HB 158 - NOTICE OF INS. CANCELLATION TO ELDERLY Number 0484 CHAIRMAN ROKEBERG announced the committee's next order of business is HB 158, "An Act relating to the annual report of the director of the division of insurance and to notice of cancellation of personal insurance." Chairman Rokeberg explained the legislation as the bill sponsor. He indicated the first portion of the bill would amend AS 21.06.110 by adding a new subsection with the language, "statistical information regarding health insurance, including the number of individual and group policies sold in the state; and". This information would be provided to the Division of Insurance, Department of Commerce and Economic Development, to assist the division by mandating insurance companies doing business in the state to determine the number of people covered under individual group policies or non-ERISA policies [ERISA, Employee Retirement and Security Act]. The chairman noted this has been after a five-year quest for information from the department. Number 0524 CHAIRMAN ROKEBERG explained the second portion of the legislation results from the experience of his neighbor. The neighbor is in his 80s, with an invalid wife. The neighbor was involved in an automobile accident and afterwards discovered his insurance had expired about four months previously; he hadn't realized he had failed to pay his bill. The chairman indicated his neighbor is quite lucid but might be suffering from mild forms of dementia, which is not unusual at that age. As a result, the gentleman was able to make a settlement of some $25,000 against an actual $80,000 damage amount. [Chairman Rokeberg indicated this settlement information is in a letter in the bill packet from Reverend Ronald Martinson of the Central Lutheran Church in Anchorage. There is an April 7, 1999, letter from Reverend Martinson on this issue in the bill packet but it does not contain information regarding settlement.] Number 0577 CHAIRMAN ROKEBERG emphasized the need to verify that senior and elderly Alaskans receive proper notice their insurance is going to be canceled. The legislation only covers personal insurance - property and casualty - excluding life and health. Currently, the insurance companies only have to register a notice of mailing within their own records; they do not have to have a return receipt. The legislation gives Alaskans over 67 years old a longer period of notification and a letter mailed return receipt ten days prior to cancellation. Commenting that this is like an unfunded mandate to the insurance industry, the chairman noted the insurance industry would incur some costs because the timing would begin at 60 days, rather than the current 30 days, and the return receipt would be required. The chairman requested that Janet Seitz, aide to the House Labor and Commerce Standing Committee, explain the current statutory requirements for notification and the changes the legislation would make for older Alaskans. Number 0665 JANET SEITZ, Legislative Assistant to Representative Norman, Alaska State Legislature came forward. As aide to the House Labor and Commerce Standing Committee (Labor and Commerce), she explained the changes. Ms. Seitz indicated the current basic scheme for everyone is shown on page 2, line 17 through 23, of the bill: written notice of cancellation at least 30 days before the effective date, a 20-day notice, and a 10-day notice. House Bill 158 would require a different notice schedule if a person is 67 or older: first notice at least 60 days before the effective date of cancellation, second notice at least 30 days, and a third written notice at least 10 days before sent by certified mail. CHAIRMAN ROKEBERG questioned if the committee understands what the legislation does. He confirmed for Representative Harris that only the last mailing is by certified mail. Number 0720 REPRESENTATIVE HALCRO confirmed from the chairman that the incident mentioned in the sponsor statement and in the letter on the Central Lutheran Church letterhead concern the same individual. Representative Halcro commented the letter says the couple had a caregiver who confessed to taking advantage of the couple's finances for over $40,000. CHAIRMAN ROKEBERG said that is a different incident not spoken to in the bill; he indicated it simply makes this couple's situation that much worse. REPRESENTATIVE HALCRO questioned whether the caregiver could have thrown away the notice of cancellation. CHAIRMAN ROKEBERG agreed it was possible. REPRESENTATIVE HALCRO questioned how this legislation would prevent this situation if someone keeps throwing the notice away or if someone moves. CHAIRMAN ROKEBERG answered he thinks it protects the insurance company because it would have the return receipt, being able to prove the notice was sent. He thinks it helps both the recipient and the insurer. REPRESENTATIVE HALCRO asked if any other cases like this have occurred, indicating he is trying to understand the reason for changing the notice structure. CHAIRMAN