HB 290-EXTENDING THE REAL ESTATE COMMISSION  4:30:35 PM CHAIR OLSON announced that the final order of business would be HOUSE BILL NO. 290, "An Act extending the termination date of the Real Estate Commission; and providing for an effective date." 4:31:02 PM LAURA STIDOLPH, staff to Representative Kurt Olson, Alaska State Legislature, on behalf of Representative Olson, chair of the House Labor and Commerce Standing Committee, sponsor of HB 290, informed the committee the bill extends the termination date of the Real Estate Commission (commission) to 6/30/18. Each year the Legislative Audit Division, Legislative Agencies and Offices, reviews state boards and commissions to determine whether they should be reestablished. She directed attention to a document provided in the committee packet entitled, "A Sunset Review of the Department of Commerce, Community & Economic Development, Real Estate Commission," dated 7/24/15, and said in the opinion of the auditors, the commission serves the public interest by licensing real estate brokers, associate brokers, and salespeople. In addition, the auditors made a recommendation that the legislature amend the Real Estate Surety Fund statutes to provide more complete, effective, and efficient consumer protection to claimants. Ms. Stidolph recalled legislation in 2008 that required salespersons and brokers to acquire error and omissions (E&O) insurance if a master policy held by the commission is in effect. Therefore, since the commission has been unable to obtain a master E&O policy, companion proposed legislation seeks to repeal that provision and establish a two-year sunset date. She advised that the auditors' other recommendations have been resolved, and urged support for HB 290. 4:34:25 PM REPRESENTATIVE JOSEPHSON asked why licensees cannot get E&O insurance. MS. STIDOLPH explained that licensees can get E&O insurance, but they are not required to by statute if the commission cannot obtain a master policy. The intent is to repeal and sunset the requirement related to the commission, thus over the next two years, licensees will be required to obtain E&O insurance to protect consumers. REPRESENTATIVE JOSEPHSON surmised that wise licensees get E&O insurance, but not through a master policy held by the commission. MS. STIDOLPH advised that those who cannot get E&O insurance are in a [high-] risk pool, and were supposed to be covered through the master policy. In further response to Representative Josephson, she said she was unsure how a licensee qualifies as high-risk. CHAIR OLSON recalled that the real estate [commission] intended to create a group of real estate licensees and brokers in the state for the purposes of insurance, but "then there was little or no follow-through on it, which is why we're where we're at now ...." 4:38:39 PM LORI WING-HEIER, Director, Division of Insurance, Anchorage Office, Department of Commerce, Community & Economic Development, advised that the related regulations set an unrealistic limit of $300 on the amount of the premium [of E&O insurance]. In addition, at this time, the Division of Insurance has incomplete underwriting data for a master policy, a pool, or for a request for proposal (RFP). REPRESENTATIVE COLVER noted that there are many obstacles to creating a pool for E&O insurance without a business history. CHAIR OLSON recalled that the real estate industry proposed a bill based on the model of a national program. Regarding insurance legislation, he advised using only model laws sponsored by the National Association of Insurance Commissioners or the National Conference of Insurance Legislators. REPRESENTATIVE COLVER stated his preference would be for individual licensees to disclose whether they carry E&O insurance. Further, state regulations of this type cause opposition, especially without compelling case histories to warrant legislation. MS. STIDOLPH advised that the real estate industry indicated that many licensees and brokers carry E&O insurance, except for the small pool who are unable to obtain coverage; the master policy would protect the consumer and allow affected businesses to operate. 4:46:31 PM REPRESENTATIVE JOSEPHSON asked whether licensees and brokers fail to get coverage because there is a complaint, or because of the cost. He stressed that businesses should be fully insured, and that this a serious problem. MS. STIDOLPH stated that data is unavailable as to which brokers and licensees have insurance coverage. CHAIR OLSON added that the lack of E&O coverage and malpractice insurance is not limited to the real estate industry. REPRESENTATIVE COLVER asked whether E&O coverage could be established in a manner similar to workers' compensation. MS. WING-HEIER advised an assigned-risk pool is put to bid every four years through the National Council on Compensation Insurance; the division rates proposals that are submitted to the state and assigns a percentage of the worker's compensation business. REPRESENTATIVE COLVER observed that E&O coverage is more like a bank loan and is based on professional expertise, experience, and credit, versus "a straight occupational percentage." 