Legislature(1997 - 1998)
04/18/1997 03:21 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 18, 1997
3:21 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery, Vice Chairman
Representative Bill Hudson
Representative Joe Ryan
Representative Tom Brice
Representative Gene Kubina
MEMBERS ABSENT
Representative Jerry Sanders
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 189
"An Act relating to sale of tobacco and tobacco products; and
providing for an effective date."
- MOVED CSSSHB 189(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 134
"An Act relating to regulation of barbers and hairdressers;
extending the termination date of the Board of Barbers and
Hairdressers; and providing for an effective date."
- MOVED CSHB 134(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 218
"An Act relating to regulation and examination of insurers and
insurance agents; relating to kinds of insurance; relating to
payment of insurance taxes and to required insurance reserves;
relating to insurance policies; relating to regulation of capital,
surplus, and investments by insurers; relating to hospital and
medical service corporations; and providing for an effective date."
- HEARD AND HELD
* HOUSE BILL NO. 199
"An Act relating to the property, transactions, and obligations of
spouses; relating to the augmented estate; amending Rule 301,
Alaska Rules of Evidence; and providing for an effective date."
- MOVED HB 199 OUT OF COMMITTEE
HOUSE BILL NO. 116
"An Act relating to workers' compensation self-insurance."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: SSHB 189
SHORT TITLE: RESTRICT TOBACCO SALES/POSSESSION
SPONSOR(S): REPRESENTATIVE(S) COWDERY
JRN-DATE JRN-PG ACTION
03/12/97 640 (H) READ THE FIRST TIME - REFERRAL(S)
03/12/97 640 (H) LABOR & COMMERCE, JUDICIARY
04/03/97 922 (H) SPONSOR SUBSTITUTE INTRODUCED-
REFERRALS
04/03/97 922 (H) READ THE FIRST TIME - REFERRAL(S)
04/03/97 922 (H) L&C, JUDICIARY
04/09/97 (H) L&C AT 3:15 PM CAPITOL 17
04/09/97 (H) MINUTE(L&C)
04/10/97 (H) L&C AT 3:15 PM CAPITOL 17
04/10/97 (H) MINUTE(L&C)
04/18/97 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 134
SHORT TITLE: BARBERS AND HAIRDRESSERS
SPONSOR(S): RULES BY REQUEST OF BUDGET AND AUDIT COMMITTEE
JRN-DATE JRN-PG ACTION
02/13/97 333 (H) READ THE FIRST TIME - REFERRAL(S)
02/13/97 333 (H) LABOR & COMMERCE
03/21/97 (H) L&C AT 3:15 PM CAPITOL 17
03/21/97 (H) MINUTE(L&C)
04/18/97 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 218
SHORT TITLE: OMNIBUS INSURANCE REFORM
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
03/27/97 872 (H) READ THE FIRST TIME - REFERRAL(S)
03/27/97 872 (H) LABOR & COMMERCE
04/04/97 (H) L&C AT 3:15 PM CAPITOL 17
04/04/97 (H) MINUTE(L&C)
04/18/97 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 199
SHORT TITLE: COMMUNITY PROPERTY
SPONSOR(S): REPRESENTATIVE(S) RYAN, Therriault
JRN-DATE JRN-PG ACTION
03/18/97 736 (H) READ THE FIRST TIME - REFERRAL(S)
03/18/97 737 (H) L&C, JUDICIARY
04/18/97 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 116
SHORT TITLE: WORKERS COMPENSATION SELF-INSURANCE GROUP
SPONSOR(S): REPRESENTATIVE(S) KOTT, Hudson, Foster, Berkowitz,
Hodgins, Kelly, Dyson, Davis, Phillips, Kohring, Ogan, Green, Elton
JRN-DATE JRN-PG ACTION
02/05/97 243 (H) READ THE FIRST TIME - REFERRAL(S)
02/05/97 243 (H) LABOR & COMMERCE
02/07/97 277 (H) COSPONSOR(S): KOHRING
02/13/97 349 (H) COSPONSOR(S): OGAN
02/17/97 376 (H) COSPONSOR(S): GREEN
02/21/97 430 (H) COSPONSOR(S): ELTON
02/26/97 (H) L&C AT 3:15 PM CAPITOL 17
02/26/97 (H) MINUTE(L&C)
04/18/97 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
CASEY SULLIVAN, Legislative Administrative
Assistant to Representative John Cowdery
Alaska State Legislature
Capital Building, Room 416
Juneau, Alaska 99801
Telephone: (907) 465-3879
POSITION STATEMENT: Explained CSSSHB 189.
JONATHAN BLATTMACHR, Partner (Attorney at Law)
Milbank, Tweed, Hadley and McCloy
One Chase Manhattan Plaza
New York City, New York 10005
Telephone: (212) 530-5066
POSITION STATEMENT: Testified in support of HB 199.
BOB MANLEY, Attorney at Law
Hughes, Thorsness, Powell, Huddleston and Bowman
324 East Cook
Anchorage, Alaska 99501
Telephone: (907) 263-8251
POSITION STATEMENT: Testified in support of HB 199.
DOUGLAS BLATTMACHR, President
and Chief Executive Officer
Alaska Trust Company
840 "K" Street
Anchorage, Alaska 99501
Telephone: (907) 278-6775
POSITION STATEMENT: Testified in support of HB 199.
RICH HOMPESCH, Attorney at Law
119 North Cushman
Fairbanks, Alaska 99701
Telephone: (907) 452-1700
POSITION STATEMENT: Testified in support of HB 199.
LINDA HULBERT, Insurance Agent
New York Life Insurance Company
110 Cushman Street
Fairbanks, Alaska 99701
Telephone: (907) 452-4400
POSITION STATEMENT: Testified in support of HB 199.
REPRESENTATIVE PETE KOTT
Alaska State Legislature
Capitol Building, Room 204
Juneau, Alaska 99801
Telephone: (907) 465-3777
POSITION STATEMENT: Sponsor of HB 116.
STEVE WISDOM, President
Alaska State Homebuilders Association
P.O. Box 4184
Homer, Alaska 99603
Telephone: (907) 235-6045
POSITION STATEMENT: Testified in support of CSHB 116(L&C).
BARBARA HUFF-TUCKNESS, Director
Legislative and Governmental Affairs
Teamsters Local 959
4300 Boniface Parkway
Anchorage, Alaska 99504
Telephone: (907) 269-4236
POSITION STATEMENT: Testified in support of CSHB 116(L&C).
BILL TAYLOR
Alaska State Homebuilders Association
2340 Loren Circle
Anchorage, Alaska 99516
Telephone: (907) 345-0371
POSITION STATEMENT: Testified in support of CSHB 116(L&C).
RENEE MURRAY
605 West 42nd Street
Anchorage, Alaska 99503
Telephone: (907) 561-8796
POSITION STATEMENT: Testified in support of CSHB 116(L&C).
LINDA HALL, Representative
Alaska Independent Insurance
Agents and Brokers
3111 "C" Street
Anchorage, Alaska 99516
Telephone: (907) 561-1250
POSITION STATEMENT: Testified against CSHB 116(L&C).
RICHARD BLOCK
Alaska National Insurance Company
360 West Benson, Suite 300
Anchorage, Alaska
Telephone: (907) 563-5121
POSITION STATEMENT: Testified against CSHB 116(L&C).
MARIANNE BURKE, Director
Division of Insurance
Department of Commerce and
Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
Telephone: (907) 465-2515
POSITION STATEMENT: Testified against CSHB 116(L&C).
JOHN GEORGE, Lobbyist
National Association of
Independent Insurers
3328 Fritz Cove Road
Juneau, Alaska 99801
Telephone: (907) 789-0172
POSITION STATEMENT: Testified on CSHB 116(L&C).
PAUL GROSSI, Director
Division of Workers' Compensation
Department of Labor
P.O. Box 25512
Juneau, Alaska 99802-5512
POSITION STATEMENT: Testified on CSHB 116(L&C).
ROBIN WARD
Alaska State Homebuilders Association
Box 91443
Anchorage, Alaska 99509
Telephone: (907) 562-3770
POSITION STATEMENT: Testified in support of CSHB 116(L&C).
ACTION NARRATIVE
TAPE 97-44, SIDE A
Number 001
VICE CHAIRMAN JOHN COWDERY called the House Labor and Commerce
Standing Committee to order at 3:21 p.m. Members present at the
call to order were Representatives Hudson, Ryan, Brice and Cowdery.
Representative Kubina and Chairman Rokeberg arrived at 4:00 p.m.
