HB 398-LIFE AND HEALTH INSURANCE GUARANTY ASSN Number 0832 CHAIRMAN ROKEBERG announced that the next order of business would be HOUSE BILL NO. 398, "An Act relating to the Alaska Life and Health Insurance Guaranty Association." JOHN MANLY, Staff to Representative John Harris, Alaska State Legislature, introduced HB 398 on behalf of Representative Harris, sponsor. He read from the sponsor statement: The purpose of House Bill 398 is to make changes to the Alaska Life and Health Insurance Guaranty Association Act, AS 21.79, which provides a mechanism to protect policy holders and claimants in the event of the insolvency of a life and health insurer's license to sell policies in Alaska. The Alaska Life and Health Insurance Guaranty Association membership is mandatory for every life and health insurer licensed to sell policies in the state. The association, in order to fund certain outstanding obligations of life and health insurers that have been put into receivership assesses its members. The association works closely with the Director of Insurance, who is the receiver for insolvent insurers. Alaska's current law is based on an earlier of a National Association of Insurance Commissioners (NAIC) model Act. HB 398 updates Alaska Statutes to bring them into close conformity with the most recent NAIC model Act. The NAIC model Act has been updated to reflect lessons learned at a nationwide level from application of the model Act to actual insolvencies experience since the last revision. HB 398 will allow the Alaska Life and Health Guaranty Association to better meet its intended purpose of protecting Alaska policy holders and claimants. Updating the Act to comply with the latest model Act provides the added benefit of uniformity among the states in responding to insurer insolvencies. The Alaska Life and Health Insurance Guaranty Association supports passage of HB 398. Number 0976 JOHN GEORGE, Lobbyist for American Council of Life Insurance, Juneau, noted that two other representatives of the council, Mary Beth Stevens and Robert Sweeney, also were participating by teleconference from Washington, D.C. MR. GEORGE explained that the American Council of Life Insurance had asked Representative Harris to introduce HB 398. Uniformity among the states makes it much easier for insurers to deal with insolvencies. The bill is largely technical. The council has been working closely with the Division of Insurance, and they have reconciled 18 of 20 points of difference. The remaining two points will be dealt with in proposed amendments. CHAIRMAN ROKEBERG noted that the remaining controversy centers on the words "or intervene" in HB 398. Number 1086 REPRESENTATIVE HALCRO moved to adopt the proposed committee substitute (CS) for HB 398, Version G [1-LS1376\G, Ford, 3/3/00], as the working document before the committee. There being no objection, it was so ordered. MR. GEORGE explained that Amendment 1 presents the American Council of Life Insurance's recommendation to add the words "or intervene" after the word "appear" in two places on page 13, lines 20 and 27 of Version G. [The language on line 20 would then read, "(r) The association is entitled to appear or intervene in a court or agency proceeding ...." The language on line 27 (beginning on line 26) would then read, "The association also has the right to appear or intervene before a court or agency in another state ...."] Mr. George said that is the difference the council has with the Division of Insurance. He said the aforementioned two people on teleconference were the experts best qualified to comment. Number 1155 REPRESENTATIVE MURKOWSKI asked whether it was necessary to add two public members to the board, and whether the American Council of Life Insurance was in agreement with the insurance guaranty association regarding that. MR. GEORGE said that language is a part of the NAIC model, and the council has agreed to accept it. However, the council does not see a need for public members because the board is a technical body that is doing ministerial functions, closely supervised by the Division of Insurance, so already has public oversight. Also, there is no way to compensate public members for their service, and adding two more people complicates the logistics of meeting. REPRESENTATIVE MURKOWSKI said as she reads the language of the bill, "the director may appoint," it appears to be left to the director's discretion whether or not to appoint up to two public members. MR. GEORGE said that was a concession that Mr. Lohr had made. The NAIC model specifically says there "shall be" public members. Number 1377 MARY BETH STEVENS, Legislative Director for Alaska, American Council of Life Insurers, testified by teleconference from Washington, D.C. House Bill 398 is very important to the council, which has enjoyed a very good working relationship with the Division of Insurance. Robert Sweeney is the technical expert to whom questions should be addressed. Number 1446 ROBERT SWEENEY, Counsel, American Council of Life Insurers, testified by teleconference from Washington, D.C. He confirmed that he was available to answer any questions. CHAIRMAN ROKEBERG referred to the Property and Casualty Guaranty Fund Act, which the committee had reviewed earlier in the session. He asked how the "bar date issue" is handled in HB 398. MR. GEORGE said the "bar date issue" with respect to Property and Casualty had to do with bar dates for claims for workers compensation because they tend to come in long after the insolvency of an insurer. Life insurance guaranty associations treat claims a little differently because a life insurance policy tends to go on for a longer period of years before a claim is filed; therefore, life insurance guaranty associations try to find "new homes for those policies, to get them transferred to a viable insurance company." Bar dates are not an issue at all in this case. Number 1551 DONALD THOMAS, Executive Director for the Alaska Life and Health Insurance Guaranty Association, testified by teleconference from Anchorage. He said the current chair, James Jackson, apologizes for not being able to participate. However, he had sent a letter to Representative Harris dated March 2, stating that the Alaska Life and Health Insurance Guaranty Association (ALHIGA) is in favor of passage of the proposed CS to HB 