HB 439 - INSURANCE PRODUCT REGULATION COMPACT 2:03:49 PM CHAIR McGUIRE announced that the first order of business would be HOUSE BILL NO. 439, "An Act relating to authorizing the state to join with other states entering into the Interstate Insurance Product Regulation Compact and authorizing the compact to supersede existing statutes by approving standards, rules, or other action under the terms of the compact." [Before the committee was CSHB 439(L&C).] REPRESENTATIVE COGHILL, speaking as the sponsor, explained that this legislation allows Alaska to enter into a compact in which states come together for the purposes of aligning some of the application procedures for life insurance annuities, disability income, and long-term care products. He related his understanding from a National Conference of Insurance Legislators (NCOIL) meeting that if states don't address this, the federal government will. Twenty-some states, he remarked, have already joined, but 26 states must come together before [the compact] becomes effective. The legislation creates a single point of filing for the states involved in the compact, which would benefit Alaska because it would merely have to be aware of and supportive of those standards. From the consumer's perspective, annuities and life insurance policies would be more portable across state lines. This legislation would give the compact some authority to [establish] the uniform standards with which the state would have to comply. He specified that the [compact] would define the products and the state would follow suit with those products. 2:06:55 PM LINDA HALL, Director, Division of Insurance, Department of Commerce, Community, & Economic Development (DCCED), clarified that 21 states have passed the proposed interstate compact. She referred to the "Speed to Market" initiative, which attempts to encourage [states] to find better ways to get products to the consumer. She pointed out that the model compact was developed by the National Association of Insurance Commissioners (NAIC) and was vetted for about four years with attorneys general around the country and insurance regulators. This vetting process was meant to ensure that the compact meets the laws of the various states entering the compact. Ms. Hall highlighted that entering into the proposed compact will hopefully fend off attempts at federal regulation of insurance. She opined that insurance should be regulated by the states, particularly when a state is the size of Alaska. She noted that consumers are able to call her office daily with various complaints, and this wouldn't occur if the federal government were in charge of regulating insurance. 2:09:31 PM MS. HALL then turned to the basic structure of the compact, which proposes to create a commission with a representative from each state in the compact; typically that representative would be a state's chief regulator. She explained that insurance products would have to be vetted by this commission and approved by two-thirds of the members of the commission to be adopted. The commission will also establish standards. She informed the committee that states can opt out of the standards in two ways: through legislative action or through regulation by the insurance regulator. She pointed out that the insurance regulator only has 10 days after the adoption of a standard to file notice that the state isn't going to adopt the particular standard. Ms. Hall reminded the committee that the commission becomes operational only if at least 26 states or 40 percent of the premium volume in the country join the compact. She explained that products covered are both individual and group life insurance, annuities, disability income [insurance], and long-term care [insurance]. MS. HALL explained that were the state to be part of the compact, filings could still be made to the Alaska Division of Insurance or through the commission. This attempts to streamline the process while maintaining standards. The standards the compact proposes to adopt appear to be more protective than the standards Alaska currently has. For example, for all products, there will be a minimum 10-day right to examine, and Alaska law doesn't require this. Also, although Alaska law specifies that [language pertaining to] products must not be ambiguous or misleading, the state doesn't have "readability" standards, nor does Alaska require a "no lapse" guarantee or have premium disclosure standards. In other words, the commission is attempting to provide stronger consumer protections than what Alaska has. Generally speaking, products filed in Alaska are fairly common across the country because it's more expensive for an insurance company to develop separate products for each state. She relayed that [the division] will accept higher standards than [current] statute requires, and the compact provides a mechanism for approval that is more streamlined; furthermore, the NCOIL and the National Conference of State Legislatures (NCSL) have adopted a motion to accept [the compact]. 2:13:34 PM REPRESENTATIVE GARA inquired as to what would prevent the commission from reducing an individual's rights regarding insurance contracts. He recalled that when he represented those who purchased disability policies, the insurance companies would find amazing ways not to pay on the disability. MS. HALL opined that it would be difficult to pass weak standards, given that the commission will consist of regulators whose primary mission is consumer protection. She pointed out that the enforcement of the standards remains with each state's division of insurance, and the compact is merely a filing mechanism through which to obtain approval for particular products. REPRESENTATIVE GARA inquired as to what would happen if language was included specifying that the division won't agree to standards that provide for a lesser level of protection and rights for policyholders than Alaska law would. MS. HALL said that she didn't believe such additional language would result in anything negative. She then pointed out that the legislature has the opportunity to opt out of a particular standard, but that assumes that the legislature knows that the standard exists. REPRESENTATIVE GRUENBERG asked whether there is an official interpretation of each section of the compact. MS. HALL said that she hasn't seen any official commentary at this point, although she offered to provide Representative Gruenberg with the position papers and analysis by NAIC. REPRESENTATIVE GRUENBERG offered his understanding that an interstate compact is a contract between states, which has a priority below federal law but above state law. He relayed his further understanding that these contracts can't be amended or withdrawn from except as specified in the contract. 