ROKEBERG commented the witness testimony might be helpful. Number 0804 REPRESENTATIVE MURKOWSKI questioned why the legislation is requesting statistical information on health insurance but no other types of insurance. CHAIRMAN ROKEBERG replied that is the figure they have been seeking for five years. The department does an excellent job obtaining all kinds of other statistics but that one has been elusive. This legislation is something of a statutory mandate to obtain that statistical information. It gives the Division of Insurance justification if there is a cost involved in obtaining the information and provides justification to the insurance companies for the division's request. Number 0856 ROSEMARY HAGEVIG, Executive Director, Catholic Community Services, came forward to testify in support of HB 158. Ms. Hagevig noted Catholic Community Services is the parent organization to Southeast Senior Services; they serve 2,200 seniors in 15 Southeast Alaska communities. They support the legislation, particularly the section dealing with insurance notification for Alaska's elderly citizens. The efforts to provide an extra safety net for probably some of the most vulnerable members of the state's population are appreciated. Ms. Hagevig shared that she speaks from personal experience as a distant caregiver for an aging parent. Her sibling living close to the parent tries to intercept the mail every day to make sure something important does not go astray. Ms. Hagevig indicated this legislation would be of great assistance to those seniors, many of whom might be afflicted with dementia or Alzheimer's disease, who are trying very hard to maintain independent living for as long as possible outside of institutional situations. She understands there would be some complications with the insurance industry but is confident they could be resolved. REPRESENTATIVE MURKOWSKI noted this applied to personal insurance and questioned whether Ms. Hagevig thought it should be broadened. MS. HAGEVIG thinks it is a step in the right direction, and she is sure there was a good reason for beginning this process with personal insurance. She related a recent situation she had heard firsthand from a woman in Ketchikan. The woman's husband had died, had apparently forgotten to pay his life insurance premiums, and the wife was unable to collect anything. Ms. Hagevig noted these are very serious situations in people's lives as they become older, and she commented on the growth of this segment of the population. Number 0993 CHAIRMAN ROKEBERG pointed out to the committee there is a statutory grace period for life insurance, mentioning 30 days, but no mandated grace period for personal insurance. The chairman indicated he has had some discussion with members of the industry regarding notifications to relatives or other caregivers; he thinks it is difficult to do that statutorily. MS. HAGEVIG said in her personal situation her sibling has made every effort to change the [mailing] address when these situations come to light; this is another solution but it is not always effective. Also, not all senior citizens have family members close enough to be able to do that for them. CHAIRMAN ROKEBERG commented that having a change of address is probably the best advice to anyone in the circumstance; hopefully they will generate some publicity with this legislation and pass that information on. Number 1094 JOHN FERENCE, Deputy Director, Division of Insurance, Department of Commerce and Economic Development, came forward to answer the committee's questions on HB 158 from a technical standpoint. REPRESENTATIVE MURKOWSKI referred to an April 7, 1999, letter in the bill packet from the Alliance of American Insurers which states that this is going to be very problematic because there is nothing currently in place for them to monitor when someone turns 67. Representative Murkowski commented regular notices would be sent out to 70 percent of the public but it would then be necessary to monitor everyone's birthday. She asked Mr. Ference how the division would monitor the industry's compliance with this legislation, if passed. MR. FERENCE replied they monitor in two fashions: through consumer complaints and a periodic random audit process addressed to both insurance agents and companies. The division looks at producer files to see if the notices are copied there and it examines insurance companies to see if the companies have issued proper notices. In addition, the division responds to individual consumer complaints. REPRESENTATIVE MURKOWSKI questioned whether the division has received complaints regarding the notification situations this legislation would address. Number 1198 MR. FERENCE replied the division receives consumer complaints on a regular basis about inadequate or missing notices. Investigation results show that more often than not the notices were sent and are missing in transit or were received and ignored. Mr. Ference indicated the complaints come from no particular concentration