Legislature(1997 - 1998)

02/27/1997 01:32 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               SENATE LABOR AND COMMERCE COMMITTEE                             
                       February 27, 1997                                       
                           1:32 P.M.                                           
 MEMBERS PRESENT                                                               
 Senator Loren Leman, Chairman                                                 
 Senator Mike Miller                                                           
  MEMBERS ABSENT                                                               
 Senator Jerry Mackie, Vice Chairman                                           
 Senator Tim Kelly                                                             
 Senator Lyman Hoffman                                                         
  COMMITTEE CALENDAR                                                           
 SENATE BILL NO. 65                                                            
 "An Act relating to domestic animals, to food, and to the Alaska              
 Food, Drug and Cosmetic Act; and providing for an effective date."            
  - SCHEDULED, BUT NOT HEARD                                                   
 SENATE BILL NO. 95                                                            
 "An Act relating to workers' compensation self-insurance."                    
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SB 65 - See Labor and Commerce minutes dated 2/13/97 and 2/20/97.             
 SB 95 - No previous action to be considered.                                  
  WITNESS REGISTER                                                             
 Alaska State Homebuilders Association (ASHA)                                  
  Mr. Steve Wisdom, President                                                  
  P.O. Box 4184                                                                
  Homer, AK 99603                                                              
  Mr. Bill Taylor                                                              
  2340 Loren Circle                                                            
  Anchorage, AK 99516                                                          
  Ms. Robin Ward, Chairman                                                     
  P.O. Box 91443                                                               
  Anchorage, AK 99509                                                          
 POSITION STATEMENT:   All supported SB 95.                                    
 Mr. Dick Block, Alaska National Insurance Co.                                 
 360 W. Benson #300                                                            
 Anchorage, AK 99503                                                           
  POSITION STATEMENT:   Opposed SB 95.                                         
 Ms. Marianne Burke, Director                                                  
 Division of Insurance                                                         
 Department of Commerce and Economic Development                               
 P.O. Box 110805                                                               
 Juneau, AK 99811-0805                                                         
  POSITION STATEMENT:   Opposed SB 95.                                         
 Ms. Linda Hall, Alaska Independent Insurance Agents and Brokers               
 3111 C St.                                                                    
 Anchorage, AK 99513                                                           
  POSITION STATEMENT:   Opposed SB 95.                                         
 Mr. Paul Grossi, Director                                                     
 Division of Worker's Compensation                                             
 Department of Labor                                                           
 P.O. Box 25512                                                                
 Juneau, AK 99802-w-5512                                                       
  POSITION STATEMENT:   Opposed SB 95.                                         
 ACTION NARRATIVE                                                              
  TAPE 97-8, SIDE A                                                            
 Number 001                                                                    
        SB  95 WORKERS COMPENSATION SELF-INSURANCE GROUP                      
  CHAIRMAN LEMAN  called the Senate Labor and Commerce Committee               
 meeting to order at 1:32 p.m., and said since there was lack of a             
 quorum they would be in work-session mode.  He said they would hold           
 SB 65 until next Thursday and announced  SB 95  to be up for                  
  SENATOR MILLER,  sponsor of SB 95, said he introduced this bill              
 primarily because he believes in the concept of insurance pooling.            
 He said several years ago the State allowed the timber industry to            
 drop its costs over a period of time by pooling.                              
 Number 74                                                                     
  MR. STEVE WISDOM,  President, Alaska State Homebuilders Association,         
 said they have Statewide support on this issue.  For most of the              
 small builders the workers' compensation rate is in the $17 - $19             
 per $100 range.  He said there are over 40 states that have                   
 legislation enabling this.  About 14 other states are using almost            
 the same as what is in this bill.                                             
 When someone joins a pool, they have to commit to a number of                 
 things:  a safety program, on-site safety inspections by the                  
 administrator of the group, a safer work place, reduced rates, and            
 follow-up when working with an injured worker.                                
 MR. WISDOM said ASHA has addressed the Division of Insurance's                
 concerns with solvency, the guarantee, the premium tax, and the               
 surety issue.  They feel they can work these things out with the              
 Division of Insurance because they are not asking not to be                   
 He said this type of pooling has reduced worker's compensation                
 insurance in other states on an average of 37%.  A number of                  
 studies have been done on self-insured groups and they show they              
 are effective in the worker's compensation area.  With commercial             
 carriers 70% of the cases had attorneys involved; with the self-              
 insured groups, only 27% used attorneys.                                      