SSHB 189 - RESTRICT TOBACCO SALES/POSSESSION
Number 067
VICE CHAIRMAN COWDERY announced the first order of business would
be SSHB 189, "An Act relating to sale of tobacco and tobacco
products; and providing for an effective date."
Number 099
CASEY SULLIVAN, Legislative Administrative Assistant to
Representative John Cowdery, Alaska State Legislature, came before
the committee to explain the bill. He informed the committee
members there is a proposed committee substitute (CS). The
legislation will limit public access to tobacco products. He said
the CS creates an affidavit for employees and increases the
penalties for selling tobacco to minors. It also includes a
section that will allow only the sales clerk to have access to any
tobacco products prior to sale. Self service tobacco displays will
be banned. Mr. Sullivan said page 2, line 7, states, "the sale
occurs in a manner that allows only the sales clerk to have access
to the cigarettes, cigars, tobacco, or products containing tobacco
prior to sale;". He said this will not limit how retail premises
or tobacco shop stores present tobacco products. If anyone wishes
to buy tobacco products, they must go through an employee.
MR. SULLIVAN said also included in the CS is a section that will
further require employees to card people who employees believe to
be under 27 years of age. Secondly, the retail businesses shall
require the sales clerk to sign a form stating that they understand
it is illegal to sell tobacco to persons under the age of 19. He
said they believe this will put more responsibility on retail
employees who sell tobacco products.
MR. SULLIVAN explained there is also change regarding the
penalties. In the previous version of the bill, selling, giving or
exchanging tobacco to minors had a fine of up to $300. In the CS,
the fines are the same as contributing alcohol to a minor. The
first violation is a class A misdemeanor, a $5,000 fine. If a
second infraction occurs within five years, the person will be
guilty of a class E felony, a $50,000 fine.
Number 264
REPRESENTATIVE TOM BRICE asked if the age should be increased from
19 to 21.
VICE CHAIRMAN COWDERY said he hasn't requested that with his bill.
Number 289
REPRESENTATIVE BILL HUDSON made a motion to adopt CSSSHB 189(L&C),
0-LS0711, Version B, for the purpose of discussion.
VICE CHAIRMAN COWDERY asked if there was an objection. Hearing
none, CSSSHB 189(L&C) was adopted.
VICE CHAIRMAN COWDERY referred to Section 3, regarding the
effective date of July 1, 1997, and said he would like to propose
a conceptual amendment to change it to 90 days.
Number 339
REPRESENTATIVE BRICE pointed out the committee would need to strike
Section 3. He then made a motion to delete on page 3, line 6,
Section 3.
VICE CHAIRMAN COWDERY asked if there was an objection. Hearing
none, it was so ordered.
Number 399
MR. SULLIVAN said Chairman Rokeberg had a question about signage on
a retail premises that sells tobacco. He said AS 43.70.075 (f)
discusses that a person who holds a license endorsement under this
section shall post on the licensed premise a warning sign as
described in the subsection. He said the sign should measure 6
inches by 18 inches and must have lettering at least 1.5 inches
high which should read, "The sale of tobacco products to a person
under age of 19 is illegal."
VICE CHAIRMAN COWDERY pointed out that there is also a mandatory
fine of a minimum of $300.
REPRESENTATIVE HUDSON asked if there is a cap on the amount that
can be fined.
VICE CHAIRMAN COWDERY pointed out the language is the same language
regarding selling alcohol to a minor.
Number 588
REPRESENTATIVE JOE RYAN asked Vice Chairman Cowdery if he wanted to
raise the age from 19 to 21.
VICE CHAIRMAN COWDERY responded that it is his intent to leave the
age at 19. He also indicated there were no witnesses signed up to
testify.
Number 624
REPRESENTATIVE RYAN made a motion to moved CSSSHB 189(L&C), as
amended, out of committee with individual recommendations and a
zero accompanying fiscal note. Hearing no objection, CSSSHB
189(L&C), as amended, was moved out of the House Labor and Commerce
Standing Committee.
HB 134 - BARBERS AND HAIRDRESSERS
Number 683
VICE CHAIRMAN COWDERY announced the committee would hear HB 134,
"An Act relating to regulation of barbers and hairdressers;
extending the termination date of the Board of Barbers and
Hairdressers; and providing for an effective date." He indicated
there is a House Labor and Commerce committee substitute. He also
noted the bill had been heard twice before and that there were no
witnesses signed up to testify.
Number 825
REPRESENTATIVE HUDSON moved and asked unanimous consent to adopt
CSHB 134(L&C), 0-LS0546, Version E. Hearing no objection, it was
so ordered.
Number 748
REPRESENTATIVE HUDSON made a motion to move CSHB 134(L&C), dated
4/14/97, Version E, out of committee with individual
recommendations and a zero fiscal note. Hearing no objection, CSHB
134 (L&C) was moved out of the House Labor and Commerce Standing
Committee.
VICE CHAIRMAN COWDERY called for an at-ease at 3:35 p.m. He called
the meeting back to order at 3:39 p.m.
HB 218 - OMNIBUS INSURANCE REFORM
VICE CHAIRMAN COWDERY announced the next bill to come before the
committee would be HB 218 "An Act relating to regulation and
examination of insurers and insurance agents; relating to kinds of
insurance; relating to payment of insurance taxes and to required
insurance reserves; relating to insurance policies; relating to
regulation of capital, surplus, and investments by insurers;
relating to hospital and medical service corporations; and
providing for an effective date." He said the bill was held over
from April 4. He explained the committee would adopt a proposed
committee substitute. The bill then would be held so everybody
could have a chance to review it before it is heard again on April
23.
REPRESENTATIVE RYAN made a motion to adopt CSHB 218(L&C), Version
0-LS0850/B, dated 4/17/97. Hearing no objection, it was so
ordered.
VICE CHAIRMAN COWDERY announced CSHB 218(L&C), dated 4/17/97, would
be held until the following Wednesday.
HB 199 - COMMUNITY PROPERTY
Number 865
VICE CHAIRMAN COWDERY announced the committee would hear HB 199,
"An Act relating to the property, transactions, and obligations of
spouses; relating to the augmented estate; amending Rule 301,
Alaska Rules of Evidence; and providing for an effective date,"
sponsored by Representative Ryan.
Number 889
REPRESENTATIVE RYAN informed the committee that HB 199 will allow
an option in Alaska of people by signing a good faith agreement to
take some or all of their assets and place them in community
property status. The basic law of Alaska will remain individual
property and this is strictly an option. He informed the committee
that there are advantages to taking this option. Representative
Ryan said, "If you have some assets with unrealized gains and you
know that if you sell these assets you're going to pay the maximum
capital gain tax of 28 percent and you decide rather than do that,
you have a good relationship, you plan on living together until you
die - you're wife and husband. When one of the partners dies, the
basis is what for the value of the asset is that in which it was
purchased and any appreciation of that, on behalf of the estate of
the person who died, has no tax liability. So that asset can be
sold, the gains realized without paying the federal government any
taxes. Also, for the surviving spouse, their half of the estate,
their half of the wealth of that assets gets the same step up in
basis with no tax liability. So this is a provision in the law
that goes back to I think 1932, with the Simons case that was
argued before the supreme court that community property states now
enjoy. Unfortunately, most community property states, there are
nine of them, make community property mandatory. There are a lot
of people, especially in this day and age, who don't for some
reason or another don't spend their lives together and when they
get divorced, there is a lot of acrimony because of the value of
the assets and what the distribution splits will be and so forth.
Community property provides -- to have community property provides
that each partner in the marriage owns half of whatever is there.
So that if there were a disillusion of a marriage, the judge would
award 50 percent here, 50 percent here, it's a done deal. There is
no reason for anybody to sit and argue about what the value is or
that one partner should get more than the other or less than the
other or however these things go in family law. This is a thing of
community property - says, `Boom, you get half and half' and there
is no other way you can do anything about it. We've talked to
Judge Karen Ott and she says that she already does a lot of
litigation on this because people come from other states that are
community property states and they have acquired an asset in that
state so that when a divorce comes along, the court already deals
with community property because the property having been acquired
under community property or if there is a dissolution of marriage,
it still has to be divided as community property. So the courts
are well familiar with this. It's not going to cause a problem to
anyone.
