Legislature(2003 - 2004)
01/28/2004 04:10 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE LABOR AND COMMERCE STANDING COMMITTEE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
January 28, 2004
4:10 p.m.
TAPE(S) 04-2
MEMBERS PRESENT
SENATE LABOR AND COMMERCE
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Hollis French
HOUSE LABOR AND COMMERCE
Representative Tom Anderson, Chair
Representative Carl Gatto, Vice Chair
Representative Nancy Dahlstrom
Representative Bob Lynn
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
SENATE LABOR AND COMMERCE
Senator Bettye Davis
HOUSE LABOR AND COMMERCE
All members present
COMMITTEE CALENDAR
^OVERVIEW: WORKERS' COMPENSATION
· Linda Hall, Director, Division of Insurance
Department of Labor and Workforce Development, PO Box 21149
Juneau, AK 99802-1149
· Mr. Paul Lisankie, Director, Division of Workers'
Compensation, Department of Labor and Workforce
Development, PO Box 21149, Juneau AK 99802-1149
· Ms. Lori Wing, President, Alaska Independent Insurance
Agents and Brokers Association, PO Box 112908, Anchorage AK
99511-2908
SUMMARY OF INFORMATION
CO-CHAIR TOM ANDERSON convened the joint meeting of the Senate
Labor and Commerce Standing Committee and the House Labor and
Commerce Standing Committee at 4:10 p.m.
CO-CHAIR CON BUNDE took over the gavel and announced that Ms.
Linda Hall would give an overview of Workers' Compensation.
MS. LINDA HALL, Director, Division of Insurance, Department of
Labor and Workforce Development, said she would present a short
history of workers' compensation, how it affects employers, the
current status of the workers' compensation market and the
crisis facing the Guaranty Fund. She introduced Mr. Lisankie,
Director, Division of Workers' Compensation, who would brief
them on the history of the program.
MR. PAUL LISANKIE, Director, Division of Workers' Compensation,
said he had been director for about 24 days, but had worked in
the field of workers' compensation for 20 years within the State
of Alaska. He spent the last 10 years as an attorney
representing clients in workers' compensation matters and the
last six years as an assistant attorney general in the
Department of Law, Civil Division, Torts and Workers'
Compensation Section, representing the state of Alaska, a large
self-insured workers' compensation employer. He said:
The part that's working in Workers' Compensation, it
appears quite well, is the historical trade off
between the rights of employees and the rights of
employers that resulted with the Workers' Compensation
system in lieu of having a series of lawsuits between
employees who get injured on the job and their
employers.... It avoids a multiplicity of lawsuits and
reflects that trade off between the historical rights
of employees to seek damages through the tort system
just like anybody else and also, it trades off the
rights of employers to defend themselves saying they
weren't negligent. As we all know, Workers'
Compensation is a no fault system and it doesn't
matter why an injury happens other than trying to
avoid it happening a second time. From a legal
standpoint, it's no fault....
MR. LISANKIE said the act was put forward in 1988 and amended in
2000 and further that:
The intent was expressed so as to insure the quick,
efficient, fair and predictable delivery of indemnity
and medical benefits to injured workers at a
reasonable cost to the employers who are subject to
the provisions of the act.
He related that data collected by the Workers' Compensation
Division on an annual basis indicates some of the major cost
drivers that are contributing to some degree to the observed
problems. The last year that data [contained in the annual
report] had been analyzed was 2002. The number of reported
injuries and occupational diseases went down from about 28,000
in 2001 to less than 26,000 in 2002 (7.8 percent). That's the
only thing that went down. Benefits all went up, some of them
significantly.
He said that indemnity payments, time loss for people who were
unable to work because they were injured, increased from $62.5
million in 2001 to $65.3 million in 2002 (4.5 percent). Injured
workers are also entitled to reemployment benefits and in 2001,
the expense for the entire reemployment benefits program was
$13.1 million and in 2002, it was $15.7 million (up 19.9
percent).