 Number 164                                                                    
  CHAIRMAN LEMAN  announced an at-ease from 1:42 - 1:45 p.m. to allow          
 more seating.                                                                 
  MR. BILL TAYLOR,  Alaska State Homebuilders Association, said he             
 wanted to concentrate on the area of insolvency.  The bill has a              
 minimum net-worth requirement of $1 million which is used as a                
 safety net for any back-up claim or problem that the group may                
 encounter.  He said Ms. Burke, Director, Division of Insurance,               
 pointed out that this was an imperfect form of capital requirement,           
 because typically if you have a crisis, it is better to have simple           
 liquidity rather than pledged assets (in the form of tools, truck,            
 land, etc.)  In times of crisis you usually need that money                   
 immediately, he said, and it is a legitimate concern which he                 
 thought could be readily addressed.                                           
 Another concern was if there was a loss, the way the legislation is           
 written, the State of Alaska just becomes the loss payee.  He said            
 that is true.  The State has to become the loss payee when you have           
 money that needs to be used to pay a claimant.  He thought the                
 simple solution to that is to simply make the loss payee give the             
 Division of Insurance the ability to assign that to some claims               
 Another concern is the start-up risk.  Ms. Burke pointed out some             
 weaknesses in the initial requirements to take 25% of the first               
 year's estimated premium.  However, he thought they had insured               
 around this risk by having the ability to negotiate a reinsurance             
 rate that would allow an extra layer of protection.  Also, he said            
 the additional capital requirements have to come in the form of               
 government guaranteed instruments like a federally insured                    
 certificate of deposit or a government issued bond.                           
 Number 256                                                                    
 He said the Director may veto who they choose for reinsurance and             
 he thought that was important protection because some of the off-             
 shore markets for reinsurance may not be as stable.  He said there            
 is also a fidelity bond for the administrator and a performance               
 bond for the claims administrator which they thought was important            
 protection against the potential claimant.  They do not feel this             
 legislation puts the claimant at risk.  If it does, they are                  
 willing to amend it to provide that protection.                               
 MR. TAYLOR said the major carriers don't come into the market place           
 on-site for job safety training which he thought was an important             
 adaptation that will occur as a byproduct of this legislation.  He            
 noted there is also peer pressure within the group because once you           
 are invited in, you are going to be on the line.                              
  CHAIRMAN LEMAN  said he wants to make sure that the $1 million is            
 money that is readily available to the pool before the bill leaves            
 committee.  MR. TAYLOR agreed.                                                
 Number 312                                                                    
  MS. ROBIN WARD,  ASHA, said they have four areas of concern:  the            
 liquidity of the $1 million; the minimum of five employers (they              
 are willing to consider a minimum number of employees); their being           
 exempt from the premium tax, and the guarantee fund.  She said the            
 guarantee fund was an oversight, because they had planned to put              
 that in to the legislation because it provides one more layer for             
 the worker against insolvency.                                                
 They also don't expect the administration to regulate and oversee             
 them for free and she said they would negotiate a premium tax that            
 would cover the costs.  She said they do not want to change the way           
 the worker is taken care of.  They would be very careful about who            
 would be let into a pool.  Problems with a safety record, for                 
 instance, would require a probationary period and a team to come in           
 to help make sure the job site becomes safe rather than just                  
 kicking them out which is not their intention.  Once they are in,             
 they want them to stay in.  The track record in most states is 90%            
 participation for those who keep renewing year after year.                    
 MS. WARD said there has been a drastic reduction in the number of             
 accidents in self pooling because of the safety program and the               
 peer pressure that comes with it.  The have also noticed along with           
 fewer claims, that the rehabilitation is faster and there is very             
 diligent investigation of fraud.  This is not the case with a                 
 commercial carrier.  She said that most of them search long and               
 hard for employees they can trust and they want to make sure they             
 keep them safe at all costs.                                                  
  CHAIRMAN LEMAN  commented that the amount that is collected from the         
 premium tax is considerably more than the cost to the Division.  He           
 asked if she would view paying the same tax as other people do as             
 being appropriate.  MS. WARD said she didn't know, because she                
 didn't know what they are paying.                                             
 Number 378                                                                    
  MR. DICK BLOCK,  Alaska National Insurance Co., said there has been          
 substantial recognition of the problems among the group advocating            
 the bill and that is gratifying.  He said they are one of the                 
 primary writers of workers' compensation in the State of Alaska.              