"We can allow, thorough the passage of this legislation, people who
live in the other 41 states that don't have a community option to
create a trust in Alaska under the generous trust laws that we just
passed and signed by the Governor April 1, to take assets and to
put them in a trust in Alaska and denominate the `miscommunity'
property so that they will, in fact, have the advantage of a step
up in basis and we will have the advantage of managing those assets
and/or at least administrating them which I believe will be a good
opportunity to bring capital to Alaska for investment and, if
nothing else, the management and the administration fees will be
quite substantial. So what we're doing is we're bringing in
environmentally clean business. We have no downsides. We're going
to put a lot of people to work. If you don't particularly like the
state planning attorney and/or accountants, then you may have a
problem with this bill, but other than that you ought to remember
these people make substantial amounts of money and they're going to
spend it in the communities where they live and that is going to go
to provide jobs in many other related businesses. So we have
everything to gain on this piece of legislation and really nothing
to lose because we're not requiring anybody to do anything. We're
offering people a choice. With that, I conclude my testimony.
There are some people that are much more knowledgeable about this
than I, I think on teleconference, and perhaps they can explain it
a little better."
Number 1170
JONATHAN BLATTMACHR, Partner (Attorney at Law), Milbank, Tweed,
Hadley and McCloy, testified via teleconference from Anchorage. He
informed the committee he is a member of the Alaska, California and
New York Bars and practices in all three jurisdictions. He said
the thinks Representative Ryan did an excellent job of explaining
the bill. It is purely a voluntary system. If the husband and
wife care to they can enter into the agreement and they can
designate all of their assets or specify which ones they want
treated as community property. That means they will own 50/50 and
in the event of death or divorce, it will pass 50/50 to each of
them. When they die, the surviving spouse will receive an
exceptionally good tax break. He said it is a great thing to
enact.
Number 1231
BOB MANLEY, Attorney at Law, testified via teleconference from
Anchorage. He noted he is member of an Anchorage law firm, Hughes,
Thorsness, Powell, Huddleston and Bowman and has been working in
the estate planning and probate area for approximately 20 years.
He said he thinks HB 199 is a great bill because freedom and
flexibility of property ownership will be provided. People can opt
in to the community property regime and take advantage of the
income tax benefits. He said by passing the bill, the legislature
would be providing freedom and flexibility of arrangements to
people because they could say in a community property agreement
that property will be divided in some other fashion or in divorce
court if that ever happened (indisc.). People are being given more
options. Mr. Manley said it will be good for commerce in Alaska
because he thinks it will bring in more trust activity. He
referred to the Trust Act and said there is a requirement that any
community property trusts for non-Alaskan residents have an Alaska
trustee with some portion of the administration in Alaska. Alaska
should see more activity in the trust area and the formation of new
trust companies. He urged the committee to support the
legislation.
Number 1330
DOUGLAS BLATTMACHR, President and Chief Executive Officer, Alaska
Trust Company, testified via teleconference from Anchorage. He
said his organization totally supports HB 199. Mr. Blattmacher
said he and his wife just moved back to Alaska and would like to
have the option of their property being considered as community
property to take advantage of the taxing.
Number 1355
REPRESENTATIVE HUDSON said he believes this has a selective option
capability as well. He asked if he is correct in saying that a
couple could select any portion of their assets to be owned by this
community allowance.
MR. BLATTMACHR said that is correct. They could opt for any
amount, any particular piece of property or all of their property.
REPRESENTATIVE HUDSON asked if this occurs in any other state.
MR. BLATTMACHR explained in other states where they have it, the
spouses can elect out. They can elect for certain assets to be
elected out, but HB 199 provides for an election which provides
much less turbulence with respect to property rights and provides
a lot more flexibility. In the states where community property
currently exists, a husband and wife may agree to a separate the
property regime rather than have community property for all their
assets or for specifically identified ones.
Number 1425
VICE CHAIRMAN COWDERY asked whether the property could include
escrows or stocks.
MR. BLATTMACHR explained it can include any assets such as stocks,
bonds, a home, commercial real estate, et cetera. He noted one of
the great advantages is that often people who have real estate have
taken depreciation deductions which are provided for under the
income tax law. By the time the first spouse dies, the basis is
extremely low and yet the survivor will still have a very large
potential income tax liability. He said, "If the husband died, and
the husband and wife have owned the asset and half is included in
the husband's estate, the wife is stuck with her extremely low
basis. In fact it can, in a tax sense, actually be less than zero.
But by electing for it to be community property, when the first
spouse dies, 100 percent of the inheritance profit is forgiven, so
the surviving spouse can turn around and sell it without any
capital gains tax at all."
Number 1507
RICH HOMPESCH, Attorney at Law, testified via teleconference from
Fairbanks. He noted he has been an attorney in Alaska for almost
13 years and practices in the area of probate, estate planning and
taxation. Mr. Hompesch said when he was in law school and first
learned about the difference in income tax treatment between
community property and non-community property, he never did
understand the reason why there is such a difference and nobody has
been able to explain it to him. Mr. Hompesch said he thinks there
is an injustice in the tax code. Surviving spouses in Alaska will
pay more income taxes than surviving spouses in California,
Washington and the other community property states. He said HB 199
corrects this injustice and allows Alaskans to elect certain
(indisc.) community property. Mr. Hompesch said in his estate
practice, about 85 percent of time he represents women who are
surviving spouses. This legislation will help those women save in
income taxes. He noted the clients that he has discussed this bill
with like it. Mr. Hompesch urged the committee to pass HB 199.
Number 1600
LINDA HULBERT, Insurance Agent, New York Life Insurance Company,
testified via teleconference from Fairbanks. She noted she was an
educator in Alaska for 20 years and has been a life insurance agent
for the last 8 years. Ms. Hulbert told the committee that she
spends a lot of her time helping people plan for retirement, in
that she writes wills to help them plan to protect themselves
against risk. Many times there aren't a lot of assets and there is
the concern about what is going to happen to the second spouse.
With life expectancies extending, what is going to be there to help
a second spouse upon the death of a spouse. She said the bill
presents a tremendous opportunity to help both people with
significant assets and those people who do not have many assets.
Ms. Hulbert said she would like to urge the committee to pass the
legislation because she feels it is very important for all
Alaskans, no matter what their income level is.
VICE CHAIRMAN COWDERY asked whether anybody else wished to testify.
There being no further witnesses to testify, he called for a brief
at-ease at 3:55 p.m. The meeting was called back to order at 4:00
p.m.
Number 1673
REPRESENTATIVE BRICE made a motion to move HB 199 out of committee
with the zero fiscal notes and individual recommendations. Hearing
no objection, HB 199 was moved out of the House Labor and Commerce
Standing Committee.
HB 116 - WORKERS COMPENSATION SELF-INSURANCE GROUP
Number 1698
VICE CHAIRMAN COWDERY announced the committee would hear HB 116,
"An Act relating to workers' compensation self-insurance."
REPRESENTATIVE HUDSON made a motion to adopt CSHB 116, dated
4/16/97, Version H, for the purpose of discussion. Hearing no
objection, it was so ordered.
CHAIRMAN NORMAN ROKEBERG called for an at-ease at 4:01 p.m. He
called the meeting back to order at 4:05 p.m. He said the
committee has adopted the committee substitute for HB 116.
Number 1775
REPRESENTATIVE PETE KOTT, sponsor of the measure, came before the
committee. He said he would explain the changes in the CS. The
changes were made after numerous hours of discussion with the
various entities. The first change is on page 2, line 1, where
language was deleted that established a filing fee of $500. The
approval has now been given to the director to establish that
filing fee. On page 2, line 31, language was deleted that allowed
the director to prescribe the amount of the security and included
an amount of $450,000. He noted this used to be prescribed by the
director.
REPRESENTATIVE KOTT said, "Page 3, line 27, used to have an
estimated standard annual premium of $250,000 and $500,000 for
subsequent years. We've doubled that from $250,000 to $500,000 for
the first year and added conditional $250,000 for subsequent years
and that deals with the premiums. Then over to page 4, lines 5 and
7, we're requiring now the administrators and the service companies
to carry errors and omission insurance - not in the original bill.
And page 4, line 31, this is an inclusion that basically suggests
that the group will be subject to the premium tax imposed on other
domestic carriers. The next change is on page 7, line 9. In the
original bill there was language that groups had to give notice
when a member terminated or cancelled and to continue to carry that
member for 30 days unless the member obtained substitute insurance.
The new CS removes that language. On page 8, line 5, there is
language included to allow the group to request a 60 day extension
on the deadline because often times they are fairly comprehensive
and they just allow some flexibility. Then over on page 9, line
27, we've added a requirement that the director must approve the
refunds before those monies are refunded to the members. Then on
page 10, starting on line 6, this language was added making it
clear that the 25 percent imposed in this section is in addition to
the 25 percent required under 20.47.030 (A)(10). The amendment
that you have addresses this particular area."