MR. LISANKE said the division tries to stay on top of the
results of the reemployment benefits program and the best they
can figure is that in 2002 only 28 people completed retraining
plans. He hastened to add that the entire $15.7 million was not
aimed at those 28 people. Other people in the program are not
necessarily expected to exit it in that calendar year. Based on
that data there is reason for concern about the results they are
getting.
Payment of medical benefits is the other major cost driver, and
those increased by 11.5 percent from 2001 to 2002. The total
amount of medical benefits paid in 2001 was $95.6 million and in
2002 it was up to $106.6 million. This is the first year the
medical benefits exceeded 50 percent of all the benefits that
were paid under the rubric of Workers' compensation. "So, it's
becoming the benefit that's absorbing the program."
There are some questions about what the Workers' Compensation
Board and the division can do in regard to addressing medical
benefits. A provision in the act says that every year the board
can review medical charges to make sure they do not exceed
usual, customary and reasonable fees. A regulation defines a
th
usual, reasonable and customary fee to be at the 90 percentile
level, the level at which 9 out of 10 bills are paid. The
statute suggests that the review has to be done within the
framework of what is usual, reasonable and customary. Some
states set a value-driven cap on service, such as with Medicare,
but he didn't think language in our statute would allow that.
The board might consider resetting the percentile.
MR. LISANKIE said another question is whether legislative intent
is being lived up to with the proliferation of board panels.
When the law was passed originally, the entire board consisted
of three people. If there had to be a hearing to resolve a
dispute, it was the same three folks. They could make the kind
of decisions people could plan around. This is important,
because workers' compensation decisions are not conceived of as
being directly binding or setting precedent. In 1965, two panels
were created instead of one and the commissioner of the
Department of Labor or his designee was the third person on each
of them. Now there are seven panels. Mixing and matching the
seven management members, seven labor members and seven or eight
hearing officers can conceivably create about 300 or more
different combinations and if there are disagreements about what
the law says, it is difficult for someone like an attorney to
try and advise his client about what they should do to conform
their behavior to the act. He also noted that panels are manned
by volunteers who get paid $50 per day and there is only so much
you can expect them to do.
CO-CHAIR BUNDE said he received information about workers'
compensation reform in Oregon and asked Mr. Lisankie if he is
familiar with it.
MR. LISANKIE replied that he had seen the information, but had
not had time to review it in great depth.
REPRESNETATIVE NORMAN ROKEBERG said the Attorney General's
office was working on restructuring workers' compensation
methodology and asked if he had worked on it with them.
MR. LISANKIE replied that he had input into it when he was
working in that office.
CO-CHAIR BUNDE thanked him for his testimony and introduced Lori
Wing, President, Alaska Independent Insurance Agents and Brokers
Association, to give the next presentation.
MS. LORI WING, President, Alaska Independent Insurance Agents
and Brokers Association, gave the committee an insurance
broker's perspective saying:
We're trying to get them [a client] a work comp policy
that is competitive in the market place, but is also
cost effective for them. We also work with the
insurers, because that's who is supplying the
insurance policy. On occasion, we work with the
claimants, their employees.
She said that workers' compensation is required by statute, but
most employers are also in some sort of contract where they are
required to provide it as a part of the contract. She explained:
Those contracts will ask the employer's insurer to
release them from any potential right of recovery
against the owner of a project. In other words, if you
were walking through a building and were a tenant in
this building, our lease may say that our insurer
waives all rights against the owner of the building.
If you slip and fall or such, the work comp carrier
will pay the claim, but they have no right or recourse
to go back against the building owner for an unsafe
building, just as an example. That does have an impact
on claims when they are paid, but it is the cost of
business for the employer to do business. He's going
to sign the contract; he needs to sign the contract to
keep people employed. It's just one of the downsides
of the contracts.
Who is providing the workers' compensation policies in
Alaska? If you look at who is registered or who is
authorized to write insurance in the State of Alaska,
there are approximately 400 insurers right now.... Of
those 400, approximately 100 are filed to write
workers' compensation. Of those 100, approximately 15
are actively or currently writing workers'
compensation in Alaska. Of those 15, eight actually
write workers' comp and of those eight, about four
write in Interior Alaska - in rural Alaska.