of the population. CHAIRMAN ROKEBERG indicated an amendment to the effect that nothing in this paragraph would authorize the director to require the insurer to release proprietary information had been suggested regarding the statistical information. The chairman questioned whether Mr. Ference objected to an amendment of this type. MR. FERENCE replied he is not really in a position to offer an opinion because he does not know if the carrier they would request this information from would view it as proprietary. However, if the provision is not in the legislation, it is not a question. CHAIRMAN ROKEBERG asked if a distinction would be made between covered lives and policies, questioning if the committee needed to be specific in law or if the division could handle that. Number 1297 MR. FERENCE confirmed the division could handle that itself. CHAIRMAN ROKEBERG emphasized the objective is the amount of non-ERISA-covered. MR. FERENCE questioned that the information desired is the number of people who are beneficiaries of health insurance. CHAIRMAN ROKEBERG noted they wanted to make the distinction between non-ERISA and ERISA-covered. REPRESENTATIVE HALCRO questioned whether there is similar legislation in other states regarding the amount of notice as well as the statistical mandate. MR. FERENCE replied that, to the best of his knowledge, this would be a longer notice period than is required in any other jurisdiction. In response to chairman's question, Mr. Ference confirmed this is a new idea, to the best of his knowledge, and has not been directly looked at in other states. CHAIRMAN ROKEBERG expressed his approval. Number 1367 JOHN GEORGE, Lobbyist for the National Association of Independent Insurers (NAII), came forward. Among the members of NAII are Allstate [Allstate Insurance Company], GEICO [GEICO Corporation], USAA, Progressive [The Progressive Corporation] - major writers of automobile insurance in the state of Alaska. The notice required by this legislation would be a real problem for insurers. Mr. George said he had spoken this afternoon with an Allstate representative who had been an underwriter in the pre-computer days. This representative commented the company did not have age information for some of its clients because the original applications were taken manually. Unless the client applied for a senior citizen discount, the company might not know who its 67-year-olds are. The NAII believes that there are thousands or possibly even hundreds of thousands of cancellation notices issued every year in the state of Alaska. Mr. George questioned how many people even pay their insurance 60 days before it is due, commenting it is due just prior to cancellation. He indicated there would also be problems with people who pay their insurance on a monthly basis. Mr. George further indicated they are working on these logistical concerns with the chairman. Number 1453 MR. GEORGE expressed that his foremost concern, however, is the approaching year 2000 (Y2K). The NAII and other trade associations have lobbied the National Association of Insurance Commissioners (NAIC), the National Conference of Insurance Legislators (NCOIL), and the National Conference of State Legislators (NCSL) who have all passed resolutions urging state legislators not to pass legislation which could require insurance company programmers to concentrate on issues other than meeting Y2K compliance. Even if this legislation were to progress, NAII would urge the legislature for an effective date after Y2K so the insurance company programmers can continue their compliance efforts to ensure that the entire system doesn't crash. Mr. George indicated his clients have some serious problems with the legislation but the intent is appreciated. He thinks there are some solutions and these are being discussed with the companies. He noted it has occurred to him that the more a person suffers from dementia, the less likely the person is to need an automobile. Mr. George added there is an additional fail-safe with automobiles or homes that are financed: there is a lender ensuring that that insurance stays in force as well. He admitted, however, the older a person is, the less likely there is to be a lender involved. Number 1558 REPRESENTATIVE HARRIS questioned if the insurance companies would be a lot happier if the notification series remained as it is currently - 30, 20, 10 - and the last letter had to been sent by certified mail no matter the person's age. It seems to him the certified part is the point here, that someone signed for the letter verifying that it was actually picked up. MR. GEORGE replied that would make it more palatable. He thinks anytime something has to be done differently, such as the certified mail, it is less than optimal, but that is certainly one of the alternatives being examined. He referred to a previous comment of the chairman's regarding this being an unfunded mandate; Mr. George noted that is actually not true. Insurance premiums are largely based on age