Legislature(2003 - 2004)
05/01/2003 02:20 PM Senate L&C
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ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
May 1, 2003
2:20 p.m.
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Hollis French
MEMBERS ABSENT
Senator Bettye Davis
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 214(JUD)
"An Act relating to the recovery of punitive damages against an
employer who is determined to be vicariously liable for the act
or omission of an employee; and providing for an effective
date."
MOVED CSHB 214(JUD) OUT OF COMMITTEE
SENATE BILL NO. 186
"An Act relating to authorizing charitable gaming permittees to
use up to five electronic gaming machines at certain locations
with certain liquor licenses or certain other places where
access is restricted to persons 21 years of age or older as an
authorized form of charitable gaming; limiting the maximum
number of electronic gaming machines for which a vendor may have
an endorsement to not more than 10; relating to licensing
manufacturers and distributors of electronic gaming machines;
relating to local prohibition of electronic gaming; limiting the
authority of municipalities to tax electronic gaming machines;
relating to penalties concerning charitable gaming; making
conforming amendments; and providing for an effective date."
HEARD AND HELD
SENATE BILL NO. 178
"An Act establishing a state lottery; and providing for an
effective date."
EARD AND HELD
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 184(L&C) am
"An Act relating to individual deferred annuities; and providing
for an effective date."
MOVED SCS CSSSHB 184(L&C) OUT OF COMMITTEE
SENATE BILL NO. 13
"An Act prohibiting discrimination in insurance rates based on
credit rating or credit scoring; and providing for an effective
date."
MOVED SB 13 OUT OF COMMITTEE
PREVIOUS ACTION
HB 214 - See Labor and Commerce minutes dated 4/29/03.
SB 186 - No previous action to consider.
SB 178 - No previous action to consider.
HB 184 - See Labor and Commerce minutes dated 4/29/03.
SB 13 - See Labor and Commerce minutes dated 4/8/03 and 4/22/03.
WITNESS REGISTER
Ms. Sarah Nelson
Staff to Representative Samuels
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on HB 214.
Senator Taylor
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SB 186 and SB 178.
Ms. Willow Seay
Staff to Representative Coghill
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on HB 184.
Ms. Katie Campbell, Life and Health Actuary
Division of Insurance
Department of Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Commented on HB 184.
Ms. Linda Hall, Director
Division of Insurance
Department of Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Commented on SB 13.
Senator Cowdery
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SB 13.
Ms. Sarah McNare Grove
Property Casualty Actuary
Division of Insurance
Department of Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Commented on SB 13.
ACTION NARRATIVE
TAPE 03-28, SIDE A
CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 2:20 p.m. Present were Senators
STEVENS and SEEKINS.
2:21 - 2:23 p.m. - at ease
CSHB 214(JUD)-PUNITIVE DAMAGES AGAINST EMPLOYERS
CHAIR BUNDE announced CSHB 214(JUD) to be up for consideration.
MS. SARAH NELSON, staff to Representative Samuels, sponsor, said
she had no further comments to make.
SENATOR SEEKINS moved to pass CSHB 214(JUD) with attached fiscal
note from committee. SENATORS STEVENS, SEEKINS and BUNDE voted
yea and it passed from committee.
SB 186-CHARITABLE GAMING/ELECTRONIC GAMING
SB 178-STATE LOTTERY
CHAIR BUNDE announced that they would next consider SB 186 and
SB 178, but Senator Taylor, sponsor, wanted to comment first.