She informed them that most of the employers in Alaska are
subject to four companies and that some companies file up here
[in Alaska] for one reason - because they have an account with a
big employer like J.C. Penny or BP Alaska. The eight companies
who are writing in the Anchorage Bowl, Fairbanks, the Kenai
Peninsula Borough and Southeast Alaska have minimum premiums set
in some cases and might also be subject to not writing certain
types of business. From a broker's perspective, the pickings get
slimmer and slimmer as to who will write workers' comp for the
employers in this state.
In 2002, one company wrote the predominant workers' comp in
Alaska. They stepped up to the plate on numerous occasions when
others wouldn't and for that the state should be thankful.
Others don't write workers' compensation because in some
instances they don't like the type of business or in other
cases, they don't like the location.
MS. WING explained when Kemper Insurance became insolvent, its
business transitioned to Eagle Pacific and Lumbermen's Mutual.
She said for an insurer to be able to write coverage in Alaska:
They want to know that they are going to meet certain
premium levels and usually those premium levels are
quite substantial. It has to be worth their time to
come in and set up an office to educate the public to
their existence, to file rates and forms, to hire
underwriters, to hire claims adjusters to do business
in a certain area. They also have to be priced
competitively to make a profit and they have to also
be able to cost effectively provide services such as
claims administration and loss control services to the
consumers, to their insureds. Most insurers do not
feel that Alaska is big enough to do that.
Why so few insurers are writing workers' comp? We look
at the combined loss ratios over the last few years
for Alaska. Generally speaking, they want to see a
combined loss ratio of less than 100 percent, meaning
for every dollar they take in, how much they are
paying out in claims. In 2000, for every dollar that
was taken in, the insurers were paying out $1.60. In
2001, the statistics show that they are paying out
about $1.20; and 2002 and 2003, I believe are going to
be higher than 120 percent.
How, why and what happened? Insurance is cyclical and
we go from a hard market where insurance is very hard
to get as far as decent terms and conditions and
pricing is to a soft market. We were in a soft market
for a number of years. We've forgotten in some
respects what we paid in 1980; we forgot what we paid
in 1990; and around 2001, the hard market hit us and
it hit us hard. It did not just hit Alaska; it hit
worldwide, in all honesty - 2001 I'll give some
statistics as to what happened - the difference
between the net loss that the insurers took in 2001 as
opposed to the net income they had in 2000. The events
of September 11 had a great impact on the insurance
market and while we can look and say that happened in
New York and how could it impact us, the insurers
doing business up here from Alaska National to the
[indisc.] and like such - they buy reinsurance behind
them. If you follow that trail back, you'll see that
the same reinsurers were the ones doing business in
New York as the ones doing business in Alaska. When
they lost money in New York, they were kind enough to
pass it on down to us here in Alaska.
All the events and inadequate reserves that were set
had an impact on the insurance market from Enron to
pharmaceuticals to also decline in investment income.
So, you add it all up and we like to think of it as
you had some underpricing of premiums, credits to
insureds, you had rising medical and indemnity costs,
you had catastrophic events and you had a decline in
investment income and what you end up with is almost
like "A Perfect Storm."
I showed some statistics as far as property rates. If
you were paying 50 cents in 1987, I show how it
continued to go down until 1999/2000 when it started
to come back up. Property rates in 2002 probably
doubled from what they were in 2001. Again, to put it
into perspective, my next slide shows that if you're
paying $100,000 for a property premium in 1987 without
any regard for inflation, you're probably paying that
again in 2002....
I'm also showing the same scenario for casualty rates.
Workers' compensation we're feeling more than other
insurance, because it is in most cases the largest
premium that the employers are paying.... The premium
is developed off of actual payroll; each job
classification is assigned a loss cost. Employers are
subject to an experience mod, which is a reflection of
their individual loss experience. It could be a credit
or a debit. It may be subject to other grading factors
and the programs may be written as a guaranteed cost
or as a loss sensitive program - loss sensitive
meaning that it's a deductible program or perhaps
retrospectively rated, meaning that we're going to
come to some agreement with the insurance company that
if our losses come to this point, that they're going
to give money back to us. If they exceed this point,
we're going to pay more. It's a loss sharing
mechanism.