 He said he is a risk management consultant and has done work for a            
 number of industry sectors on this whole issue of providing some              
 means of grouping the industry to get economies of scale or to                
 bring about better safety and loss control.  He agreed there are              
 advantages to be gained by grouping and they do work successfully.            
 He said that Senator Miller refers to an existing State program               
 called the Timber Insurance Exchange which he regards as a                    
 successful example of what happens when you do grouping.  Another             
 enterprise is the Alaska Rural Electrical Cooperative Association             
 (ARECA).  He emphasized that there already exists in current law              
 three ways he has identified that the Homebuilders or any other               
 homogeneous industry can have the advantages of grouping, the                 
 advantages of a safety program and more control over how losses are           
 dealt with, and some say over what expenses are incurred in the               
 marketing and administrative costs.                                           
 Under current law any trade association can create a purchasing               
 group.  They can aggregate their membership into a single-group               
 policy, they can pool their experience, and it has the advantage              
 that they are not required to put up any capital.  They would enter           
 into an agreement to put this together with an existing, licensed,            
 and regulated insurer, and set up the parameters for the program as           
 to how the premiums would be calculated.  He emphasized that                  
 programs organized under this law have worked well where they've              
 been used.                                                                    
 A second opportunity under current statute is to form a reciprocal            
 insurer which is what is being done under the Timber Exchange and             
 ARECA.  Here they are required to put up a substantial amount of              
 capital, the amount necessary to underpin the security due the                
 injured workers.  It is their own operation.  They would have say             
 over their investments, marketing, and administration, etc.                   
 The third way is simply for there to be a group marketing mechanism           
 to be installed to find a market that is willing to provide lower-            
 cost coverage because they are getting all or most of the members             
 of the group.  This is also being currently done in this State, but           
 he is not that familiar with it.  It's the National Electrical                
 Contractors Association.                                                      
 MR. BLOCK said in all three of the examples he has cited there is             
 a licensed, regulated, capitalized, dedicated insurance enterprise            
 - whether it provides a program to the group or whether it is an              
 enterprise that is owned and operated by the group.  It comes under           
 the regulatory regime of the Division of Insurance.  By "dedicated"           
 he means that the capital is available only to pay the obligations            
 arising out of the insuring functions, not for operating expenses.            
 What is proposed by the Homebuilders is not an entity, at all.  It            
 is simply the mutual exchange of contracts - one homebuilder to all           
 the other homebuilders - that they will pay a premium.  Out of the            
 premium will come losses and expenses, and if the premium is                  
 inadequate to cover the losses and expenses, the other homebuilders           
 have the right of action against the homebuilder to collect                   
 whatever is available.  He wanted to make it clear that the $1                
 million referred to in the bill is not $1 million of capital in an            
 insuring enterprise.  No money to start the operation goes into the           
 insuring enterprise.  Rather it is the accumulated sum of the net             
 worths of those who are contributing to the program.  There is no             
 underlying capital in the insuring mechanism; all there is is a               
 right of action against the several participants against a resource           
 that is also available for their operating costs.  This is the                
 fundamental difference and makes the program totally inappropriate            
 in a State of our size for our kind of operation.                             
 MR. BLOCK said he has found in a few states he has looked at, like            
 California, that they require $5 million of capital.  In addition             
 to that to get started you must contribute essentially an amount              
 equal to the last three years losses as known by the organization.            
 They are recognizing that these are very high risk operations and             
 there needs to be money at hand in order to provide the same level            
 of safety to the injured workers as they would have from an                   
 insuring entity.                                                              
 Number 479                                                                    
 He noted that Ms. Ward said ASHA is willing to participate in a               
 guarantee association and willing to pay a premium tax to be                  
 negotiated, but the premium tax is not a negotiable item.  It's               
 2.7%; every employer pays that rate.  Premium tax is a source of              
 revenue for the State and not a means of funding the Division of              
 Insurance.  It seems a gratuitous gesture on the part of the                  
 Homebuilders to say they are willing to participate in the                    
 guarantee association, meaning they would pay their fair                      
 assessment, but the counter to that is in the event of insolvency             
 of this enterprise, it would be the requirement of the guarantee              
 association to pick up the losses; and this is cited as an                    
 additional means of protection for the injured worker.  It also               
 means it's an additional burden and an additional threat to all the           
 other employers and insurers in the State if their organization               
 isn't properly capitalized and managed.                                       
 MR. BLOCK pointed out that they are dealing with the most volatile            
 line of insurance - workers' compensation.  The problem is that               
 these claims are not fully determined for a period of up to five or           
 15 years.  It may take several years before an accurate estimate              
 can be made.  In the company he was with for six years, they found            
 they didn't reach a level of stability in what the amount of the              
 claims were in aggregate for a period of about five years.                    