4:50:20 PM MS. WING-HEIER advised that E&O coverage is based on a number of underwriting factors related to each individual's experience, which is the data the division is lacking. REPRESENTATIVE LEDOUX recalled previous testimony that other businesses - such as doctors and lawyers - do not have E&O coverage, and questioned why the legislation is focused on the real estate industry. MS. STIDOLPH noted that [House Bill 357, passed in the Twenty- Fifth Alaska State Legislature (2008)] had two parts: 1.) the realty recovery fund was turned into the realty surety fund, which shifted responsibility from the Real Estate Commission to the court system to recover funds; 2.) licensees were required to have E&O insurance. CHAIR OLSON, in response to Representative LeDoux, explained the legislation was sought by the industry, and became statute in 2008, but is not working. He described some of the ongoing problems for the industry and for some consumers. REPRESENTATIVE LEDOUX questioned whether the Legislative Audit Division would normally delve into the topic of education requirements for a certain profession. 4:54:40 PM KRIS CURTIS, Legislative Auditor, Legislative Audit Division, Legislative Agencies and Offices, responded that the audit division performs sunset reviews following the legislative oversight process. She said the division would not look at the education requirements of an occupation, but at the ability of a commission to protect the public interest and regulate its industry. The audit concluded that the Real Estate Commission is serving the public interest generally, and did not recommend termination; however, the audit did recommend a six-year extension if the commission can obtain E&O insurance by January [2016], and a four-year extension if not. Ms. Curtis pointed out the E&O requirement became effective in 2010, but regulations were not effective until October 2014, thus this is an extensive lag in response to the legislation. Although there were many reasons given for the delay, the audit concluded the reasons were inadequate. REPRESENTATIVE LEDOUX remarked: I was just trying to figure out whether I should be reading anything into the fact that legislative audit hadn't recommended an increase of educational requirements or an increase of the amount of time that somebody has to serve as a licensee before they became a broker. ... And it sounds like you're saying "no." 4:58:08 PM MS. CURTIS directed attention to page 5 of the aforementioned audit that was provided in the committee packet, and said [House Bill 357 in 2008] changed a consumer protection that was in place. In the past, the division's sunset audits had been critical of the real estate recovery fund, which limited claims awards by the Real Estate Commission to $15,000, and in 2007, the division recommended improving the surety fund. In 2008, the law was changed - which made it harder for consumers to collect on a claim - because they had to gain a costly ruling through the court system; however, the bill also required insurance to better protect the public. Ms. Curtis advised that in the matter of providing insurance, the commission has failed to serve the public interest. Another finding of the audit was that the investigations conducted by the Division of Corporations, Business and Professional Licensing, Department of Commerce, Community & Economic Development were not done in a timely manner; there were long delays and some cases were closed without sufficient reason. Therefore, two recommendations were made: 1.) procure E&O insurance; 2.) improve the timeliness of the investigations. Ms. Curtis restated the division's recommendation of a shorter extension, and asked the commission to demonstrate its ability to obtain E&O insurance. REPRESENTATIVE JOSEPHSON asked for the source of the monies in the real estate recovery fund. MS. CURTIS directed attention to page 15 of the audit, and said the fund comes from a fee per licensee, which is currently set at $30, and changes biannually according to the balance in the fund. In fiscal years 2011 (FY 11) and FY 12, no claims were paid. 5:03:38 PM REPRESENTATIVE COLVER asked how difficult it is for small brokers to obtain E&O insurance. 5:04:05 PM ERROL CHAMPION, chair, Industry Issue Key Work Group, Alaska Association of REALTORS, said licensees are independent contractors, so there are differing operating policies in how each office conducts business. A licensee may elect to stay a licensee, or to advance to the position of associate broker and then to a broker, and only one broker is allowed per office. Mr. Champion said because of the independent contractor status, brokers should have E&O insurance as there are no performance reviews, and the right to terminate someone's employment is stipulated by the Real Estate Commission. He opined those who do not have E&O insurance generally work alone in a small community, and it is difficult to qualify for insurance, but most large brokerage houses have insurance. 5:06:44 PM REPRESENTATIVE HUGHES moved to report HB 290 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 290 was reported out of the House Labor and Commerce Standing Committee.