Legislature(2021 - 2022)BELTZ 105 (TSBldg)

03/12/2021 01:30 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 9 Out of Committee
-- Invited & Public Testimony --
Heard & Held
-- Testimony <Invitation Only> --
Heard & Held
-- Testimony <Invitation Only> --
Bills Previously Heard/Scheduled
**Streamed live on AKL.tv**
           SB  88-STATE INSUR. CATASTROPHE RESERVE ACCT.                                                                    
1:49:53  PM                                                                                                                   
CHAIR  COSTELLO   announced  the  consideration   of  SENATE  BILL   NO.                                                        
88,  "An Act  relating  to  the state  insurance   catastrophe  reserve                                                         
account; and providing for an effective date."                                                                                  
She  listed   the  individuals   available  to  answer   questions   and                                                        
stated  the intent  is to  hear the introduction   and hold  the bill.                                                          
1:50:38  PM                                                                                                                   
At ease                                                                                                                         
1:52:26  PM                                                                                                                   
CHAIR  COSTELLO   reconvened  the  meeting  and  asked   Mr. Jordan   to                                                        
present SB 88.                                                                                                                  
1:52:43 PM                                                                                                                    
SCOTT  JORDAN,  Director,  Division   of Risk  Management,   Department                                                         
of  Administration   (DOA),  Juneau,  Alaska,  delivered  a  PowerPoint                                                         
to  present   SB  88.  He  displayed   highlighted   portions  of  Sec.                                                         
37.05.289,   the  Catastrophe   Reserve  Account   (CATFund)  that   was                                                        
enacted   in   FY88.   The   key  points   are   that   the   fund   was                                                        
established   to cover  unanticipated   costs  related  to the  state's                                                         
self-insurance   program;  the  fund  has  a  $5  million  cap;  and  no                                                        
more than $5 million may be retained in the fund.                                                                               
MR.  JORDAN  turned  to  the list  of  expenditures   from the  CATFund                                                         
since  its inception.   Over the  last 33  years,  the state  has spent                                                         
approximately   $149 million   from the  fund,  or about  $4.5  million                                                         
per  year. He  noted that  the  chart has  several  columns  but he  was                                                        
focusing on the column showing Total Expended on the far right.                                                                 
1:54:52 PM                                                                                                                    
He  turned to  the  chart and  line  graph of  the  10-year  history  of                                                        
property   premiums  and/or   losses   from  FY10-FY20.   The  Property                                                         
Premiums   column,  highlighted   in  blue,  reflects   a  little  more                                                         
than  $2  million  paid  in  FY  10  and  $5.1  million  in  FY  20.  He                                                        
referred   to  the  line  graph   on  the  right.   It  shows  a  sharp                                                         
increase  from  FY 11  to FY  12 and  another  market  driven  increase                                                         
in  FY 18  and FY  19.  He explained   that  the hardening   reflects  a                                                        
lack  of capacity  in  the global  market  to pay  catastrophic  claims                                                         
and this causes premiums to rise.                                                                                               
MR.  JORDAN   directed   attention  to   the  Property   Losses  column                                                         
highlighted  in  orange.  It reflects  about  $13  million  in property                                                         
losses  that  the  CATFund  paid  over  the same  10-year  period.   The                                                        
line  graph is  relatively  flat  except  for the  $4 million  loss  due                                                        
to  the  fire  at  the  Crystal  Lake   Hatchery  in  March  2014.   The                                                        
subsequent   spike  in  FY  20  was  due   to  $1.26  million  paid   in                                                        
claims  from  the  November   30,  2018  earthquake  in  Anchorage   and                                                        
the  $1 million  payment  when  a DOTPF  maintenance   shop  in McGrath                                                         
collapsed from snow load.                                                                                                       
1:56:44 PM                                                                                                                    
MR.  JORDAN turned  to  the charts  on slide  4 and  explained  that  he                                                        
included  them  to  show  all  the  expenses  that  go  along  with  the                                                        
premiums   the  state  pays  for   excess  insurance.   The  top  chart                                                         
reflects  $39  million  in  property  premiums  from  FY  10 to  FY  20.                                                        
The  lower  chart   reflects  a  little   over  $80  million  paid   for                                                        
aviation,   marine,  property,   and  bonds.  He  noted  that  property                                                         
premiums are about half of overall premium payments each year.                                                                  
MR.  JODAN  turned  to  slide  5 that  lists  the  larger  claims  paid                                                         
out of the Catastrophic Reserve Account. These were:                                                                            
   head2right AMJS LeConte Grounding May 2004          $1.187 million                                                           
   head2right F&G Crystal Lake Hatchery fire March 2014 $4.078 million                                                          
   head2right Alaska Aerospace Kodiak Launch Facility                                                                           
      rocket explosion August 2014                     $1.513 million                                                           
   head2right PFAS claims starting in November 2017    $5.877 million                                                           
   head2right Earthquake related claims November 2018  $1.263 million                                                           
1:58:12 PM                                                                                                                    
SENATOR  STEVENS   asked  if  he  agreed  that   other  insurance  paid                                                         
much  more  than  the state's   $1.5 million   payment  for the  rocket                                                         
explosion at the Kodiak launch facility.                                                                                        
MR.  JORDAN  agreed.  He said  the claim  was  about  $34 million;   the                                                        
state's  insurer  paid  about  $17  million  and  the  launch  customer                                                         
paid the other $17 million.                                                                                                     
SENATOR STEVENS expressed appreciation for the explanation.                                                                     