2:20:39 PM MS. HALL offered her understanding that HB 439 includes provisions allowing both for withdrawal from the compact and for non-participation in a particular standard. REPRESENTATIVE GRUENBERG asked whether the compact can be amended. REPRESENTATIVE COGHILL pointed out that the amendments to HB 439 thus far have not been to the text of the compact. He then relayed his belief that the state can make laws that it will enforce outside of this compact, and that the state won't give up that much sovereignty. Representative Coghill said he shares the [concern] that the state might wish to go in a different direction than the compact with regard to consumer protection. MS. HALL, in response to a question, reiterated that the state regulatory agency has the ability to opt out of a standard proposed by the commission by giving notice within 10 days of the notice of the adoption of the standard. She also explained that [the commission] has been meeting and reviewing products for almost two years, and that once the commission is in force and operational, those proposed standards would have to be adopted by two-thirds of the directors on the commission. Ms. Hall pointed out that the standards being discussed will pertain to product filings. REPRESENTATIVE GRUENBERG asked how notification will occur. MS. HALL said she wasn't sure that the commission has adopted operating rules yet. 2:26:41 PM REPRESENTATIVE GRUENBERG asked whether the notification by a state opting out has to be mailed within 10 days or received within 10 days. MS. HALL pointed out that given that the state sits on the commission, the state representative would vote on the standard and thus would be aware of the situation and the upcoming vote. In response to questions, she reiterated that two-thirds of the members of the commission must approve [the standards]; that the number of members of the commission is dependent upon the number of states that join; and that at least 26 states must join for the commission to be operational. She went on to clarify that if 40 percent of the premium volume in the country joins the compact, the commission would be operational. REPRESENTATIVE ANDERSON, speaking as the chair of the Labor & Workforce Development Committee of the NCSL, informed the committee that the NCSL endorsed this [compact]. He then turned attention to page 13, line 20, which outlines the opt out provision. The provision includes language indicating that a compacting state can opt out when it determines that the standard "does not provide reasonable protections to the citizens of the State, given the conditions in the State". Therefore, Representative Anderson opined, Alaska isn't locked into anything, and HB 439 is a good step for Alaska. REPRESENTATIVE COGHILL said that he didn't want to surrender the state's right to take care of its consumers. He posed a situation in a which an insurance agent/company saw a problem with the commission, and inquired as to how the legislature would come to know about it. He further inquired as to how the legislature would come to know if a consumer had a problem. The aforementioned will impact the language of the proposed conceptual amendment included in the committee packet; the proposed conceptual amendment read as follows: The state shall not agree to rules promulgated by the commission that provide for a materially lower level of protection, or materially lesser rights than provided to Alaska policyholders and policy applicants than otherwise provided by Alaska law. 2:34:08 PM JOHN GEORGE, Lobbyist for the American Council of Life Insurers (ACLI), said that essentially all of the life insurance companies in the U.S. are members of the ACLI. He informed the committee that the ACLI requested that this legislation be introduced because it's important consumer legislation and it makes it much easier for life insurance companies to do business and bring new products to market. As mentioned earlier, it makes sense for life insurance to be practically the same across the nation. This [compact] would allow life insurance companies to respond nationally and get new products to the market. Mr. George noted that the "escape clauses" were carefully written such that a state can opt out of a specific [standard]. He further noted that the life insurance industry will be policing [the commission] because it wants a uniformly high quality standard. Given that all the states vote on [the standards], he assured the committee that there will be good standards. REPRESENTATIVE GRUENBERG posed a hypothetical situation in which [compact commissioners] from around the country meet and are "wined and dined and lobbied to death" by a particular company that wants product "X." He asked if it would make it somewhat more difficult for consumers to protect themselves if product "X" wasn't good for consumers. MR. GEORGE opined that it would probably be easier today to wine and dine individual state insurance regulators today and obtain low standards in each state individually than it would to get low standards passed through the compact. REPRESENTATIVE GARA offered his understanding that Ms. Hall has no objections to the proposed conceptual amendment as long as Legislative Legal and Research Services makes it work within the context of the legislation. MR. GEORGE, in response to a question, said that he doesn't have a problem with the proposed conceptual amendment so long as it doesn't void the compact. He acknowledged that everyone wants good protection for the public. 2:38:34 PM REPRESENTATIVE COGHILL mentioned that he doesn't want lesser standards or less consumer protection, and opined that it's probably good policy if the language in the proposed conceptual amendment makes "them" come back to the legislature. He suggested his understanding that as it won't void the compact and proposes a high hurdle, he wouldn't object to the proposed conceptual amendment, because he agrees with the concept of it. REPRESENTATIVE ANDERSON objected to the proposed conceptual amendment, and stated that the matter could be addressed on the House floor. He opined that there could be a loophole in the proposed conceptual amendment wherein someone could continually challenge and make the compact ineffective. He relayed his preference to have Legislative Legal and Research Services research the matter and provide a memorandum, and that they leave any [necessary] amendment for the House floor. REPRESENTATIVE COGHILL concurred and offered to work with Representative Gara on that issue. CHAIR McGUIRE posited that typically there's standard pro forma language included in a compact. She expressed concern that the proposed conceptual amendment is a bit vague, and questioned whether any difference in its language from the compact's language would [void] the compact. MR. GEORGE suggested that rather than modifying the compact, the regulator could simply be given instructions to specify when the state should opt out of a standard. REPRESENTATIVE GARA clarified that is what he meant to accomplish with the proposed conceptual amendment. REPRESENTATIVE ANDERSON inquired as to whether it would be possible to get a memorandum from Legislative Legal and Research Services regarding the appeal process. REPRESENTATIVE COGHILL said he would rather have any amending language drafted by Legislative Legal and Research Services. REPRESENTATIVE GARA announced that he wouldn't offer the proposed conceptual amendment, and will work with Representative Coghill on the legislation. He suggested that perhaps [the commission] could be required to send the legislature notification that a particular standard has been adopted so that the legislature would know that it would have to introduce legislation to address the situation. CHAIR McGUIRE and REPRESENTATIVE COGHILL indicated agreement with that suggestion. 2:44:57 PM CHAIR McGUIRE, upon determining no one else wished to testify, closed public testimony on HB 439. REPRESENTATIVE ANDERSON announced that committee staff will contact Legislative Legal and Research Services to assess the state and legislature's liability and the state's attachment to the compact. REPRESENTATIVE ANDERSON moved to report CSHB 439(L&C) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 439(L&C) was reported from the House Judiciary Standing Committee.