398. CHAIRMAN ROKEBERG asked Mr. Thomas if he had seen the amendment. MR. THOMAS said he had not seen the amendment per se, but he understands what it says and is familiar with the basis of the controversy. CHAIRMAN ROKEBERG asked for an explanation of the controversy. MR. SWEENEY spoke in favor of the amendment, which the council considers to be fully consistent with the legislation's primary intent. Among other things, HB 398 is designed to streamline the appropriate, efficient and cost-effective handling of life and health insurance insolvencies. To provide ALHIGA the right to intervene before the receivership court, any appropriate Alaska agency, or foreign receivership court does not needlessly expand the role of ALHIGA. Rather, the amendment offers the state guaranty association the necessary authority to intervene when the rights of policy holders, member insurers, or the receiver is under attack. MR. SWEENEY said that in many instances, it is important to note that ALHIGA may be seeking to assist the Division of Insurance, acting as the receiver for a financially troubled or insolvent life or health insurance company. Unlike the Property and Casualty Guaranty Fund Act, which the committee reviewed earlier in the session, the Life and Health Act, Chapter 79 - like all state life and health guaranty association Acts - requires the guaranty association to continue coverage for policy holders. Moreover, the association is often the state's largest creditor. Providing ALHIGA the right to intervene will merely codify an appropriate right that will work to the benefit of member companies taking up the policyholders as well as state-appointed receivers. He agreed with Mr. George that the right to intervene is contained tn the most recent version of the NAIC Life and Health Insurance Guaranty Association model. Number 1854 REPRESENTATIVE HARRIS said in light of the time, he had no objection to holding the amendment, which would be considered in the House Judiciary Standing Committee instead. Number 1873 MR. LOHR commented on the productive and cooperative working relationship, which may be a model in resolving many fairly contentious issues before bringing legislation before the committee. In this one matter [regarding the right to intervene], he said, "We have just respectfully agreed to disagree." The Guaranty Fund Act and liquidation statutes already give the association [ALHIGA] standing to appear in receivership cases and to assert its interests. Providing for intervention is unnecessary and may imply that the legislature is granting broader authority to the guaranty fund on a par with the authority of the receiver. MR. LOHR indicated [legal counsel for the department] had not done an exhaustive search of case law, but one case they came across was a Court of Appeals case in Maryland. In that case, the court allowed intervention based on statutory language nearly identical to the language in [Alaska's] receiver statute and to that proposed in Version G of HB 398: that is "standing to appear" and the associated obligations. So there is at least one case that supports that the language [already] is adequate. Adding the phrase only adds confusion in that [the department's] attorneys were not able to establish a legal distinction between "standing to appear" and "the right to intervene." CHAIRMAN ROKEBERG inquired, "So your objection basically is that it creates ambiguity because it is redundant, because by 'appearance' you already have the right 'to intervene'?" MR. LOHR said that is correct. The language in current law is "a guaranty association or foreign guaranty association has standing to appear in a court proceeding." The language in current law, which this bill proposes to amend, says "the association is entitled to appear in the court proceeding in the (indisc.) insolvent insurer." Mr. Lohr said, "The bill that you have continues that approach and does not adopt intervention, and intervention could be ambiguous, seems unnecessary, and might conceivably be interpreted to interfere with the exclusive authority of the receiver.' Number 2133 CHAIRMAN ROKEBERG observed that the limits on both the life insurance and health insurance coverage don't really appear to have been expanded. He asked: When was this statute last redone, and how long have these limits been in place? MR. THOMAS said those limits have been effect since the statute was adopted in 1990. CHAIRMAN ROKEBERG asked if there was need to adjust those because of inflation. MR THOMAS said he wanted to check the language of the model Act. CHAIRMAN ROKEBERG asked how current that was. MR. THOMAS said the most current version is dated 1999, and those same limits are in the model Act as well. Number 2291 MR. SWEENEY noted that the coverage limits before the committee are based on the most recent version of the NAIC model. Those amendments to the model Act were adopted in 1997. CHAIRMAN ROKEBERG said, "I'm not sure I understand the distinction between the $100,000 and the $500,000." MR. SWEENEY said those amounts establish limits for individual policy owners for different types of policies. In a life and health insurance insolvency, the objective is to continue coverage and keep it going. TAPE 00-25, SIDE A Number 0014 MR. SWEENEY noted that in a life and health insolvency, the goal is to continue coverage. Therefore, the goal obviously would be not to hit that cap. CHAIRMAN ROKEBERG asked whether anyone else wished to testify, or if there was any objection to closing testimony on HB 398. There being no objection, it was so ordered. Number 0080 REPRESENTATIVE MURKOWSKI said she did not think Amendment 1 was as problematic as the director had indicated. If one has the right to appear anyway, one also is going to have the right to intervene. CHAIRMAN ROKEBERG agreed but said that if it is only a matter of redundancy, and if everybody wants it in here to be consistent with the model Act, so be it. REPRESENTATIVE MURKOWSKI made a motion to adopt Amendment 1. There being no objection, it was so ordered. Number 0175 REPRESENTATIVE HALCRO made a motion to move HB 398, Version G [1- LS1376\G, Ford, 3/3/00], as amended, out of committee with individual recommendations and attached fiscal note. There being no objection, CSHB 398(L&C) moved out of the House Labor and Commerce Standing Committee.