What makes up the loss costs? The loss costs are
actually the actual or expected losses for any
individual classification in Alaska. They're based on
historical, but they're trended forward to future. The
insurers, then, take the advisory loss costs issued by
the state and they add on for their own profit and
expenses. That's what the insureds, the employers we
refer to, use as their rate for work comp.
Predicting loss cost is hard to do and that's been a
problem with the employers and with the insureds. I
can't tell them what their loss costs are going to be
in 2006 or 2007. We have done a very good job as an
industry both in Alaska and nationally of talking
about medical insurance and the availability to
employers or to the employee of how much you're going
to have to bear and how much the employers are going
to have to pay.... This always impacts the bottom line
for any organization. We have not taken that same data
and said that same health cost is impacting the
workers' compensation and it has.... We have not done
a very good job of saying the increased cost of health
insurance has every bit of an impact on workers'
compensation.
MS. WING informed them that workers' compensation pays for
medical costs, lost wages, impairment rating and rehabilitation.
There is also a small death benefit associated with it. She
explained that Alaska bills on the whole person theory, meaning
that the whole person is worth $177,000 and an impairment rating
is based on a 1 percent to 100 percent rating for an injury.
American Medical Association guidelines are used as well as
subjective considerations.
One employer paid $292,000 for workers' compensation in 1999 and
it is up to $524,000 this year - a dramatic impact.
The Association feels there has to be a better solution than
continuing to raise rates. It has an impact as far as some
insureds staying in business, but the system needs to be looked
at and changed. She concluded saying:
I don't know of an employer that does not want to take
care of their employees, but I also know most
employers don't want to go out of business because of
work comp premiums.
CO-CHAIR BUNDE asked her to look at what Oregon did to see if
Alaska could profit from that experience. She indicated she
would be happy to do that. He commented that companies build a
reserve fund to be able to ride out the low years and a ten-year
cycle probably wouldn't look so dramatic.
MS. WING responded that going far enough back in history would
probably make that true. In the last few years, asbestos,
tobacco and some pharmaceuticals claims were under-reserved and
she didn't know how that would play out.
REPRESENTATIVE CARL GATTO asked when someone files a claim, are
some medical records not available because of confidentiality.
MS. WING replied that brokers don't review records, but
adjusters and employers have to comply with the Health Insurance
Portability and Accountability Act (HIPAA).
REPRESENTATIVE NORMAN ROKEBERG asked if Kemper had been declared
insolvent.
MS. WING replied that she didn't know if they had been declared
insolvent, but they had ceased doing business and sold off all
their business to different insurance companies.
But to the best of my knowledge I don't believe they
are in liquidation.... Almost insolvent - I think they
came real close. I don't think I've ever seen an
insurance company give up what they consider their
rights to renewal and transfer the business to another
insurer as quick. Kemper, which was a national
company, well respected - 100 years old and I thought
as stable as a rock - three months in and they were
gone.
REPRESENTATIVE ROKEBERG asked if they sold their obligations,
too.
MS. WING replied no.
REPRESENTATIVE ROKEBERG said the National Council on
Compensation Insurance (NCCI) set rates and the department
promulgates regulations to adopt those rates. He asked if she
had an opinion about whether the rates were set and promulgated
too low for the last eight years and helped contribute to some
of the problems and insolvency.
MS. WING replied that she doesn't have access to the information
that the NCCI has but, in her opinion, they were too low.
REPRESENTATIVE ROKEBERG asked if NCCI recommends a range of
rates and then it's up to the department to estimate.
MS. WING replied that Ms. Hall, the director, could better
answer that.
CO-CHAIR BUNDE noted that he talked to a businessman who said he
thought the rates were set too low and decided on his own to pay
higher rates. He asked Ms. Hall to comment further.
MS. HALL reemphasized in the last six years, Alaska went from a
loss ratio low of 99.9 percent to a high of 154 percent, for an
average of 123 percent. The national average for that same six-
year period is 118 percent. "So, we are experiencing in Alaska a
higher loss ratio than is being experienced nationally."