categories. It might be discovered that this could result in a premium increase for whatever age group it applies to because insurers can add the extra notice requirement into their rate structure. Mr. George noted this aspect is being worked on as well. He reminded the committee that insurers don't like canceling insurance and would much rather keep it on the books if it is good, solid business. Number 1681 REPRESENTATIVE HARRIS commented it seems from Mr. George's testimony that if the certified cost is spread out over all the age categories for health insurance, the 67-plus Alaskans would not be hit any more than the lower age brackets. MR. GEORGE clarified that this would apply to automobile and homeowners' insurance, not health insurance. Mr. George said he did not know why it would be spread out over everyone if they were speaking of a specific notice for a specific group, indicating he had misunderstood Representative Harris's comment about a certified final mailing for all policy cancellations, no matter the person's age. Mr. George made a few additional statements under this misunderstanding. Number 1797 REPRESENTATIVE MURKOWSKI questioned which would be more expensive for the insurance companies: determining and monitoring the age of all of a company's insureds to identify incoming 67-year-olds or Representative Harris's idea that all final 10-day cancellation notices would be automatically sent via certified mail. MR. GEORGE replied that uniformity would be nice. He reminded the committee that Alaska is a very small market and these are national companies. Almost anything the legislature does would probably be a minor exception to these companies. Mr. George commented that sending out a certified notice to every Alaskan would still be somewhat of a thorn in the companies' side. Even in Alaska they are speaking of thousands and thousands of these notices. A lot of people pay their insurance within 10 days of the expiration date. He indicated sending 20,000 certified letters out per month could be a significant expense and even the physical process of certifying the letters would be inconvenient. Mr. George also noted from his previous experience as director of the Division of Insurance, when the division was "served" for an insurance company, the division, in turn, had to send that summons/complaint to the insurance company certified return request, and about a third of the cards never came back. Mr. George related he became so frustrated he called the office of Senator Ted Stevens. He received a call back from the Postmaster General informing him the postal service did not know what was happening but could not fix it. Mr. George said the situation was never resolved and he indicated certified return receipt was not a fail-safe. Number 2000 CHAIRMAN ROKEBERG asked how much certified mail costs. KEVIN HAND, Legislative Administrative Assistant to Representative Andrew Halcro, Alaska State Legislature, answered $2.90. CHAIRMAN ROKEBERG indicated a business could also apply and fill out their own certified mail if the mail is picked up at the place of business. MR. GEORGE noted that is a manual step and indicated the companies' current mailing processes are completely automated. Mr. George reiterated the companies do think there are some solutions here and they are continuing to work on them. He mentioned Florida and Arizona both have aged populations; he commented someone has probably thought of this there as well. CHAIRMAN ROKEBERG questioned Mr. George's indicated testimony regarding concern for the upcoming year 2000 date change and the programmers' ability to program. The chairman noted Mr. George had also testified that the underwriters are looking at age groups when doing actuarial calculations to assess rates. The chairman commented he was not sure if he could buy into the Y2K problem Mr. George had mentioned; it seems to the chairman that if actuarial calculations are going to be done for a policy rate quote to an individual, that person's age already has to be in the calculation. Number 2170 MR. GEORGE responded that the major changes are for young drivers versus anyone over 25 or so. They are speaking about a fair number of people who have been insured for the last 30 or 40 years who did not get into the computer system. Mr. George emphasized his concern about Y2K is that any changes which require a programmer to change the program to give a different notice to a certain group of people, or other action, takes a programmer's time. Currently, that programmer is concentrating on generically beating the Y2K problem. The companies would like to let the programmers continue to concentrate on that. Mr. George noted it would be a significant problem for some companies, and would not be as big a deal for others. CHAIRMAN ROKEBERG noted he looked forward to Mr. George's letter endorsing HB 82 [HB 82 - IMMUNITY: CLAIMS ARISING FROM Y2K PROBLEMS]. Number 2263 REPRESENTATIVE CISSNA commented regarding health insurance and expressed