SB 160-FLOOD INSURANCE  1:31:06 PM CHAIR COSTELLO announced the consideration of SENATE BILL NO. 160 "An Act providing a premium tax credit for flood insurance; relating to flood insurance; relating to property insurance; establishing the Alaska Flood Authority and the Alaska flood insurance fund; and providing for an effective date." CHAIR COSTELLO stated that this is the first hearing and the intention is to hear the introduction and take invited and public testimony. 1:31:39 PM SENATOR BERT STEDMAN, Alaska State Legislature, Juneau, Alaska, sponsor of SB 160, introduced the legislation. The sponsor statement read as follows: SB 160 has been introduced to protect Alaskans from financial abuse at the hands of the Federal Emergency Management Agency (FEMA). Over the past 5-years, FEMA has expanded its 'flood zone' maps and for the first time ever, hundreds and possibly thousands of homes and businesses will now be in a federally designated 'high risk' zone. Virtually none of these homes or businesses have ever experienced a flood and are unlikely to flood in the future. Homes and businesses in a new FEMA flood zone could see significant negative impacts to property values from requirements to purchase expensive flood insurance (flood insurance must be purchased if the owner uses a federally insured bank). Also, the new and expanded flood zones can also restrict how a structure is built on private property and impact existing homes and businesses that want to rehabilitate, upgrade, expand, and repair building. FEMA administers the National Flood Insurance Program (NFIP). The NFIP was created to share the risk of flood losses (nationwide) via flood insurance. The program enables property owners in participating communities to purchase insurance protection, administered by the government, against losses from flooding, and requires flood insurance for all loans or lines of credit that are secured by existing buildings, manufactured homes, or buildings under construction, located in the FEMA Flood Zone in a community that participates in the NFIP. 1:33:56 PM Currently, Alaskans are paying flood insurance to offset the billions in hurricane losses in the Lower 48. Combine this with very few payouts to flood victims and it can easily be concluded that the NFIP doesn't work for Coastal Alaskans. It is the intent of SB 160 to supplant the NFIP with an Alaska based insurance program that keeps the premium payments in Alaska, benefitting Alaskans. SENATOR STEDMAN stated that he contacted the Division of Insurance to discuss addressing this issue by creating an Alaska insurance program that sets premiums commensurate to the losses and overhead to administer the program. He highlighted that FEMA's focus on limiting waterfront development in coastal Alaska to reduce risk would no longer be an issue if Alaska had its own insurance program. CHAIR COSTELLO asked if he was aware of other states that have started their own insurance program. SENATOR STEDMAN answered no, but his office would do a little research to provide a more accurate answer. CHAIR COSTELLO said it would also be interesting to look at the miles of coastline in Alaska compared to other coastal states. She asked Mr. Scott to walk through the sectional analysis. 1:43:10 PM DAVID SCOTT, Staff, Senator Bert Stedman, Alaska State Legislature, Juneau, Alaska, presented the sectional analysis for SB 160. It read as follows: [Original punctuation provided.] Section 1 Amends AS 21.09.210 to add A Qualified insurer in the Alaska Flood Authority is entitled to a premium tax credit. Section 2 Amends AS 21.39.030(a) to add Flood insurance rates must made with consideration of historical flood and damage on real and personal property to be insured. Section 3 amends 21.39.030(c) to add Definition of 'flood'. Section 4 Adds 21 subsections (AS 21.60.100 thru .300) creating the "Alaska Flood Authority". AS 21.60.100 Creation & Membership Creates Flood Authority. Membership includes all licensed property insurers. Membership is required and they must submit reports or provide information as required by the Board or the Director. AS 21.60.110 Board; Organization; Report Creates 7-member Board for the Alaska Flood Authority: • 3 selected by Authority members, subject to Director's approval. • 2 selected by Director who represent consumers. • 1 selected by director who represents banks. • 1 selected by director who represents AHFC. Requires an annual report of operations to: • Analyze effectiveness. • Evaluate the benefits in comparison to the National Flood Insurance Act. • Identify penalties imposed or potentially imposed on individuals and communities by the federal government. 1:45:04 PM AS 21.60.120 Powers of Authority The Authority may: • Exercise powers granted to insurers under laws of the state. • Sue or be sued. • Enter into contracts with insurers, similar authorities in other states for the performance of administrative functions. • Establish administrative and accounting procedures. • Receive funds from sources other than members. AS 21.60.130 Plan of Operation Requires Authority to submit a plan of operations. The Director must approve and may adopt regulations to carry out the provisions. Members are required to comply with the plan. AS 21.60.140 Administrative Procedures Act Authority is exempt from the Administrative Procedures Act. AS 21.60.150 Tax Exemption Authority is exempt from fees and taxes of the state or political subdivisions, except property taxes. AS 21.60.160 Types of Insurance Plans Requires Authority to provide at least one state plan of flood insurance. AS 21.60.170 Coverage & Terms Requires state flood insurance plan to be the same as coverage provided by the National Flood Insurance Program. Further defines terms of state flood insurance plan. AS 21.60.180 State Plan Premiums Rates must not be discriminatory. Board must use actual historical flood and damage data to determine rates. The Director must approve rates before use. AS 21.60.190 Duties of Authority The Authority shall: • Perform administrative and claims payment required. • Provide a policy statement to enrolled persons. 