REPRESENTATIVE ROKEBERG asked her to explain loss ratio.
MS. HALL explained that it is the amount of money expended
compared to the amount of money taken in. This means for every
dollar taken in with a 154 percent loss ratio, $1.54 is being
spent. Workers' compensation has not been profitable for
insurance companies for at least the last six years.
She said that she recently approved rate increases for workers'
compensation to be effective on January 1. Rates were increased
by 21.2 percent on the average - the largest increase since
1988, but it actually puts rates at the same level they were in
1992.
CO-CHAIR BUNDE asked if that means that the rates will now be
what they were in 1992. She indicated that was correct - they
went down and now they are going back up.
Since 1988, rates decreased in nine years, remained flat in two
years, and had modest increases for five years (3 percent last
year and 10 percent the year before that).
MS. HALL pointed out that there has been a decrease in the
number of claims, which is good; but that tended to mask the
increasing cost of claims, which is now catching up with the
leveling out of the number of claims.
MS. HALL explained that the assigned risk pool is another aspect
of workers' compensation. If an employer cannot obtain workers'
compensation through the voluntary market, there is an assigned
risk pool that will write the coverage. Today, approximately 17
percent of the state's workers' compensation business is written
in that pool, most are small employers. Ninety-three percent of
the policies are under $10,000. The policy count includes the
clerical classification, retail stores, restaurants, single-
family dwellings for carpentry and physicians' offices - not
necessarily high-risk employers.
The assigned risk pool has been losing money at an
even faster rate than the voluntary traditional
insurance market. Currently, when the claims costs
exceed the premium collected in the assigned risk
pool, that difference is an assessment to insurance
companies. Insurance companies pay that from their
profits or lack thereof.... Right now Alaska has the
highest assigned risk pool assessment of any state in
the country and that is at 6 percent. So, right off
the top, our insurance companies are paying 6 percent
of their direct written premium back into the pool to
subsidize those losses. This is creating an additional
burden on insurance companies and making Alaska a less
than attractive market place.
MS. HALL said that new legislation would address that. The
biggest thing she wanted to talk about is the crisis in the
Alaska Insurance Guaranty Association.
The Guaranty Association is formed under Alaska
statutes and it is a group of insurance companies. Any
insurance company that writes business in Alaska must
belong to the Guaranty Association. The purpose of the
association is to minimize financial loss to claimants
and policyholders because of the insolvency of an
insurer. The Guaranty Association pays the claims in
the place of an insolvent insurer. When an insurer is
declared insolvent, their claims are sent to the
Guaranty Association. There have been claims for
insolvent insurers in Alaska for twenty plus years.
It's not an unusual thing to occur. We have had in the
last three years, 46 property casualty company
insolvencies. This is not a unique problem in Alaska;
it is a national problem. We're seeing a rash of
insolvencies with devastating effects.
In July 2003, Fremont Indemnity Company was declared
insolvent by the California courts and we received
notice of that the day after it happened. While
Fremont had not actively written business since early
2001, when they actively wrote business, they had
approximately 27 percent of the Alaska market. When
they were declared insolvent, their outstanding claims
and claim reserves liabilities totaled $60 million.
This insolvency is of a magnitude never dreamed of in
the history of the Guaranty Association. So, it has
over-taxed the ability of the Guaranty Association to
handle those claims. There are three other insolvent
workers' compensation insurance companies whose claims
are being handled in the Guaranty Association. Those
would be Reliance, Paula Insurance and Legion.
These claims are sent to the Guaranty Association. The
Association in turn makes an assessment on insurers
and that is currently capped in statute at 2 percent
of their net direct written premium. That assessment
is able to be passed on to policy holders.
CO-CHAIR BUNDE interrupted to ask if the Guaranty Association is
funded by a 6 percent surcharge.