that she could see a significant advantage in having an extended time to make sure people received something. She questioned if older policy holders didn't usually pay more because of their age. MR. GEORGE answered there is actually a senior citizen discount on automobile policies. REPRESENTATIVE CISSNA questioned if this discount was often given because the senior citizens had been policy holders for many years, had helped support the company, and helped support other policy holders. MR. GEORGE replied he doesn't know that they are required to have been longtime policy holders. He believes the theory is that people probably drive less as they reach a more mature age and probably are statistically involved in fewer accidents because of fewer miles. He noted, though, the rate of accident per mile might actually be higher. Mr. George qualified that he was speaking off the top of his head and really does not know how that comes out statistically. Number 2435 REPRESENTATIVE CISSNA noted her father had had an insurance company; the thought had been to always try and provide service. She commented she was sure all of the companies Mr. George represents do that. MR. GEORGE reminded the committee that insurance companies make money by writing insurance, not by canceling it. It is expensive to cancel a policy then reinstate it or lose it altogether. The companies pay commissions to agents to make sure those things don't happen. REPRESENTATIVE HALCRO said he had a couple of questions. He stated, "The way the bill is written, you have to give 60 days first notice, then 30 and then..." [TESTIMONY INTERRUPTED BY TAPE CHANGE] [From tape log notes: 'If my policy'] TAPE 99-36, SIDE A Number 0001 REPRESENTATIVE HALCRO continued, "...and send out three notices before you can cancel me, is that the way you're reading ... the legislation?" MR. GEORGE replied, "I'm not sure that carrying someone would be the (indisc.) - you would - if the policy expired August 1, 60 days prior to that you would send out the notice, so that on the day the policy expired it could be canceled. You wouldn't wait until close to the end and then cancel it and have to extend it beyond." REPRESENTATIVE HALCRO agreed, noting Mr. George had said some people do pay their insurance on a monthly basis. Therefore, there is no way this time period would fit within that 60-day window. MR. GEORGE replied it would be "putting a round peg in a square hole," indicating it created some logistical problems. Number 0089 REPRESENTATIVE HALCRO questioned if the company would have to continue to carry the person if the certified mail was returned, asking what the intent was. CHAIRMAN ROKEBERG noted the company could cancel the policy. REPRESENTATIVE HALCRO said that is where his problem lies. In the case the chairman had cited, if the caregiver had thrown away the certified letter it would not have made any difference. CHAIRMAN ROKEBERG agreed that is true. REPRESENTATIVE HALCRO stated, "With all due respect, I think this is a solution looking for a problem." MR. GEORGE pointed out Ms. Hagevig had described that her sibling tries to intercept the parent's mail: a notice to another person might be a simple solution. A person could designate themselves or someone else to receive notices of cancellation. Mr. George indicated that perhaps information to this effect could be included with the person's premium billing when he/she hits the specific age. Mr. George further indicated the industry is examining all of these things to find workable solution. Number 0218 CHAIRMAN ROKEBERG reminded Representative Halcro the present statutory policy is that the insurance company makes and files a note to itself that the cancellation notice has been sent. The company does not have to account to anyone regarding this. To the chairman, requiring the return receipt ensures there was an intent to make notice by mail to the insured. The return receipt also gives the insurance company proof it did make the notice. REPRESENTATIVE HALCRO noted the current statutes state that they shall obtain a certificate of mailing from the United States Postal Service, so that is already required under AS 21.36.260. MR. GEORGE explained, as he understands it, an insurance company will have a computer printout with the list of names and the stack of envelopes. This list is signed by a postal employee. Mr. George indicated there is also is a certification by the insurance company employee that he/she actually mailed those notices. He expressed doubt about certified mailing. Number 0337 CHAIRMAN ROKEBERG indicated the company would receive the return receipt verifying the letter had been delivered. MR. GEORGE answered, "Or not." CHAIRMAN ROKEBERG commented that perhaps the committee should mandate that if the return receipt was not received, the company should give the individual a grace period. MR. GEORGE referred to the return receipt, indicating that piece of paper would have to be dealt with manually, rather than by computer, and there