 The need for the capital underpinning is to protect against the               
 extreme volatility throwing them into an insolvency position.                 
 He said that also unfortunately the bill is open to any industry              
 that wants to get into this, which is fair, but the problem is that           
 they have seen in other contexts a statute like this being utilized           
 by a clever marketeer as a means of saving a lot of money only to             
 find in a few years that it is a disaster for all that are in the             
 group.  He said this happened several years ago with multiple                 
 employer trusts and multiple employer welfare arrangements as                 
 allowed under federal law with respect to medical and life                    
 insurance benefits for employees.  The proposed legislation is not            
 all that different than what was originally contemplated in the               
 legislation authorizing those.                                                
 CHAIRMAN LEMAN thanked him for his informative testimony and the              
 letter he had written the committee.                                          
  MS. MARIANNE BURKE,  Division of Insurance, said the Homebuilders            
 Association had attempted to address the concerns she and Mr.                 
 Grossi had pointed out last year, but they had not gone far enough.           
 MS. BURKE stressed that there is no insurer in the State of Alaska            
 who is not capitalized which means the money is in the group, not             
 with some individuals or policy holders or contract holders.  The             
 net worth is in the group. Within the insurance community there are           
 "admitted assets" which is defined in statute as those assets that            
 are more liquid.  For example, a building is hard to convert to               
 cash in a reasonable length of time.  Her division looks to surplus           
 the capitalization as admitted assets less any liabilities.                   
 She said it has been pointed out that at inception there would be             
 no monies or assets in this group.  The first influx of money is              
 from premiums.  Of that, 25%, there will be $43,750 available for             
 She said the guarantee fund is made up of insurers who are at risk            
 for their fellow insurers.  This proposed group is arguably some              
 other kind of entity.  Whether or not they would be eligible to               
 participate in the guarantee fund as the statutes are currently               
 written is highly debatable.  The guarantee fund is there when you            
 become insolvent, she pointed out.  It is not available to help you           
 through financing during the period of time you are getting                   
 started.  It is not available if you get into a financial crisis.             
 It is available when you have gone into liquidation.                          
 MS. BURKE said that bonds were also mentioned as being available              
 and the director having the authority to set the amounts of those             
 bonds.  The proposed legislation specifically says that money                 
 cannot be used until the group is insolvent.  At that time the                
 money is paid to the State.  However, the State is not currently in           
 the business of paying workers' compensation for any other group.             
 That is an administrative function and there are attendant costs to           
 it which they currently do not collect fees for.                              
 Reinsurance, she explained, is purchased to kick in when a claim              
 reaches a certain point.  It is also referred to as stop-loss.  It            
 kicks in for all claims for less than a certain amount.  It does              
 not kick in when you are out of money; that is not the purpose.  It           
 does not kick in when you have exhausted all of your funds on a               
 series of claims that are, for instance, $5,000.  (There could be             
 100 $5,000 claims.)                                                           
  TAPE 97-8, SIDE B                                                            
 MS. BURKE said the reinsurance is also priced, in part, by when it            
 kicks in. All claims over $5,000, for instance, would be more                 
 expensive because it's greater risk.  If you increase the stop-loss           
 to $100,000, you'll pay less premium for it, but you are at risk              
 for more dollars.                                                             
 The surety bonds are very good protection, but the protection is              
 for the performance of those people, not to pay claims.  If all the           
 criteria as outlined in the proposed legislation is met as spelled            
 out, including only $250,000 of premium for the first year or which           
 only 25% has to be paid up front, that translates to the $43,750              
 she mentioned earlier.  If there is reinsurance, if the bonds are             
 in place, the director has no discretion - the director must issue            
 a certificate of approval.  The wording should be "the director               
 MS. BURKE cautioned that comparing insurance laws of one state with           
 other states is misleading.  Her understanding is that the first              
 group to form a self insurance group was in North Carolina and it             
 was formed in the middle of a major workers' compensation crisis.             