CHAIRMAN ROKEBERG asked whether that is the amendment the committee
members have.
REPRESENTATIVE KOTT said, "Yeah, there seemed to be some confusion,
if I just might divert, that you could in fact use that 25 percent
to allow it to go toward the premiums and this makes it clear that
this is not used toward premiums."
Number 2029
REPRESENTATIVE HUDSON asked whether the amendment is included in
the CS.
REPRESENTATIVE KOTT said it is not in the CS. He said that the
intent wasn't clearly captured. The amendment makes it certain.
Representative Kott said, "On page 10, line 18, (indisc.) with the
workers compensation so -- insurance guarantee fund. This is a new
section that requires the groups to establish a workers' comp self-
insurance guarantee fund. Each member is to make a one time
deposit of 5 percent into the fund. The member can receive that 5
percent back once they leave the group."
Number 2062
REPRESENTATIVE RYAN asked whether the purpose of the guarantee fund
is if somebody can't meet their obligations.
REPRESENTATIVE KOTT responded, "It could be used to meet the
group's obligations or the -- yeah, the group's obligation. It's
a group fund."
Number 2103
REPRESENTATIVE KOTT referred to page 11, lines 5 and 6, "This
specifies that 25 percent of the funds paid under subsection 160
and the guarantee funds may be used to make up inefficiencies and
that gets back to that earlier section - 5 percent. And page 11,
lines 26 and 27 reduces the penalties from the previous amount and
they were $1,000 and $10,000 and it's been reduced to $500 and
$5,000."
REPRESENTATIVE HUDSON asked what it was before.
REPRESENTATIVE KOTT responded, "It was $1,000 - civil penalty may
not exceed $1,000 for each act or violation and may not exceed
$10,000 in the aggregate."
Number 2156
REPRESENTATIVE RYAN asked whether that will be the penalties for
all insurers or just for this group.
REPRESENTATIVE KOTT responded that he believes it is just for this
group. He then referred to page 12, lines 2 and 3 and said,
"Again, the penalties were again reduced and it used to be on line
2, it was $10,000 now it's reduced to $5,000, and on line 3 it was
$100,000 and it was reduced to $25,000."
Number 2190
REPRESENTATIVE GENE KUBINA asked why the penalties are being
reduced.
REPRESENTATIVE KOTT said with the higher amount the intent of
penalties are to ensure that the group complies. Once that is
satisfied, then there is no need to adjust it any higher. He said
he didn't want to put so much of a burden on the group that it
perhaps would cause insolvency or bankruptcy. It is very similar
to other states. He noted in the original version of the bill he
arbitrarily came up with a number.
Number 2225
REPRESENTATIVE BRICE asked Representative Kott if he knows what the
penalties are for the same type of violations under the regular
workers' compensation (indisc.).
REPRESENTATIVE KOTT responded that he isn't sure what they are.
Number 2246
REPRESENTATIVE KOTT referred to page 12, line 6, and said, "We've
defined `knowingly' as basically the same -- the definitions are
basically the same definition as used in the criminal code. I
might add on line 1, page 12, the word `knowingly' was added. It
was felt that in order to impose a civil penalty of this nature, at
least the group should be aware that they did in fact commit a
violation of the cease and desist order. That's back on page 12,
line 1. I overlooked this one, but the word `knowingly' was
inserted. And page 13, line 21, we removed the word
`unincorporated' from the definition of workers' comp self-
insurance group. The reason for that is that some of these groups
could in fact be incorporated. Page 13, line 23, we changed the
minimum number of employers from five and upped it to ten. Mr.
Chairman, I believe that concludes the changes. I might add that
the drafter - we just confirmed before coming down here Section 2
of the new CS is not required now - page 13.
REPRESENTATIVE HUDSON referred to page 13, line 23, and said that
has been increased from five to ten. That places a little higher
standard on acquisition to this treatment.
REPRESENTATIVE KOTT said that is correct. He said, "I'll just kind
of recap now what the bill contains based on my original objective
and that is to make whole any one employee that has a workers' comp
claim to make sure that they are paid and made whole as best as we
can. And now what we have in this whole mix to ensure that happens
is that you can use the surplus from prior fiscal years. You have
an administrative fund that can be used. We have the fund that was
created in 24.47.160 (a), which is -- in the earlier fund we talked
about the 25 percent, we have the guarantee fund, we have
assessments, we have a $450,000 security and you have the joint
several liability of the members. Then if all else fails which
after all these layers, I can't that it would, we have the $1
million in aggregate assets."
Number 2467
REPRESENTATIVE RYAN said at the last hearing on the bill he
remembers asking about the amount of money that was going to be
used as a fall back position. He referred to the $1 million and
said he asked about liquidity versus assets. Assets can't
necessarily be liquidated at their value and it would take a period
of time to get them converted to liquid assets. Representative
Ryan said he had thought he heard that they would come back to the
committee with liquid assets. He also said he believes that the
director of the Division of Insurance and a number of other people
had said that $1 million wasn't really sufficient and that they
were going to see if they could pool more assets and come up with
a higher basis.
REPRESENTATIVE KOTT indicated that the discussion did take place.
He pointed out that what has been added to the bill is a 5 percent
fund, a 25 percent fund and also $450,000 surety, cash or bond. He
said he doesn't know what they would amount to if they were added
up, but it would be close to $1 million in cash or liquid assets.
He stated that as the legislature has addressed some of the issues
with workers' comp over the years, you also have to recognize that
some of the serious worker's comp claims are not resolved on a
monthly basis. Sometimes it takes several years to resolve a
claim, and when it is resolved, often times you find that you're
not paid in one lump sum. It is disbursed over several years. He
said he believes the amount is an appropriate amount.
TAPE 97-44, SIDE B
Number 001
REPRESENTATIVE KOTT continued, "I'm not sure if they establish the
interest penalty, if you will, on workers' comp, but on a regular
insurance claim, you know it takes several years to make the
adjustment. And while you're in these serious workers' comp
claims, if there are any, you're still collecting from your members
the annual premiums. That's been increased. Don't mean that there
is a number of safeguards now that this bill did not possess when
it first hit this committee from a monetary perspective."
Number 027
REPRESENTATIVE COWDERY questioned how payment will be issued to the
hospital if there is a claim.
REPRESENTATIVE KOTT responded that he would defer the question to
some of the people in the audience. He said it is his
understanding that the administrator would be setting up this fund.
Number 087
REPRESENTATIVE COWDERY said he would like to make sure the question
is answered as to when an injury occurs, how will the treating
physician be assured of payment.
REPRESENTATIVE KOTT said he assumes it would be no different than
what currently happens. He noted he might be wrong.
Number 121
STEVE WISDOM, President, Alaska State Homebuilders Association
(ASHA), came before the committee to testify. He noted he lives in
Homer. Mr. Wisdom informed the committee members that currently 32
other states have legislation that allows self-insurance pools and
14 other states have models that his organization is looking at.
He referred to the question of why the ASHA wants to do this. The
first reason is most homebuilders have ten or fewer employees on
their payroll. Larger insurance companies don't pay attention to
the small employer as they don't have the loss control specialist
in the field to work with the small employer. If a loss comes up,
they pay the loss and, in many cases, the small employer has to
find a new carrier the next year. Self-insurance pools require all
participants to be completely involved in the workers' compensation
issue such as on-site safety programs.
MR. WISDOM said another reason is to reduce costs. Studies looking
at self-insurance pools, specifically within the homebuilders
associations in the 14 other states, the cost to the builder has
been reduced between 30 percent and 40 percent which is from
actively working the loss control. There are also savings involved
in that if there is someone injured, they have immediate follow-up.
He said a side benefit to passing the bill is a safer workplace for
the worker because the employer becomes heavily involved in putting
safety programs in place. He noted there is also the peer pressure
involved.
MR. WISDOM referred to the last hearing on the bill and said the
Division of Insurance raised four major questions. One was the
guarantee fund which is now addressed in the CS. Another was the
premium tax which has also been addressed in the CS. The third is
the number of employers that would be involved to bring the base up
and that has been addressed. The division was also concerned with
the assets and the liquidity of the assets, the $1 million, which
has also been addressed. He pointed out their major concern is a
safe workplace and their employees. He noted employees are a major
asset to small firms.
Number 318
BARBARA HUFF-TUCKNESS, Director, Legislative and Governmental
Affairs, Teamsters Local 959, testified via teleconference from
Anchorage in support of HB 116. She said, "In reviewing this bill,
we believe that by allowing groups of employers to pool their
resources together for the purpose of providing workers'
compensation coverage for their employees, this bill will
accomplish several things."
