved to adopt  conceptual Amendment 2 to  require a                                                               
licensed adjuster. There  were no objections and  Amendment 2 was                                                               
MR. LISANKIE commented that he  still had continuing concerns, as                                                               
the person  who would get  the calls,  with the viability  of any                                                               
insurance  group.  He  was  very  concerned  that  there  was  no                                                               
guarantee  mechanism. He  testified  earlier that  26 percent  of                                                               
workers in Alaska  work for the large self-insurers  and that's a                                                               
significant potential  insurance market that is  gone already and                                                               
so he focused  on other small population states  that allow group                                                               
self insurance.  Six other  states and  the District  of Columbia                                                               
have  populations of  one million  or  less. Four  states do  not                                                               
generally permit  group self-insurance,  but of that  four, South                                                               
Dakota  has  a  bullet  exception for  electrical  utilities  (he                                                               
wasn't sure  why); two  do allow  group self-insurance,  but only                                                               
with a guarantee  fund in one instance and  a guarantee mechanism                                                               
in  the  other;  only  one state,  Vermont,  allows  group  self-                                                               
insurance  and  does  not  have a  guarantee  fund  or  guarantee                                                               
CHAIR BUNDE asked  Mr. Lisankie to give him more  details about a                                                               
guarantee mechanism  when the  bill is  in the  Finance Committee                                                               
and he would adjust it there. He closed public testimony.                                                                       
3:22:25 PM                                                                                                                    
SENATOR  SEEKINS  moved  to  pass  SB  241  from  committee  with                                                               
individual  recommendations. Senators  Seekins,  Ben Stevens  and                                                               
Chair Bunde voted yea; and CSSB 241(L&C) moved from committee.                                                                  

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