MS. HALL replied no, that assessment is for the assigned risk
pool and right now that has a deficit of 6 percent. The Guaranty
Fund assessment is 2 percent; the assigned risk pool assessment
is paid strictly by insurance companies. The assessment for the
Guaranty Association is passed on to policyholders and it will
be shown on the face of an insurance policy. Based on 2002
premiums, that 2 percent cap raises $4.2 million - and there are
$60 million in Fremont claims, which, however, is payable over a
number of years.
TAPE 04-2, SIDE B
MS. HALL said that payments to the Guaranty Association are $1.7
million to $1.8 million per month. She recapped that they are
raising $4.2 million annually and paying out at a rate of 1.7
percent per month. "So, we do have a serious cash flow problem."
In August, she received a letter from the Guaranty Association
indicating they were going to begin prorating claims payments.
This is an absolutely unacceptable alternative, although it is
allowed by statute.
What it meant is that at some time, and I'm going to
use 50 percent as an example, injured workers would
receive only a portion of their indemnity payment,
which is really their loss of wages when they are
unable to work. They would receive only a portion of
their medical benefits. I, frankly, have a hard time
imagining they're going to get medical treatment for
very long if their doctors are being paid 50 percent
of the bill. So, we have a devastating affect to an
injured worker, because they're receiving only partial
benefit.
The other piece of that is the effect on the employer.
The workers' compensation obligation is an obligation
of the employer under statute. That obligation is
typically satisfied through the purchase of a workers'
compensation insurance policy. When that insurance
company fails, I just talked about how that insolvent
company's claims go to the Guaranty Fund. When those
claims go to the Guaranty Fund and there's no money to
pay them, that obligation for the workers'
compensation benefits will go back to the employer.
So, what we have now is an employer who has in good
faith purchased an insurance policy thinking that
would satisfy their workers' compensation obligation
and now they get back that obligation.
To give you an idea of the magnitude of the problem,
currently of the four companies whose claims are being
handled in the Guaranty Fund, there are approximately
700 injured workers. So, we're talking about a
significant number of injured workers who stand to
potentially have claims prorated. We have
approximately 400 employers whose claims of their
injured workers are in this same Guaranty Association.
Claims range in size from - there's one claim in the
Guaranty Fund of approximately $5 million. We're not
talking inexpensive claims. We have two in excess of
$2 million, probably 100 in excess of $100,000. My
concern and one of the reasons we're here today is to
let you know the situation. I think most of these are
small businesses. Most small businesses are operating
on very minimal profit margins. If that employer, that
small business, would get back this workers'
compensation benefit obligation, it's likely to create
financial ruin, frankly. I don't think any of them
probably have the real financial capability of picking
up that benefit obligation.
REPRESENTATIVE GATTO asked if a person works for a large
employer and also has medical insurance, has a workers'
compensation claim, and the employer goes into chapter 11, could
regular health insurance cover the claim (even though they have
no way to recoup it through workers' compensation). "Would they
come back to the injured party and say, 'We're going to deny
your claim?"
MS. HALL replied, "Most group health insurance policies very
specifically exclude workers' compensation. So that would not be
a source of benefit payments."
She continued to explain:
The actual prorating of claims did not occur through
some very diligent efforts of the Guaranty Association
Board. The Division of Insurance has worked with them
- there's really been an effort nationally to work
with Alaska. No state has ever had workers'
compensation claims prorated and we've had huge
support from other states trying to work with us and
help us find sources of money. California, Office of
the Liquidator, has made loans to our Guaranty
Association based on potential asset distributions
later of $5 million - $4.5 million based on the
Fremont estate and $.5 million on the Paula estate.
In January, another assessment - there was an
assessment done in August of the 2 percent - there was
a second assessment in January. The end of the
December, we also received $2.6 million from the State
of Pennsylvania, an early distribution from the
Reliance estate. So, there have been enough incoming
funds to not have to prorate claims, but the sources
of those monies are quickly drying up. The Guaranty
Fund will actually run out of money probably in April
- is the projection right now - based on the current
rate of claims payments. The maximum gap right now
projected would be reached in 2008 - the cumulative
deficit - and that's about $25 million. Again, we have
claims - some of them are settled - some employees get
better and they go back to work, but some work comp
claims have very long tails.