MS. HUFF-TUCKNESS said, "First, we believe this bill will help
reduce the cost of workers' compensation by reducing the cost and
we've got a mitigating reason out there as always. Money saved
could be utilized to improve wages and benefits for employees.
These savings can also be used to provide more job opportunities in
the state which would create a more stable work environment for
many Alaskan workers, for example, the Alaska Truckers Association.
And in talking with several individuals within that group, there
seems the way the set up in the current system - those larger
companies out there within the Trucking Association would (indisc.)
better break than some of the smaller companies and we believe that
there is a theory here in pooling those companies together would
more realistically spread some of those costs. Secondly, as a
self-insured group, we believe there would be a great incentive, on
behalf of the group participants, to focus on safety as was mention
(indisc.) speaker. This incentive itself will reduce the cost of
workers' compensation coverage. We believe the group would tend to
look closer at safety and the importance of the safety programs."
MS. HUFF-TUCKNESS continued, "It has been proven that workers who
are properly trained in safety work smarter on the whole and for
that reason have much fewer, if any, accidents which results in a
reduced number of claims, thereby reducing the cost of workers'
compensation. The concept applied here, and I'm not going to use
the phenology that they are the same because definitely there are
some differences. But I think the concept is somewhat similar to
the health and welfare plans whereby groups of employers and/or
many groups of unions have pooled their resources (indisc.) buying
power for purposes of providing health care coverage. This has
worked well and has provided a substantial savings to the plan,
plus allowing expansion of benefits based on more available dollars
out there."
MS. HUFF-TUCKNESS continued, "Additionally, and I don't want to say
that we walked into this I guess with blinders on because there
were a lot of discussion - a lot of issues that had been raised to
share with the committee. There were concerns that the group would
not be able to cover the cost of compensation claims if there was
a catastrophic accident, especially during the first year of this
start-up of this group, whether it's with the homebuilders, the
trucking association or any other viable non-profit organization
out there. In fact I might add, and I don't know with an after-
thought here driving over here this afternoon, even looking at the
anticipation of the gap I find coming on board with the various
contractors that would be involved in that whether it would be
through and AGC or a TAGS organization out there which they do
currently already have set up. This will all be another
opportunity for them, down the road, to look at reducing costs as
well."
MS. HUFF-TUCKNESS continued, "But our concerns definitely were with
the amount of monies covering the premiums in this area because
although we represent unionized workers out there, in general, the
concern being that the be enough money to cover whatever claims,
whether union or nonunion. With the proposed premium amount
established in the CS, the inclusion of the what I term an
`umbrella insurance policy,' those pros in the area are probably
more knowledgeable referring to the excess insurance - I believe
that's the way it's referred to in the bill."
MS. HUFF-TUCKNESS referred to the requirement that an additional 25
percent of each member's premium be paid in addition to the
required premium amount and said there seems to be sufficient
guarantees to protect the injured worker and ensure ongoing
coverage with those existing or ongoing claims. She urged the
committee to move the bill.
Number 551
BILL TAYLOR, representing Alaska State Homebuilders Association,
came before the committee to testify. He noted he is a homebuilder
in Anchorage and the name of his company is Callin (ph.) Builders.
He gave committee members an annual report from New Mexico, which
is a state that has model legislation. Mr. Taylor said the report
is actually a financial statement of the group after they have been
in business for a number of years. He pointed out the financial
stability of the group.
MR. TAYLOR said they have tried to address the concerns by raising
the initial premium requirement from $250,000 to $500,000 in
response to numerous concerns about protecting the potential
claimant and protecting the group from insolvency. He said they
have also tried to increase the amount of oversight from the
director. There has been a lot of discussion about start-up risk.
Mr. Taylor said he thinks that if the start-up risk hasn't been
eliminated, it has been neutralized to the point where it shouldn't
be a significant concern. He said there are four layers of
protection. The first is 70 percent of the premium income goes to
loss reserve. He noted that in the New Mexico report, their loss
reserves is upwards of $11 million. This fund can generate a
tremendous amount of money in a relatively short period of time.
Mr. Taylor referred to the assessment to the members and said the
liquidity of the initial requirements has been improved
considerably. He said if there is a catastrophic claim, the
payment will come in a delayed manner which gives more time to
accumulate reserves.
Number 686
MR. TAYLOR explained the next layer is the $450,000 surety bond.
That is straight cash, dollars in the bank that the director of the
Division of Insurance has access to. The final layer is the
guarantee fund. He said they have required 5 percent of the
initial premium deposit and $500,000. That guarantee fund has been
funded with a $25,000 bullet.
MR. TAYLOR informed the committee he would like to propose one
amendment on 6, line 16, in Section 21.47.060., add a new section
(C), "The board of trustees shall follow the prudent man rule of
investing when investing money held in reserves for losses." He
said they just want to assure that the board of trustees, who are
responsible for placing the reserve money, certificates of deposit
and treasury bond and bills, follow the prudent man rule of
investing. That assures that when the board of trustees allocates
these funds for various investments follows the prudent man rule.
CHAIRMAN ROKEBERG asked Mr. Taylor to put his proposed amendment
in writing.
Number 814
MR. TAYLOR said another point he would like to make is that the
director has virtual control over the self-insured groups through
the amount, the form and which insurance company is to be used for
aggregate, surplus or excess insurance. He said that concludes his
testimony.
REPRESENTATIVE RYAN pointed out that we live in a politically
correct world and the term now is "prudent person."
Number 860
REPRESENTATIVE COWDERY asked if the reserves are paid back to the
members as dividends.
MR. TAYLOR said his understanding is those funds have to be held.
There is an actuarial equivalent of an amount of money that must
remain in place for a given group of potential insurers. Once that
minimum has been met then the surplus can be given back to the
members in the form of dividends. So there is the net income and
the required minimums. That sort of goes into another pool that
can be returned to the group.
REPRESENTATIVE COWDERY asked how the assurance will be made that
when a person goes to a doctor, how that doctor will be paid.
MR. TAYLOR said they would follow the same rules that other
compensation carriers play by. He said if someone has a claim, all
of his employees know that their carrier is the self-insured group
and would report that to the medical facility on their application
for treatment. He said they would be a bona fide carrier and would
be licensed by the state of Alaska. Mr. Taylor noted that the
employer is required, by statute, to post their workers'
compensation information in an obvious place. So the worker, in
theory, should have that information instantly available to them.
Number 1042
REPRESENTATIVE COWDERY questioned how payment will be made to the
individual who has a temporary disability. He also questioned how
it would be made if there is a permanent disability.
MR. TAYLOR explained there is what is called a third party
administrator (TPA) that the group contracts with to make all the
claims paying mechanisms work. He noted the TPA is a professional
group that would be hired by the self-insured group.
CHAIRMAN ROKEBERG asked Mr. Taylor how many members are in the New
Mexico organization.
MR. TAYLOR said he believes they started out with approximately 343
participants and they are now over 1,000.
CHAIRMAN ROKEBERG questioned how many homebuilders are in Alaska.
MR. TAYLOR responded that there are 893 firms.
CHAIRMAN ROKEBERG asked if TPA would determine the amount of
premium assessments to each member based on their employees and
their loss record history.
MR. TAYLOR indicated the TPA has the expertise, the actuarial
sciences and the required assessments that would be needed.
Number 1151
REPRESENTATIVE COWDERY said he would assume the 893 firms would
support the legislation. He asked if there are any subcontractors,
trucking associations, etc., who would also support the bill.
MR. TAYLOR said the legislation enables those groups to form their
own pools. The truckers, miners truckers, electrical workers,
etc., could form their own groups.
REPRESENTATIVE RYAN asked if all the groups could form under an
umbrella.
MR. TAYLOR indicated they could if they elected to do that. He
pointed out that he thinks what has been successful in other states
is that groups of "like kind" sort of form their own separate pool.
Mr. Taylor said his understanding is that this would allow, for
example, the miners and the builders to form a group if they
elected to.
Number 1364
RENEE MURRAY was next to testify via teleconference from Anchorage.
She informed the committee she is a retired vice president of
Wetzel Services. She noted she is not representing anyone. Ms.
Murray stated she has worked in the insurance industry for 40
years, 20 of which was spent working for insurance companies and
the last 20 she spent working in the self-insurance and third party
claims administration business. Ms. Murray pointed out she has
nothing to gain by the passage of the bill other than the benefits
that she believes would adhere to the general public through cost
savings experienced by the entities that could band together as
self-insurers grow.