would be some matching problems because it is a fixed post office form. CHAIRMAN ROKEBERG noted he appreciates Mr. George's comments and has indicated to the industry that he is happy to work with them on solutions. Chairman Rokeberg commented some of the possible solutions might be increasing the age and examining other forms. He explained the intent of the 60-day period was to allow sufficient time if a caregiver or someone else was paying the bills for the individual. However, the chairman does understand that probably would be a programming change and probably a larger cost than the certified return receipt. Number 0501 REPRESENTATIVE MURKOWSKI asked why statutory grace periods are allowed with a cancellation or termination of a life insurance policy, but not with any other form of insurance. MR. GEORGE answered that life and health have very different types of products and grace periods do exist. He noted he had been surprised on examining the statute that a person has two or three years after a life insurance policy lapses to be able to pay the premium and have the policy reinstated. Mr. George indicated this might affect the Ketchikan woman whose situation Ms. Hagevig described. REPRESENTATIVE MURKOWSKI said it makes one wonder if a grace period couldn't just be allowed for certain individuals above a certain age. MR. GEORGE noted that was one of the possibilities being considered, even if there were a fee for that. For example, the person receives the notice on the day the policy actually cancels but if he/she sends payment in within 15 days for an extra $25 dollars, the person could possibly be reinstated. Number 0599 CHAIRMAN ROKEBERG commented, "Option to extend prepayment," noting it could be inserted in the initial billing. He indicated possibly the person could be sold 30 or 60 days worth of grace for a prepaid premium. He confirmed no one else wished to testify on the legislation and expressed his desire to see HB 158 move out of committee to the next committee of referral, the House Judiciary Standing Committee (Judiciary). The chairman noted he has agreed to work with industry and make some adjustments to the legislation as it moves through the process. He commented the chairman of Judiciary formerly chaired Labor and Commerce and has been an active legislative participant with NAIC and NCOIL. Chairman Rokeberg thinks the required age needs to be raised somewhat and the time frames need to be examined, along with any suggestions the industry can make that might reduce the cost and serve these people better. Confirming no one else wished to testify, the chairman closed the public testimony on HB 158. He pointed to the D.1 amendment before the committee, explaining it was requested by some members of the insurance industry and he thinks it is valid. The chairman designated this proposed amendment as Amendment 1. Amendment 1, labeled 1-LS0128\D.1, Ford, 4/7/99, read: Page 2, line 11 Following "sold": Insert "or terminated" Following "state;": Insert "this paragraph does not authorize the director to require an insurer to release proprietary information;" CHAIRMAN ROKEBERG moved Amendment 1, questioning if everyone had an understanding of it. He asked if there were any objections to the amendment. There being none, Amendment 1 was adopted. With that, the chairman requested the committee's indulgence to move the legislation to Judiciary for further activity. Number 0786 REPRESENTATIVE HALCRO objected to moving the legislation out of committee. CHAIRMAN ROKEBERG asked Representative Halcro to speak to his objection. REPRESENTATIVE HALCRO said he thinks the bill has a lot of logistical problems; since he does not sit on Judiciary, he does not feel comfortable moving the legislation until these problems are addressed in the current committee. REPRESENTATIVE MURKOWSKI noted she sits on Judiciary and she would prefer that the work on this legislation be done in this committee, rather than Judiciary. She thinks Labor and Commerce will produce a good product and then Judiciary can do the final review. Number 0881 REPRESENTATIVE CISSNA commented on the references to the committee members as freshmen legislators, noting many of the new members are younger members. She indicated the issue the bill addresses is something that becomes a more significant problem as one approaches her own age and she expressed the hope that if the legislation is heard again in Labor and Commerce, the committee would hear from other witnesses. CHAIRMAN ROKEBERG indicated he is concerned about the lateness of the session and the "bottleneck" in Judiciary. REPRESENTATIVE HARRIS suggested the committee take an at-ease. REPRESENTATIVE MURKOWSKI noted, "And Mr. Chairman, if I may speak to that bottleneck I think that we could address..." Number 0945 CHAIRMAN ROKEBERG called a brief at-ease at 5:19 p.m. The committee came back to order at approximately 5:21 p.m. Number 0947 CHAIRMAN ROKEBERG announced that HB 158 would be held over until Monday [April 12, 1999].