SENATOR TAYLOR said of both bills:
...were sponsored for the purpose of generating
revenue for the State of Alaska, as opposed to
generating revenue only through taxation and fee
increases. I have always been an opponent of taxation
and fee increases and felt that at least this was
another option. Both lottery, which is one bill, and
video gaming, which is the other bill, would provide
somewhere in the neighborhood, I think conservatively,
of $60 million to $70 million worth of additional
revenue that we would not have to go out and do in the
form of taxes. But, I've been informed by my
leadership that I've discussed this matter with just
today, that they don't wish those items - or have
indicated to me that those items will not pass and it
just seems a waste of our time to discuss something
and work on it and try to fabricate a better bill and
so on that's not going to be given the opportunity to
pass anyhow, since the Majority seems dead set on
taxes and additional fee increases as their revenue
sources. With that, Mr. Chairman, I would appreciate
it. I thank you very much personally for taking the
time to schedule these matters and I know that we
share some commonality in reaching for additional
revenue sources, but I don't believe that's going to
happen....
CHAIR BUNDE said he looked forward to getting more information
on these issues and set SB 186 and SB 178 aside.
SENATOR FRENCH arrived at 2:25 p.m.
CSSSHB 184(L&C)-INDIVIDUAL DEFERRED ANNUITIES
CHAIR BUNDE announced CSSSHB 184(L&C) to be up for
consideration,
SENATOR SEEKINS moved to adopt Amendment 1.
CHAIR BUNDE objected for discussion purposes and asked Ms. Seay
to explain it.
MS. WILLOW SEAY, staff to Representative Coghill, sponsor of HB
184, explained that the amendment had been added on the House
floor and that the sponsor would feel more comfortable if it was
removed because it adds confusion to the bill.
MS. KATIE CAMPBELL, Life and Health Actuary, Division of
Insurance, explained that the amendment proposed on the House
floor was intended to make sure that it would only apply to
contracts that are issued after the effective date of the act.
So if anyone has an annuity contract today, it won't change
that.
CHAIR BUNDE announced that there were no objections to Amendment
1 and it was adopted.
SENATOR SEEKINS moved to pass SCSSS CSHB 184(L&C) from committee
with its attached fiscal note. SENATORS FRENCH, SEEKINS, STEVENS
and BUNDE voted yea and HB 184 passed from committee.
SB 13-INSURANCE DISCRIMINATION BY CREDIT RATING
CHAIR BUNDE announced SB 13 to be up for consideration and that
the committee had heard from the sponsor and the insurance
industry, and would now hear from the administration.
MS. LINDA HALL, Director, Division of Insurance, said she wanted
to comment on the state of the insurance marketplace in Alaska:
If you had an opportunity to review the Division of
Insurance report on credit scoring, there are listings
in the back of that report of insurance companies
doing business in Alaska. These are rather lengthy
lists of insurance companies and it appears to suggest
that there are large numbers of insurance companies
writing business here. In fact, the number of
companies with active writings in the state is really
quite small. In the most recent annual report of the
division, the top two writers of private passenger
insurance - between the two of them - write 42 percent
of our market. There are then seven companies that
have less than a 2 percent market share. So we have
really not a lot of companies actively writing
business here.
In the homeowners market the top two companies write
approximately 65 percent of our insurance market. We
then drop to percentages of 6 percent with eight
companies writing less than one percent of that
market. So, in general, we don't have very many
private passenger or homeowners companies actively
writing business and, in my opinion, this creates a
fairly fragile market place.
CHAIR BUNDE asked if she could comment about our loss profit
ratio in Alaska and whether it is a reasonable place to do
business.
MS. HALL answered that the next part of her testimony would
address rates and losses:
Rates for personal insurance have been increasing
nationally and we're seeing similar trends in Alaska.
In 2001 the rates that we saw in the private passenger
homeowners markets ranged in the 5 percent to 8
percent increases. In 2002, many of those increases
were in double digits. Those numbers are in Alaska.
Last week, I received from a national organization of
other insurance regulators information that indicated
in March of 2003 the consumer price index had an 8.9
percent increase in auto insurance rates nationally.
So, we're seeing fairly dramatic increases in,
particularly, auto insurance. That does lend the rate,
Mr. Bunde, to losses and to loss trend. In 2001,
private passenger lines in Alaska, Alaskans [were] in
the top five companies in the number of losses - the
total dollar amount of losses - in the country - we
were in the top five states with losses.