MS. MURRAY said that generally, group self-insurance would greatly
reduce the individual insurance costs over time and these savings
would eventually reduce consumer costs and should benefit everyone.
She said she thinks the bill is an excellent bill with substantial
safeguards and guarantees. She said she can't imagine why there
would be any legitimate opposition other than perhaps that of
insurance companies who stand to lose their substantial premium
dollars. She noted in her career she has almost never seen a self-
insured entity opt to return to a standard insurance market because
the cost savings were so great, and those few instances when that
did occur they generated a return to the self-insurance market at
a later date.
Number 1356
MS. MURRAY said she has one suggestion for a change in the bill and
that is, in her opinion, the net worth of the group should be
increased to between $3 million and $5 million as an additional
guarantee. With that exception, she stated she is very much in
favor of the passage of the bill.
CHAIRMAN ROKEBERG asked if that would be the individual net worth
or the cumulative net worth of the group.
MS. MURRAY responded the net worth of the group.
Number 1399
LINDA HALL, Representative, Alaska Independent Insurance Agents and
Brokers, testified via teleconference from Anchorage. Ms. Hall
stated she just received the CS and isn't prepared to discuss the
changes that have occurred. She said as Representative Kott went
through the changes there were some questions she had. Ms. Hall
said she would limit her testimony to questions. She said, "One is
the requirement for an E and O coverage. I -- this is not
necessarily an appropriate coverage for these types of groups. I'm
not sure what the intent of requiring E and O (error and omission)
coverage is. There may be a requirement for fiduciary liability,
but I'm not sure that the E and O requirement is particularly
appropriate."
MS. HALL indicated she has concerns about the guarantee fund. One
of the earlier major objections to the bill was the lack of
participation in a guarantee fund. This particular language in the
CS does not address what type of guarantee fund this would be. She
questioned whether all groups that fall under this chapter would
participate in a single guarantee fund or if each group would have
a separate fund and whether there would be the ability to assess
from one self-insurance group to another. She said there are a
number of questions that need to be addressed on that issue.
Number 1487
MS. HALL stated she takes serious objection to the reduction in the
penalties in the bill. As a member of the insurance industry, they
are subject to substantial penalties. She said she would like to
see how the penalties in the bill compare to the penalties of the
insurance industry. Not only are insurance practitioners subject
to civil penalties, they are also subject to criminal penalties.
She said she would think the same requirements should be placed on
any type of self-insurance group. She again noted she hasn't had
a chance to review the CS, but her philosophical objection to the
removal of large premium dollars from the insurance marketplace is
still a major concern. Alaska is a very small marketplace and the
bill would detract from the ability of all businesses who might not
qualify for a special interest group to purchase coverage at a
reasonable price.
Number 1543
CHAIRMAN ROKEBERG asked if Ms. Hall if she believes the passage of
the legislation would have a negative impact on the availability of
workers' compensation insurance to other people who couldn't join
groups like this in the state of Alaska.
MS. HALL said she absolutely feels that way. As she testified in
February, we have a very small marketplace, we've had a good track
record and we are continuing to attract good strong insurance
companies to the market which increases competition for all Alaskan
businesses. If the available premium volume is eroded through
self-insurance groups, insurance companies will no longer find
Alaska an attractive place to do business and, therefore, that
competitive edge that we're now feeling will be lost.
Number 1593
REPRESENTATIVE HUDSON said, "One of the lines of question here was
what if a member who is on workers compensation is traveling to
another state. Under the current workers' compensation that is
handled by traditional carriers such as yourself, what kind of bona
fides are provided to the insured so that he or she can get
attention out of the state of Alaska?"
MS. HALL indicated she hasn't adjusted workers' compensation, but
suggest Ms. Murray would probably be able to answer.
Number 1642
MS. MURRAY stated, "This law is subject to all of the regulations
and controls of the Alaska Workers' Compensation Act, and that act
covers - for multiple states. You have a right to choose which
state. If you're an Alaska worker working say in the state of
Washington and are injured there, you can elect which state that
you wish to chose your coverage from. This would be exactly the
same because the coverage for this is no different than coverage
for any other."
Number 1701
RICHARD BLOCK, Alaska National Insurance Company, came before the
committee to address the bill. He said there are three principle
areas from his reading of the CS that suggest the bill still has
very serious problems. He said his company still opposes the bill.
One problem is there isn't a change in the underlying problem in
the requirement that there be cash liquidity capital funds to be
able to operate for the first several years required in this bill.
He said there is talk about the $1 million, but that is not $1
million that goes to this group. It's the $1 million of net worth
in the participants of this group.
MR. BLOCK said that we have heard that there are several layers of
resources available in the event of failure of the organization to
be able to pay claims. He said he isn't sure that it is
appropriate to be designing a program around alternatives to
failure. Those programs are the assessment of the members which he
would propose is not an easy thing to reach if there were members
whose financial conditions change or who had the net worth but not
the case. Secondly, they are talking about a $450,000 bond, but
that bond as he reads the language is not readily cash and
accessible as perhaps a capital cash account would be. He referred
to the guarantee fund and said he would have to plead a little bit
of inability to respond completely on that fund because apparently
now there is a separate guarantee fund proposed with $25,000 in it
or 5 percent of premium for group self-insurance only.
Number 1856
MR. BLOCK referred to the New Mexico annual report and said he
would suggest that if Alaska adopts this bill and this was started
in Alaska, you wouldn't see a report like this. He said this is
because there are no provisions for auditing with a certified audit
for this group in the same manner the New Mexico report is done.
There is the requirement of a certified audit, but it is limited to
three or four specific items such as claim reserves, bad debts and
honoring premium reserves and one other item. It is not a complete
financial audit. He said in the New Mexico report there is an
equity, there is retained earnings, there is also a surplus
provided. No such provision is required in the bill before the
committee. In other words, if there is a profit it is proposed
that the profit from each year be returned to the members so that
you never really get to the point where you build up a surplus as
is demonstrated in a New Mexico approach. There is no requirement
in the bill that there be an initial surplus.
MR. BLOCK stated, "It is these kinds of failures to establish a
financially responsible enterprise that gives us great pause. And
while I appreciate Renee Murray's support for the loss control and
for the expense saving and for the economies that can be gained by
having an industry sponsored group, with which largely I agree, I
also respect Renee Murray's observation that you need a much
stronger capital base underpinning this thing for it to be assured
of success."
MR. BLOCK explained the second major point is that there is still
failures to reach equity with the other insurance type of
mechanisms. For example, they did put in the premium tax which is
a progressive step given this new guarantee association, but they
took portions of it back by saying they get a credit for 50 percent
of their assessment to the guarantee association.
An unidentified speaker indicated that was taken out.
MR. BLOCK apologized for not seeing the latest version. He said
there are also numerous technical problems and it is a non-workable
type of plan. Mr. Block stated the points by the Labor Union and
Mr. Wisdom in that there is desirability in having a mechanism
where people of common interest or common industry can come
together and provide loss control and an economic incentive to work
together is an allottable one and it has worked successfully in
Alaska with several groups.
Number 2088
REPRESENTATIVE RYAN said, "I understand that presently (indisc.)
companies do this kind of work have a pool, neither wet or day, for
someone who can't perform (indisc.) bankruptcy. And they will then
cover all the claims and assess themselves later to cover the cost
of the expenses and to bring this pool back up to where it's
supposed to be. Is there any provision here for participation for
that kind of pooling?"
MR. BLOCK said Representative Ryan is referring to the Property and
Casualty Guarantee Association. He said the way that operates is
if a property or casualty insurance carrier should become insolvent
and unable to pay its claims then the Guarantee Association is
activated. It is activated by assessing all other property and
casualty insurers to pay the net loss in claims that is left by the
defaulting insurance company. Mr. Block referred to the question
of is there a mechanism in the bill and said apparently what has
been done is a guarantee association has been created made up of
self insurance groups such as what the homebuilders would
establish. He said it would be hard for him to understand what
happens if it is the homebuilders that go insolvent and there are
no other groups formed. There would be no place to go for
assessment. Mr. Block noted the Guarantee Association covers all
property and casualty insurers including workers' compensation
insurers.
Number 2229
REPRESENTATIVE KUBINA asked Mr. Block whether he is correct in that
he represents Alaska National Insurance Company.
MR. BLOCK indicated that is correct.
REPRESENTATIVE KUBINA said one thing that has been portrayed to him
is that Alaska National Insurance Company is quite a monopoly in
Alaska as far as workers' compensation. He said, "We either have
to get insurance through you or you rewrite the insurance."
