Legislature(2001 - 2002)
01/18/2002 03:25 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
January 18, 2002
3:25 p.m.
COMMITTEE CALENDAR
UPDATE: DIVISION OF INSURANCE ON EFFECTS OF SEPTEMBER 11
TAPES
02-2, SIDES A & B
CALL TO ORDER
REPRESENTATIVE LISA MURKOWSKI, Chair, convened the House Labor and
Commerce Committee meeting at 3:25 p.m.
PRESENT
Committee members present were Representatives Murkowski, Halcro,
Meyer, Kott, Rokeberg, and Crawford.
SUMMARY OF INFORMATION
BOB LOHR, Director, Alaska Division of Insurance, Department of
Community and Economic Development, reminded the committee that the
division's mission is to protect and serve the state by regulating
all aspects of insurance in Alaska, to educate consumers, and to
enhance the insurance business environment.
MR. LOHR remarked that the tragic events of September 11, 2001,
resulted in the costliest insurance disaster in the nation's
history with a price tag of $35-50 billion. He noted that as a
comparison, Hurricane Andrew cost $15.5 billion. As a result of
9/11, all of our lives have changed. Many Americans are unwilling
to expose themselves to the uncertainty of future terrorist attacks
and have reevaluated their priorities. The impact on the insurance
industry was catastrophic and brought forth the unwelcome reality
of terrorist exposure.
MR. LOHR reported that the response to 9/11 resulted in reduced
coverage for policyholders and has challenged the solvency of many
businesses. Fortunately, he remarked, the impact on Alaska was not
direct, that is, Alaskan insurance companies did not have direct
losses as a result of 9/11. The secondary repercussions of the
events in New York, Pennsylvania, and Virginia however, resulted in
increased costs of reinsurance and limits on the availability of
reinsurance. Reinsurance, he noted, is insurance for insurance
companies. It protects insurance companies against frequent or
severe losses and stabilizes underwriting results. He commented
that, without reinsurance, insurance companies issue fewer policies
or write the same policies with lower limits and exclude certain
types of losses. Terrorism losses, for example, are unpredictable
and therefore, many reinsurance contracts exclude coverage for
terrorism. Insurance costs rose significantly in spite of the
terrorism exclusions.
MR. LOHR discussed the reaction to the unpredictability of
reinsurance and pointed to certain Alaska examples. Before 9/11,
workers compensation reinsurance negotiations were almost complete.
After 9/11 those quotes were withdrawn, and the first quote was
1900 percent higher than the prior year. Aircraft exposures were
112 percent higher than expiring contracts and the coverage is now
limited. State insurance regulators have attempted to encourage
reinsurers to reinstate terrorism coverage and to limit the impact
of premium increases.
MR. LOHR reported that the lack of reinsurance has resulted in
solvency concerns for businesses. Lack of reinsurance affects an
insurers ability to provide coverage to businesses and individuals
and requires insurers to limit exposure to maintain ability to pay
for future losses. The affect on consumers may result in unpaid
claims, and services promised by insurers that may not be provided.
The affect on the economy may be long term. Without adequate
property insurance, businesses may reduce operations and lenders
may reevaluate terms for loans. Construction may also be limited.
MR. LOHR noted that the federal government has attempted to control
overreaction to the uncertainty of terrorist attacks by proposing
federal reinsurance protection. The legislation was passed by the
U.S. House of Representatives but the U.S. Senate recessed without
passing the measure. A temporary solution may be sufficient. He
noted that insurers pulled out of Florida and Hawaii after
hurricanes Andrew and Iniki and later returned to those markets.
Thus, insurers and reinsurers may eventually provide terrorism
catastrophe coverage again. Alaska, he noted, is a prior approval
state. Therefore, exclusions must be approved by the division. Thus
far, broad exclusions have been disapproved in Alaska.
MR. LOHR, in conclusion, remarked that Alaska's distance from the
events of 9/11 has not exempt Alaska's insurance market from rate
increases, reinsurance, and terrorism exclusions. The Division of
Insurance seeks to protect Alaska's insurance industry, its
economy, and will continue to monitor the market impact on Alaska
as well as continue to support federal reinsurance legislation.
ANNOUNCEMENTS
There were no committee announcements.
COMMITTEE ACTION
The committee took no action.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee was adjourned at 4:40 p.m.
NOTE: The meeting was recorded and handwritten log notes were
taken. A copy of the tape(s) and log notes may be obtained by
contacting the House Records Office at State Capitol, Room 3,
Juneau, Alaska 99801 (mailing address), (907) 465-2214, and after
adjournment of the second session of the Twenty-Second Alaska State
Legislature this information may be obtained by contacting the
Legislative Reference Library at (907) 465-3808.
| Document Name | Date/Time | Subjects |
|---|