 There was no market and something had to be done.  There were 7,000           
 builders involved and from day one they had to have a guarantee               
 fund.  But in North Carolina, unlike the State of Alaska, the                 
 premium tax could be used for anything and they were permitted to             
 take a part of the pool of the premium tax and create their own               
 guarantee fund.  In the State of Alaska the premium tax is 100%               
 general receipts.  Not one penny goes to the Division of Insurance            
 for oversight or regulation.                                                  
 Number 543                                                                    
 The proposed regulation calls for a $500 one-time fee.  The                   
 insurers doing business in the State of Alaska pay $2,500 per year            
 for the regulation of their companies and their practices.  She               
 pointed out that the statutorily required responsibilities and                
 duties of the Division for those insurers are substantially less              
 than what is contemplated in this legislation.  They do not provide           
 administrative functions to any insurer; they are their regulators.           
 It is important to remember that the premium tax is an unrestricted           
 source of funds for the State of Alaska.                                      
 MS. BURKE said that Ms. Ward addressed the number of employees                
 which is important, and of the four issues stressed in their first            
 meeting last year - solvency, guarantee protection, safeguards                
 against unfair trade practices and settlement procedures - in                 
 existing statute the insurers must act in accordance with the                 
 rules.  This legislation exempts this group from Title 21 which               
 deals with unfair trade practices or settlement procedures.                   
 The division's last concern is a complaint resolution process.                
 Currently if you, as an insurance policy holder, have a problem               
 with a company, a complaint can be filed with the division.  Since            
 they regulate the company, they can cut through red tape and assist           
 in getting a resolution.  This is a vital part of their duties and            
 has been ruled by the Alaska Supreme Court that to be their number            
 one job.                                                                      
 Another critical point, MS. BURKE pointed out, is the market.                 
 There is a very healthy workers' compensation insurance market                
 right now.  They are at an all-time high on competition and all of            
 us benefit from that because it brings costs down.  Over the past             
 10 years we have been on a downward trend on workers' compensation            
 premiums.  Each year on January 1, the workers' compensation                  
 premiums are set based on statistical data for prior years.  All              
 classifications have the same manual rate as any other employer in            
 the State of Alaska.  This is the starting point.  You can pool               
 your resources and get a lot of buying power and an insurer will              
 give you a volume adjustment.  If you have a safe record, you get             
 an experience modifier; or if you've really had a bad record, it              
 will push you up.  This is where the safety and loss control comes            
 in and is so critically important.  That is available to everybody.           
 It is the employer and employee who ultimately determine whether or           
 not it is a safe working place.                                               
 The safety programs, the recognition by employers and employees of            
 the impact it has on the cost of doing business has paid off in the           
 downward trend.  This year the overall decrease in workers'                   
 compensation premiums for the State of Alaska was 10.3%.  That is             
 the effect on all classifications.  She said two of four                      
 classifications used by the Homebuilders went down, one of them               
 over 28%.  Two of them went up, the highest being seven percent.              
 This is a very good indication of the consciousness of loss control           
 and prevention.                                                               
 She said the Division had recommended that this group look at the             
 reciprocal statute, chapter 75 in Title 21, because it is there and           
 it works.                                                                     
 CHAIRMAN LEMAN asked her to clarify her calculation on how she got            
 to $43,750 to be available for claims in the first year.  MS. BURKE           
 explained that the statute says that only 70% of the money paid up            
 front can be used for claims.                                                 
 Number 451                                                                    
  MS. LINDA HALL , Alaska Independent Insurance Agents and Brokers,            
 opposed SB 95 and said she has two broad areas of concern.  One is            
 the effect on the insurance market place in general and numerous              
 provisions of the actual bill.                                                
 She feels that the workers' compensation insurance market in Alaska           
 is very strong today.  There is an increasing number of carriers in           
 Alaska.  Within the last month there is a newly approved business             
 has emerged here that is targeting employers whose premiums are in            
 the $1,000 - $20,000 range.  This was not the case several years              
 ago.  That is a premium range that's very difficult.  She has seen            
 a drastic decrease in the overall workers' compensation rate since            
 the reforms were enacted in 1988.  Rates have decreased in general            
 40.1% in that time period.  As of January 1, 1997, there was a                
 10.3% rate decrease again for one/two family dwellings.  That rate            
 will be $11.71 this year, a 28% decrease.  Currently, employers who           
 institute safety procedures and who have good loss records can                
 obtain additional safety credit of 10 - 40%.  Most of these credits           
 are a result of the marketplace and their own practices.  These               
 benefit all Alaskan employers.                                                
 MS. HALL said the overall workers' compensation premium in Alaska             
 is not large when compared to the national premium level.  Allowing           
 special interest groups to withdraw their premiums from the market            
 will decrease the overall premium volume which becomes less                   
 attractive to insurance companies.  There has to be a sufficient              
 market to justify commitment of resources in the State. They are              
 very concerned about the potential affect on the withdrawal of                
 premiums for special industry groups.                                         
 She said a number of their concerns with SB 95 have been addressed            
 by other speakers before her.  She is concerned that this bill                
 creates a new chapter 47 and it very specifically provides that the           
 self insurance group will not be subject to provisions of the                 
 insurance laws in this title except as provided in this chapter.              