MR. BLOCK responded that he has heard that statement was made. He
said he would set the record straight. "Alaska National Insurance
Company is an important market in this state. Since its formation
in 1980, has provided a stable and growing underwriting presence
for workers' compensation as well as other lines. Right now, other
than the special interest insurance companies such as the timber
exchange and ERIKA (ph.), and I think those are the only two, are
in the Municipal League's Group. We are the only Alaskan based
insurance company writing workers' compensation, we are not the
only carrier, but the only carrier that is dependent upon a book of
Alaska business for our success. So we've always been here and
always provided a market."
MR. BLOCK continued, "On the other hand, we are subject to
competing for business with all the other carriers that do come up
to this state and there are numerous other companies that come here
including the industrial indemnity, which has been a market for us
for years. Nationwide is moving up as a group. INA or Cigna has
always been an important group. Eagle is a newer company and is a
vigorous competitor for certain segments of business and I could go
on. And the fact of the latter is that say within the last five
years, Alaska National has written somewhere between 25 and 30
percent of the market which means that between 70 and 75 percent of
the market is written by other insurance companies. I don't have
the 1996 figures because the cumulative industry-wide data won't be
available probably for another couple of months. But in 1995,
which is the last data that I have as to all the other carrier
writings, our market share has been reduced and my sense of it is
that it's being reduced because of the vigorous competition from
other carriers. Now what about the other 70 or 75 percent? Does
Alaska National in any way participate in that? With one
exception, which I have to explain for a technical reason, the
answer is absolutely no, and the reason for that is that we do not
do reinsurance. Alaska National does not reinsure other insurance
carriers. It's not the business that we do. So that business
written by INA, Industrial Indemnity, Nationwide, Eagle, et cetera,
et cetera, is written by those companies for their own account...."
TAPE 97-45, SIDE A
Number 001
MR. BLOCK continued, "... based on its size determines for itself
what that level of catastrophic exposure might be. And for
example, in our company we may say that we're prepared to accept
what $200,000 or $300,000 of a loss, whereas the INA may be more
than willing to accept a million dollars of a loss. It's ludicrous
to think that INA or Industrial Indemnity is gonna turn around and
reinsure with us when we're prepared to accept much lower loss
levels than they are. So I don't know where the idea came from,
but it is totally and utterly ludicrous. Now there is one
technical area, which I will explain very quickly Mr. Chairman, and
that is every insurance company writing workers' comp in the state
of Alaska does reinsure, pro rata to its writings, the assigned
risk pool. So that if someone gets an assigned risk policy, that
is shared pro ratably by all of the writers based on their
voluntary writings and to that extent, we share in that in the same
way all other carriers do and I hope that explains it in such that
rests."
Number 102
CHAIRMAN ROKEBERG asked Mr. Block whether his firm buys
reinsurance.
MR. BLOCK indicated it does buy reinsurance.
CHAIRMAN ROKEBERG asked Mr. Block whether the bill, as he reads it,
provides for reinsurance.
MR. BLOCK said there are some terminology problems. If they are
self-insuring, they would not be buying reinsurance. They would be
buying excess insurance and the bill does provide for excess and
aggregate.
CHAIRMAN ROKEBERG asked whether that is equivalent to reinsurance.
MR. BLOCK indicated it would be similar.
CHAIRMAN ROKEBERG asked whether it is readily available in the
national underwriting market.
MR. BLOCK responded that he isn't prepared to say that it is
readily available. He said it is sometimes difficult to find that
and it is even more difficult it on a long-term continuing basis.
He said, "It is also difficult to find it, the lower retentions you
have." The risk of losing that aggregate excess reinsurance
exposes the group to the necessity of maybe terminating the group
or accepting a whole lot of high risk.
Number 430
MARIANNE BURKE, Director, Division of Insurance, Department of
Commerce and Economic Development, came before the committee to
give her testimony. Ms. Burke said, "I think those who have
testified before me have alluded to cash ability to pay the claims,
and although there have been some changes to this proposed
legislation, the cash is still not there. There has been
discussion about the layers of protection, I would point out to the
committee that we will still have that inception when this group
starts business -- $87,500 to pay claims. This is by the formula
in the bill itself which requires a minimum of $500,000 in premium
of which 25 percent must be available up front."
REPRESENTATIVE BRICE questioned what the number was.
MS. BURKE responded, "The first year's premium must be $500,000 of
which 25 percent must be available up front, that's 125,000. The
proposed legislation stipulates that 70 percent will be available
for claims. The math of that is $87,500. The remaining monies,
$37,500, is for administrative costs including the purchase of the
reinsurance, which has been discussed at length and I won't cover
that again, the cost of the TPA, the organization to administer
this group, pay the claims, the audit costs, any costs for rating
agencies, advisory organizations, audit, actuarial opinions or any
of the other costs associated with administering a group such as
this. Again, it's cash. We have had testimony to the fact that
there is a $450,000 bond or surety. I would point the attention to
page 3, line 19 and 20, which specifically say this is payable only
-- payable upon the failure of the group to pay workers'
compensation benefits that it is legally obligated to pay. In
other words, they're insolvent. So they go insolvent before this
$450,000 layer of protection is there. The reinsurance is provided
for, but keep in mind we've only got a total of $37,500 to cover
all of those costs."
MS. BURKE said there is a guarantee fund established in the new
version. She said she would emphasize that by definition a
guarantee fund is a group you can go to and say, "Everybody, pony
up your share to cover this shortfall." A group of one, if it is
already insolvent wouldn't be able to meet this. She noted there
would be $25,000. Ms. Burke said there is a lack of cash to pay
the claims.
Number 724
CHAIRMAN ROKEBERG asked Ms. Burke if she has had any communications
with the Homebuilders Association since the last meeting on this
bill.
MS. BURKE responded that Mr. Grossi was kind enough to fax her a
copy of the proposed CS. She said when she saw it she asked for a
conference call. The Alaska State Homebuilders' Association
offered to meet with her and Mr. Grossi to discuss the CS. She
said she was committed to talk to another insurance company that is
going to move the state of Alaska, which had been committment for
over two months. She said the conference call was arranged for a
day earlier and everybody was on the conference call and the CS was
discussed. Ms. Burke stated she has not met with or discussed the
issues with them since that conference call Thursday, a week ago.
She informed the committee she has provided the Alaska State
Homebuilders' Association with a memorandum summarizing things that
Mr. Grossi from the Division of Workers' Compensation and the
Division of Insurance feel are essential for this type of concept
to work. She stated she firmly supports the concept of the bill,
but it simply is not adequately funded.
CHAIRMAN ROKEBERG asked Ms. Burke to provide the committee with the
memorandum.
Number 827
REPRESENTATIVE KOTT said he has heard over and over that there are
not enough liquid dollars available to pay claims. Everybody seems
to be coming in on that angle. The bill has been adjusted
tremendously. He said, "You've mentioned some of the areas that
are taken care of in the bill, but I also must point out that you
talk about the claims fund account, the 70 percent for the losses,
that is a minimum at least. The annual payment of premiums is at
least -- there is a 25 percent account that was established as well
which was not mentioned in the $450,000, if you ever get to that
point, would be available. (Indisc.--coughing) cash. Beyond all
the rhetoric and the smoke, what is the bottom line dollar amount
that you would consider satisfactory?"
MS. BURKE said this issue was discussed on the conference call and
she told them that the similar groups in the state of Alaska
requires, by an act of this legislation, $1,500,000. She informed
Representative Kott that in the memorandum she proposed an
alternative funding mechanism that they might be able to consider.
If they do not want to be a reciprocal, perhaps they could look at
a different funding mechanism. She said she gave them some
suggestions. Ms. Burke informed the committee she hasn't had a
chance to talk to them since then. She noted the Homebuilders
Association received the memorandum that Thursday morning because
she had promised a fast turnaround.
Number 930
CHAIRMAN ROKEBERG referred to $1,500,000 and asked if that would be
in the form of net worth or on deposit.
MS. BURKE explained the group itself would have a net worth of
$1,500,000 which would be in the form of a $300,000 deposit with a
bank in the state of Alaska. It's usually in the form of a tri-
party agreement between the director of the Division of Insurance,
the self-insured group and the bank. The money wouldn't be used
unless all three parties agree to what it should be used for. The
remainder is in a net worth, usually in the form of approved
investments that are very specifically addressed in the insurance
codes - the type of acceptable investments and the percentage of
those investments that you can hold at any one time.
CHAIRMAN ROKEBERG said, "Is this making it into a reciprocal group
then. I mean kind of defacto or are you setting the same liquidity
and asset standards as you would for a reciprocal?"