There also was an overall writing deficit of 18
percent. So, the companies writing business here on
the underwriting basis had an 18 percent deficit - an
overall negative return on net worth of 6 percent. So,
auto insurance companies in Alaska are losing money
and at a greater rate than most other states in the
country.
The 2001 homeowners market faired better. Alaska was
in approximately the middle of the range with an 8
percent underwriting profit. So, there was some
profitability in those lines. Some of the loss trends
that have hit other areas of the country really
haven't hit here. For example, and I'm sure you've all
read, there have been mold claims. Mold is an
increasing cause of loss to the insurance industry.
That really hasn't hit Alaska - mold resulting from
water damage or construction defects that result in
mold - and it can be toxic.
We also, as we look at those issues, see specific
unique Alaska characteristics. Sometimes the cost of
loss adjustment is higher here because of travel. We
tend to have higher cost of auto repair; we tend to
have higher medical costs. I've heard one of the
health insurance people estimate for me that our
medical costs in Alaska are approximately 30 percent
higher than they are in Washington. So, there are
higher costs of insurance here due to those types of
factors. And, I bring some of that up because I would
like to make sure that we keep the Alaska market in
mind as we discuss this issue.
MS. HALL iterated the division's mission, which is threefold: to
develop, interpret and enforce insurance statutes and
regulations; to protect and educate the consumer; and to enhance
the insurance business market. With those goals in mind, she
offered her views on the credit scoring issue:
One, there appears to be some significant correlation
between credit history and losses. I think this
appears to be a valid predictor of losses. It's a tool
that I don't feel should be totally banned. However, I
strongly feel that any use of credit scoring in
insurance should be accompanied by appropriate
consumer protections. There are a variety of specific
measures to be considered as policy decisions. These
would include things like prohibitions on the use of
discriminatory factors - income, age, zip codes,
ethnic groups, marital status - those types of
prohibitions. Prohibitions against consideration of
the absence of credit, prohibitions against using
collection accounts with medical industry codes and
other restrictions as deemed appropriate by the
legislature.
Foremost on my mind on this issue is the requirement
that credit-scoring models for underwriting and rating
be filed with the Division of Insurance for approval.
CHAIR BUNDE asked, "How do we achieve that?"
MS. HALL replied that insurance companies make filings and the
process is outlined in statute.
CHAIR BUNDE asked if legislative action would be required to
achieve the proprietary information that she recommends.
MS. HALL replied that she thought the requirement to file with
the division should be in the bill. Currently rates are filed
and underwriting factors are not filed and both need to be filed
with credit scoring. She encouraged them to make that
information confidential.
CHAIR BUNDE commended that as an amendment to the sponsor.
MS. HALL said the filing requirement would provide the ability
for the division, as the industries' regulating authority, to
review the models to prevent some of the secret score black box
allegations. She also suggested instituting a dispute resolution
process for consumers and to have them deal directly with the
insurance company rather than the credit reporting bureaus. She
thought they would respond in a timelier manner. There has been
testimony about how long it takes to correct inaccurate credit
reports with some of the agencies.
Her final recommendation was using Washington State language
that requires consideration of substantive underwriting factors
in addition to credit. Some bills she has seen prohibit the sole
use of credit. She urged them to try to reach a middle ground
with legislation that provides protection for Alaskan consumers
and allows insurance companies to use credit as one of the many
tools in evaluating risk.
CHAIR BUNDE said that some companies that testified in the
committee indicated that if there is a rate change or if credit
scoring affects a rate, they will notify the consumer. He didn't
know if all companies do that and asked if she thought that
should be required in this legislation.
MS. HALL replied that legislation should address notification of
adverse action.
SENATOR COWDERY asked if her division had access to proprietary
information from companies that indicate how they use and
determine their credit scores now.
MS. HALL replied no.