 This means that these groups would not be subject to premium taxes            
 which would create a financial advantage for them and a distinct              
 disadvantage for the rest of the industry.  They are also very                
 concerned that when they exempt a group from insurance regulation,            
 they are taking from their members protections against                        
 misrepresentation like marketeers and would not provide the                   
 protection of the Unfair Claims Settlement Practices Act which                
 guarantees that claims be settled in a particular manner within a             
 particular time frame.                                                        
 One of the reasons for the formation of self insurance groups is              
 that an employer cannot afford workers' compensation premiums,                
 although they are going down, at this point.  However, her concern            
 is that if the employer cannot afford the current premium, how                
 could he take on the responsibility the joint and several liability           
 obligation would put upon him.                                                
 The bill provides for manual rates to be used for a minimum of five           
 years.  Manual rates are the ones currently charged in the                    
 insurance industry prior to other types of discounts.  This bill              
 has a detailed list of other types of expenses from examination by            
 the director to excess insurance, to reinsurance, CPA audits,                 
 surety bonds, etc. and she finds it difficult to imagine any                  
 significant premium savings if they are covering expenses outlined            
 in this bill.                                                                 
 In conclusion, she requested the committee consider the potential             
 impact of an insolvent group.  There are questions as to where the            
 liability would end up and where the funds would be found to pay              
 the legal liability to injured workers, and who would oversee the             
 process of compensating injured workers.  If a group is given                 
 special status by statute, would the legislature be responsible for           
 the financial impacts of the failure of that group?  She said they            
 had seen the impact of an insolvent self-insured single employer,             
 Wein Air.  When they filed bankruptcy, the injured workers became             
 merely creditors in bankruptcy with a preferred status.  Although             
 those workers were ultimately all compensated, it was a very slow             
 Number 330                                                                    
 CHAIRMAN LEMAN said yesterday he learned there were about 12,000              
 U.S. insurance companies, but about 5 of them were writing workers'           
 compensation insurance in Alaska.  MS. HALL said she was sure it              
 was more than five.                                                           
 CHAIRMAN LEMAN said he thought that the insurance industry was                
 healthy here and didn't think a pool of homebuilders would                    
 necessarily imbalance the potential insureds so much that the                 
 insurance companies would want to pull out of Alaska.  MS. HALL               
 agreed and added that an insurance company needs a certain amount             
 of premiums so that they can commit their resources.                          
 CHAIRMAN LEMAN asked if a claims adjustment has to be done locally,           
 do they all have a local presence or do they do that by contracting           
 with other service providers who can do that for them.  MS. HALL              
 answered that they could do either.                                           
  MR. PAUL GROSSI,  Director, Division of Workers' Compensation, said          
 their sole interest is to make sure that claims are paid and that             
 injured workers receive the benefits they are entitled to.  They do           
 have some concerns even though this is a much better bill than last           
 year's.  The bill still does not address solvency and an ability to           
 pay claims that can come up.  There would have to be amendments to            
 AS23.30 so that these entities can be recognized and regulated.  He           
 supported Ms. Burke's testimony and said he wouldn't repeat the               
 same concerns.                                                                
 MR. GROSSI explained that when a group gets their initial approval,           
 they could become insolvent from their first claim, because there             
 is no capitalization.  Using the Wein Air example, he said they               
 required $5 million worth of assets before they could be self-                
 insured.  Using this type of scheme should have some requirement              
 for liquid assets so there would be some initial ability to pay               
 claims.  The makeup of one group of just five members seemed low to           
 him.  At five members there would have to be some sort of minimum             
 number of employees.                                                          
 Under current statute there are a couple of civil remedies and some           
 criminal remedies for those employers who fail to keep workers'               
 compensation in effect.  He said they would want to use as a                  
 criteria for policing the makeup of the groups, that if someone had           
 been convicted of a crime that they would not be allowed to                   
 participate because that would show they are not reliable in this             
 type of situation.                                                            
 CHAIRMAN LEMAN thanked him for his testimony and said they would              
 hold SB 95 for further work.                                                  
 CHAIRMAN LEMAN adjourned the meeting at 2:58 p.m.                             

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