MS. BURKE said, "We also, Mr. Chairman, proposed a different
mechanism for them that would help meet our concerns."
Number 1031
REPRESENTATIVE RYAN asked whether the investment would be in
capital assets or would it be investing liquid assets. He said
there would be $300,000 in a bank account and then $1.2 would be
invested. He also asked, "How would these things be if the need
arose to convert them to liquid assets?"
MS. BURKE explained it is very specifically spelled out in the
insurance code that certain assets are considered nonadmitted such
as a building or something that is not readily liquid, but
investments, cash, certificates of deposit, bonds, treasuries,
things like that are considered admitted assets. She said they
might have $10 million worth of assets in land and buildings, but
that wouldn't count towards the $1 million.
REPRESENTATIVE RYAN said, "We talked about reinsurance and I think
it was mentioned risk pooling, I'm not sure what the term was that
was used, you mentioned $37,000 left over from the interest premium
to cover this multitude of expenses. If they want to go out and
get the reinsurance premium, what the premium be for the
reinsurance they would have to buy to cover - make their operation
reasonable."
MS. BURKE indicated she can't answer that question because she
doesn't know how much reinsurance they would propose. She said she
would have to review what their experience factors were. That is
in many ways a negotiated cost. You go out and shop for
reinsurance.
Number 1187
REPRESENTATIVE RYAN asked Ms. Burke that under this law, she would
set the premium tax. He questioned how much it would be.
MS. BURKE indicated the legislation makes the premium tax the same
as any other insurer in Alaska which is 2.7 percent.
Number 1210
REPRESENTATIVE KUBINA said a lot of what he has heard today is a
reiteration of a previous meeting. He suggested putting the bill
into a subcommittee. Representative Kubina said he is surprised
that the Homebuilders Association hasn't been in Ms. Burke's office
to discuss the differences.
CHAIRMAN ROKEBERG said because of the circumstances revolving how
the House currently works, he is reluctant to put it into a
subcommittee, but he thinks the message should be clear from the
committee what the committee would like done with the bill.
Number 1267
REPRESENTATIVE RYAN indicated he is neither in favor or against the
bill. He said his only concern is that if this operation comes
into effect, it can operate as solvently as other people who are
doing insurance in this state. Representative Ryan said he doesn't
want to see something that is designed to fail. He would like to
see them have the opportunity, but he also has a responsibility
that before legislation is passed it has a good chance of
succeeding.
Number 1485
JOHN GEORGE, Lobbyist, National Association of Independent
Insurers, said he hasn't testified on the bill before because his
clients don't write a whole lot of workers' compensation insurance,
but they do write a lot of auto, homeowner and fire insurance. He
noted he is a former director of the Division of Insurance, but
prior to that he was the first risk manager for the state of
Alaska. He said he brought the state into self-insurance for
workers' compensation, property and liability. Before that, he
worked in risk management in the oil industry and formed captive
insurance companies and did self-insurance.
MR. GEORGE said when he left state employment, the first thing he
did was cut a contract with the Municipal League to help them form
the JIA, a pooling for municipalities. Mr. George stated he is a
proponent of self-insurance, pooling, etc. He believes a lot of
the things the Homebuilders' Association are saying are true in
that by them paying careful attention to safety and loss control
programs they can control their costs. They ought to be doing
that. Contractors particularly, but small businessmen in general
tend to do things creatively to get by and resist OSHA regulations.
He said he thinks there is a high likelihood that there will be
assessments of members of the Alaska State Homebuilders'
Association, to the extent that they can pay those. It would
probably work.
MR. GEORGE said, "I remind you in 1985 and 1986 when the building
industry went in the tube, there were contractors leaving town.
Now had that program been in effect, those people would still be
subject to assessment, but where are they? Well they went
bankrupt. Are they still subject to assessment after they go
bankrupt? No, they left town. You can't find them. Who is going
to pay? The ones that are left. The 10 percent that survived
would end up paying the claims for the 90 percent who left town,
went bankrupt, aren't here anymore. So I think there are some real
concerns about this joint several liability and assessment in a bad
economy. As long as things are growing, we got lots of
contractors, it might work. But I can see some real problems with
a small group. I mean if you had every contractor in the state,
you've only got 800, that's smaller than New Mexico and in bad
times you're going to have a whole lot less than 800 and they won't
have the money to pay the assessments."
Number 1485
PAUL GROSSI, Director, Division of Workers' Compensation,
Department of Labor, was next to come before the committee.
CHAIRMAN ROKEBERG asked, "The PERA lacks audit provisions - does
that trouble you?"
MR. GROSSI indicated that troubles him. He noted that not only the
audit of the group troubles him, but the individual members of the
group should be audited. There should be a financial statement for
each individual member so that the director of the Division of
Insurance can properly judge how viable this group is. Mr. Grossi
said he isn't against the bill in concept. They think it's a good
idea because of the stress on safety and claims loss. He stated
the big problem is that it is under capitalized. There is not
enough money to pay claims. There is $87,000 and one injury could
make them become insolvent. He noted concern that the $1 million
may not be liquid assets. There is $450,000 which may or may not
be enough and the only other source of money is the $25,000 in the
guarantee fund. They are going in the right direction, but they
just are quite there as far as funding the payment of claims.
Number 1598
ROBIN WARD, Alaska State Homebuilders Association, came before the
committee to give her testimony. She said her association feels
that the concept that Ms. Burke has set out will probably create a
barrier as to ever being able to make a group like that work with
that kind of cash requirement. Ms. Ward said she really does feel
that there is enough cash for a couple of reasons. One is that not
only do you have the 25 percent, there is the additional deposit,
so there is $87,500 times two. That is only for three months. She
said they have to make quarterly payments. So there will be
another $87,500 at the beginning of the fourth month. By the
beginning of the ninth month there will be another $87,500 on top
of that. By the end of the first year, there will be a fair amount
of cash. Ms. Ward said they have reinsurance and they can
negotiate it so that they only pay $5,000 of a claim. She said
they understand it is expensive. They may have to put some money
into their reinsurance, but in the bill the director has the right
to prescribe the form, the amount and the insurance company that
they would use for reinsurance or excess insurance. Ms. Ward said
they understand that for the first year they will have to have
expensive reinsurance because they have to cover what they don't
have in claims cash available. She said they do feel there will be
enough cash with the reinsurance.
Number 1677
MS. WARD explained the amendment requires the director to work with
the association to determine how much is refunded. Those reserves
won't be returned until the director gives them permission to do
that. The guarantee fund is set up so that the 5 percent is
initial. Ms Ward noted there are other assessments required by the
director and she would assume the director would create regulations
so that there will be further assessments. She noted they do
expect that have more than just one in the group.
CHAIRMAN ROKEBERG asked Ms. Ward why they don't allow a dividend to
the membership and just provide an actuarial approved lowering of
the premium.
MS. WARD stated that is what they are hoping will happen, but Mr.
Block mentioned that in New Mexico there was surplus.
CHAIRMAN ROKEBERG said you have to have a certain amount of
retainer.
MS. WARD said that is correct and it is prescribed by the director.
Number 1739
REPRESENTATIVE RYAN said he would like to see a spread sheet of how
it would work and one for how things are currently working. He
said he isn't currently convinced that this thing is going to work,
but he wants to see it work.
MS. WARD noted her organization has been approached by several
reinsurance agencies who are ready to work with them.
Number 1781
CHAIRMAN ROKEBERG said, "I am also concerned about even though you
raised from five to ten the number of people to join the group, I
think that's something that works against you, if you will. You
might want to consider even increasing that. It would give you a
higher level of assets to work with and the higher amount of
premium base, particularly initially -- because I want to put on
the record the fact that even though the Homebuilders as an
organization are spearheading this, there is interest on the part
of a large number of other business organizations in the state. So
the applicability of this bill is not just to a group of people and
businesses that may have relatively high net worths comparatively.
It could be to other business that would have marginally lower net
worths as a rule and, therefore, we need to look at that and that
into consideration. So the committee's charge here is to make sure
this works for everybody in the state if we're going to go forward
with this, so you need to keep that in mind. And I would ask that
because this bill has only one -- is there any further questions of
Ms. Ward? Thank you very much, Ms. Ward."
CHAIRMAN ROKEBERG said rather than sending the bill to
subcommittee, he would like the bill sponsor to work with everybody
involved. He said he believes in the concept of the bill, but is
concerned about the substance of it as it is presently structured.
ADJOURNMENT
Number 1892
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee meeting at 5:43 p.m.
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