1:59:00 PM                                                                                                                    
MR.  JORDAN turned  to  the Lapse  Appropriations   Summary  on slide  6                                                        
that  shows  the funding  for  the  Catastrophic  Reserve  Account.   He                                                        
explained  that  any  money  that  Risk  Management   has  left  at  the                                                        
end  of a  fiscal year  is  swept into  the  CATFund.  If that  doesn't                                                         
fill  the fund  to the  $5  million  cap, they  look  to the  UGF lapse                                                         
appropriation funds.                                                                                                            
He  restated  that  the purpose  of  SB 88  is  to allow  the  state  to                                                        
be  self-insured  for  property   coverage.  The  state  already  has  a                                                        
good   record  of   self-insuring   for   workers'   compensation    and                                                        
general   liability  and  wants   to  add  property  coverage   because                                                         
premiums  increased   30 percent  for  FY  21  and the  expectation   is                                                        
that  they will  increase  another  15  percent  to 20  percent  for  FY                                                        
22.  The $5.1  premium  in  FY 20  will  be about  $7.6  million  in  FY                                                        
22.  Increasing  the $5  million  unencumbered  cap  on the  CATFund  to                                                        
$50  million  unencumbered   cap will  allow  the  state  to  equal  the                                                        
$50  million  limit  it can  buy for  catastrophic   coverage  from  the                                                        
market.   He  described  it  as  a  safety   net  that  will  save   the                                                        
additional   $2.5  million  the  state  currently  pays  for  insurance                                                         
and allow better control over claims.                                                                                           
CHAIR COSTELLO said a sectional is not necessary.                                                                               
2:02:24 PM                                                                                                                    
SENATOR  REVAK  asked  how the  division  decided  on  the $50  million                                                         
MR.   JORDAN   said   the   market   currently   limits    catastrophic                                                         
coverage  to  $50 million.  The  idea  is for  the state  to  step away                                                         
from the property market completely and self-insure.                                                                            
CHAIR  COSTELLO  asked  the  reason  that  he  mentioned  coverage   for                                                        
earthquakes and floods but not fires.                                                                                           
MR.  JORDAN  replied  this   would  incorporate  fire  loss  for  state                                                         
buildings   but  the  state  historically    has  not  had  large  fire                                                         
losses.  The  fund  has been  able  to  handle  all the  losses  so  far                                                        
except  for  earthquake  and  flood.  The  concern  is  a  catastrophic                                                         
2:05:01 PM                                                                                                                    
SENATOR  STEVENS   asked  if the  fund  covers  state-owned   buildings                                                         
like the Capitol.                                                                                                               
MR.   JORDAN   answered   yes;   the  fund   covers   all   state-owned                                                         
property assets.                                                                                                                
CHAIR COSTELLO asked what other states have for insurance caps.                                                                 
MR.  JORDAN  replied   it varies   by state   and runs   the gamut   but                                                        
because   of  the  tremendous   market  increase,   the  trend  is   for                                                        
states to have self-insured programs.                                                                                           
CHAIR   COSTELLO  asked   if  the  Division   of  Risk   Management   in                                                        
Department   of Administration   (DOA)   interacts  with  the  Division                                                         
of  Insurance    in  the   Department   of  Commerce,   Community    and                                                        
Economic Development (DCCED).                                                                                                   
MR.  JORDAN   answered   that  he  speaks   with  Director   Wing-Heier                                                         
occasionally,    but  because    the  Catastrophic    Reserve   Account                                                         
(CATFund)   is  a   self-insured   program,   there  isn't   a  lot   of                                                        
2:07:27 PM                                                                                                                    
CHAIR  COSTELLO   referred  to  the  language   on page  1,  lines   7-8                                                        
that   talks    about   "an   amount    that   the   commissioner     of                                                        
administration   determines   to  be  necessary".  She  asked   if that                                                         
would  be  a formal  communication   so  the legislature   is  aware  of                                                        
the amount or if it would show up on a ledger.                                                                                  
MR.  JORDAN  replied  the  amount  that  the  commissioner   determines                                                         
is  necessary   comes  from  what  the  Division   of  Risk  Management                                                         
says is needed to bring the CATFund up to the $5 million cap.                                                                   
2:08:28 PM                                                                                                                    
CHAIR  COSTELLO  found  no  further  questions   and advised   that  she                                                        
would hold SB 88 for further consideration.                                                                                     

Document Name Date/Time Subjects
SB 9 Fiscal Note ACS.pdf SL&C 3/12/2021 1:30:00 PM
SB 9
SB 9 Opposition Mat-Su Borough.pdf SL&C 3/12/2021 1:30:00 PM
SB 9
SB 88 v. A.pdf SL&C 3/12/2021 1:30:00 PM
SB 88
SB 88 Transmittal Letter.pdf SL&C 3/12/2021 1:30:00 PM
SB 88
SB 88 v. A Sectional Analysis.pdf SL&C 3/12/2021 1:30:00 PM
SB 88
SB 88 Fiscal Note 1.pdf SL&C 3/12/2021 1:30:00 PM
SB 88
SB 88 Presentation 3.12.21.pdf SL&C 3/12/2021 1:30:00 PM
SB 88
SB 11 v. I.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Sponsor Statement.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 v. I Sectional Analysis.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Supreme Court Phillips Decision.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Supporting Document LISI Article.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Supporting Document Community Property Trust Act.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Fiscal Note ACS.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Letter of Support Cavaliere Law Firm.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Letter of Support Foley & Pearson.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Letter of Support McNabb Law.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Letter of Support OConnor Law.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Letter of Support Peak Trust Company.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Letter of Support Shaftel Delman.pdf SL&C 3/12/2021 1:30:00 PM
SB 11
SB 11 Letter of Support Stephen Greer.pdf SL&C 3/12/2021 1:30:00 PM
SB 11