I guess in closing.... I would emphasize that Alaska
needs a healthy workers' compensation marketplace. We
need a stable environment that's sustainable, that
would encourage current companies to continue to do
business here and attract new markets.
A healthy work comp environment depends on a variety
of factors - adequate rates, a self-funded assigned
risk plan, a cooperative regulatory environment and a
sound workers' compensation system.
MS. HALL said SB 276 and HB 403 addressed the funding crisis and
that another bill deals with reform.
CO-CHAIR BUNDE said he looked forward to working with her on
these issues.
SENATOR HOLLIS FRENCH asked if it was correct that the workers'
compensation fund had no profit for six years. Ms. Hall
indicated that was correct.
SENATOR FRENCH followed up asking if she said there were nine
years of rate decreases in the same business. She indicated that
was correct.
SENATOR FRENCH asked why rates kept going down when the industry
wasn't making money.
MS. HALL replied:
The rate decreases occurred in the early to mid-90s.
They undoubtedly do have some overlap. Rates are based
on actuarial analysis and actuarial assumptions.
Without getting into technicalities, they're based on
Alaskan experience, loss experience, actual loss cost;
they're based on countrywide experience. Alaska really
doesn't have a large enough marketplace to have sound
actuarial data by itself. So, it's a combination. The
third aspect of that would be trending and
projections. Some of those projections have not been
adequate. In hindsight some of those rates probably
were not adequate, but it is hindsight. We are working
diligently to look at that ratemaking process and to
find ways to make that going forward we don't have
inadequate rates. Our responsibility as the regulatory
body is to make sure that rates, this is in statute,
are neither excessive, inadequate, nor unfairly
discriminatory. I would focus today on the inadequate
or excess and how you draw that line.
REPRESENTATIVE ROKEBERG asked Ms. Hall if there were any
procedural steps she was taking or was she just doing the right
thing so far.
MS. HALL replied that proration of benefits is in statute for
the Guaranty Association. If the fund didn't have sufficient
money to pay projected claims for the upcoming year, it would
need to prorate claims or spend what they have and stop totally.
The Guaranty Association steps in the place of an insolvent
insurer. A local claims adjusting office is a third-party
administrator and they review claims and make claim settlements
and claim payments on behalf of the Guaranty Association.
REPRESENTATIVE ROKEBERG asked if people had looked at the asset
base of the Guaranty Association to keep from going to pro-
ration.
MS. HALL replied that there had been efforts industry wide to
help resolve the situation. For instance, after Hurricane
Andrew, Florida's Guaranty Fund did a bond issue until they
could pay back the claims, because of a similar situation with
their property claims. California has about a $1.5 billion
deficit in their guaranty fund and they issued bonds, as well.
Alaska's Guaranty Association could do that, but because they
have no assets, it would be considered a junk issue.
REPRESENTATIVE NANCY DAHLSTROM asked Mr. Lisankie to define
occupational disease.
MR. LISANKIE replied that the act says:
It's a disease that you are more likely to get because
of some condition of your employment. It can be
anything from an inhalation kind of injury to just you
have to work outside in inclement conditions and you
get frostbite, but it has to be related to
circumstances of your employment. Basically, it has to
be more likely to occur to you in the job format than
if you were just at home...
SENATOR SEEKINS noted that because of the experience ratings for
his business, he was able to have lowered workers' comp premiums
this year and he is thankful for his employees and staff who
helped him attain that.
CO-CHAIRS BUNDE and ANDERSON thanked everyone for their
testimony and said they looked forward to working with them to
resolve these issues. There being no further business to come
before the committee, the meeting was adjourned at 5:10 p.m.
ANNOUNCEMENTS
No announcements
COMMITTEE ACTION
No action taken
ADJOURNMENT
5:10 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 Senate Records Office at State Capitol, Room 3,
Juneau, Alaska 99801 (mailing address), (907) 465-2870, and
after adjournment of the second session of the 23 Alaska State
Legislature this information may be obtained by contacting the
Legislative Reference Library at (907) 465-3808.
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