SENATOR COWDERY asked if they should.
MS. HALL replied yes.
SENATOR STEVENS asked her to talk a little more about the
dispute resolution process.
MS. HALL responded that she didn't have a specific proposal, but
Alaska statute has a rating mechanism that allows an insured who
feels rates have been inappropriately or improperly applied to
appeal to the insurance company and she thought that could be
expanded to allow a consumer to appeal to the insurance company
if incorrect credit information was used.
SENATOR SEEKINS asked if she would be able to give them an idea
of profit and loss for the last five years.
MS. HALL answered that she couldn't answer that right now, but
could get that information for him.
SENATOR SEEKINS asked what companies presently use credit
scoring in Alaska.
MS. HALL replied that they have a list that is fairly lengthy.
She offered to provide him with the list.
SENATOR SEEKINS asked for the names of the major companies.
MS. HALL replied that Allstate Insurance, AIG, Geico and Safeco
use credit information for underwriting; USAA, General Casualty,
Leader - Progressive use it for rating.
SENATOR SEEKINS asked who the two major insurers are that cover
45 percent of business.
MS. HALL replied Allstate and State Farm.
SENATOR SEEKINS asked if Allstate uses it and State Farm
doesn't.
MS. HALL replied that both of them use it for underwriting.
SENATOR FRENCH asked how many different variables an insurance
company takes into account when it sets someone's insurance
rates.
MS. HALL deferred that query to their property casualty actuary,
Sarah McNare Grove, who reviews those filings.
SENATOR FRENCH said he continues to hear that credit scoring is
an important tool and he wondered how many tools there really
are.
MS. SARAH MCNARE GROVE, Property Casualty Actuary, replied that
it would depend on the company, but the kind of variables that
are used for private passenger auto insurance, for instance, are
the age of the driver, the make of the vehicle, driving record,
and gender. In addition to that, some companies add credit.
SENATOR FRENCH said then that he understands that there may be
as few as five variables.
MS. GROVE replied yes, that's possible.
SENATOR FRENCH asked if some companies get a little more in-
depth than that.
MS. GROVE replied that it varies.
SENATOR FRENCH asked when credit scoring became a common
practice in the industry.
MS. GROVE replied that the first filing happened in Alaska in
approximately 1997 or '98.
SENATOR FRENCH asked if before 1997-98, rates were going up.
MS. GROVE replied that she didn't remember, but would get that
information for him.
SENATOR FRENCH responded that he would be interested in looking
back 10 years on the profit and loss statements - mainly because
three years ago we entered into a major bear market and
everybody has had a hard time making money, not just insurance
companies. He wanted to make sure they were not hiding a
cyclical loss behind one tool.
MS. GROVE replied that one of the other reasons the division
would very much like to have rating and underwriting models
filed is to provide for a full range of review of those types of
factors used in rates to make sure that what's being filed is
really appropriate. Profitability would certainly be one of
those review items.
SENATOR FRENCH asked what Ms. Hall did before she recently took
this job.
MS. HALL replied that she has been in the insurance industry for
17 years in Alaska; she was an insurance agent and has
represented Alaska on a National Board of Insurance Agents and
felt that she has a broad perspective of what is occurring
nationally.
SENATOR COWDERY said that she didn't have access to information
about how insurance companies determine rates, but that she
would like to and asked what the legislature could do to help.
CHAIR BUNDE interrupted and said he had an idea. He asked for
the assurance of the sponsor and the chair of the Judiciary
Committee (where SB 13 goes next) to work together to strengthen
this bill and make it more consumer friendly while keeping
insurance profitable, and said he wanted to move the bill on to
the next committee.
SENATOR SEEKINS moved to pass SB 13, version D, from committee
with individual recommendations. SENATORS FRENCH, STEVENS,
SEEKINS and BUNDE voted yea and SB 13 passed from committee.
CHAIR BUNDE adjourned the meeting at 2:55 p.m.
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