1:46:58 PM AS 21.60.200 Funding; Penalties; Premium Tax  Credit Each member of the authority shall share in the losses, pay dues, and share in the operating and administrative expenses. Calculates member's liability and requires board to make annual assessment. Addresses failure to pay assessments. Provides for a premium tax credit of 50% of assessment. If the amount of assessments is insufficient to satisfy a claim, the Legislature may appropriate up to $10m to DCCED. AS 21.60.210 Eligibility Authority determines eligibility. Director may impose additional requirements. AS 21.60.220 Enrollment by Eligible Person A person must apply to enroll in a state plan. AS 21.60.230 Response by the Authority Authority must reject or accept within 90 days. AS 21.60.240 Effective Date of Insurance Insurance takes effect upon receipt of first premium. Retroactive if plan expires and person re-applies within 60 days and pays premium. AS 21.60.250 Solicitation of Eligible Persons The Authority shall inform persons in a special flood hazard area the existence of a state flood insurance plan. 1:49:00 PM AS 21.60.260 Duties of Director of Insurance Requires Director to formulate general policy and adopt regulations to administer the State Flood Insurance Program. The regulations must establish a reserve of payment or flood claims and require the amount held in reserve an amount required by a private insure participating in the National Flood Insurance Program based on a similar risk profile. AS 21.60.270 State not Liable State is not liable for acts or omissions of the Authority. AS 21.60.280 Board Member Civil & Criminal  Immunity  Board member not liable if acting in good faith. AS 21.60.290 Alaska Flood Insurance Fund Establishes Alaska Flood Insurance Fund. Money in the Fund does not lapse. AS 21.60.300 - Definitions  1:50:06 PM Section 5 Amends AS 37.05.146(c) to add Assessments and civil penalties of the Alaska Flood Authority to the list program receipts. Section 6 Uncodified Law: Applicability Section 2 applies to policies/renewals after the effective date of this Act. Section 7 Uncodified Law: Transition Director may adopt regulations if the Authority does not submit a suitable plan of operation by January 1, 2023. Section 8 Effective Date Immediate effective date for Section 7. Section 9 Effective Date July 1, 2022 effective date. CHAIR COSTELLO asked whether any federal action would be necessary to allow Alaska to stop participating in FEMA's National Flood Insurance Program. MR. SCOTT deferred the question to Ms. Wing-Heier. CHAIR COSTELLO asked Mr. Scott to discuss the funding mechanism for the bill. MR. SCOTT asked if she was referring to the $2 million fiscal note. CHAIR COSTELLO answered yes. 1:52:16 PM MS. SCOTT offered his understanding that the fiscal note reflects the cost to establish a reserve to cover any claims that may be filed immediately after the program is implemented. He deferred further explanation to Ms. Wing-Heier. CHAIR COSTELLO asked Ms. Wing-Heier to talk about the bill, how it would work, and what her role would be as the director of the Division of Insurance. 1:53:39 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community and Economic Development (DCCED), Anchorage, Alaska, agreed with the sponsor that flood premiums in Alaska are prohibitive. So much so that some people have been unable to sell their property because interested buyers could not afford the premiums. She said the funding for the National Flood Insurance Program (NFIP) that FEMA manages is upside down and a political football. Right now the program is funded until just September 30, and if it's not funded after that it will be necessary to take action to help property owners. MS. WING-HEIER stated that the division is a member of the National Association of Insurance Commissioners (NAIC). As such, it has been working diligently with other members to find private property insurers to step in and provide coverage in Alaska and all the other coastal states where flooding routinely occurs. She said insurers are willing to write policies but banks and mortgage holders require insurance policies to come from the National Flood Insurance Program (NFIP). She said she can't argue with what the sponsor is saying, but the bill does need some work and her understanding is that it will be done during the interim. MS. WING-HEIER referenced the large fiscal notes and explained that the Division of Insurance currently collects a 2.7 percent tax on every insurance policy that is sold. SB 160 imposes an additional 6 percent tax to fund the Alaska Flood Authority then provides a 50 percent credit. This reduces the premium taxes the state collects by about $41-45 million. Based on the additional 6 percent tax, the fund is expected to collect more than $90 million a year. She said this is a problem, but if the legislature decides to move forward with a program, the division will work cooperatively to make it happen. 1:57:30 PM CHAIR COSTELLO asked if the requirement for mortgage holders to have insurance policies from the National Flood Insurance Program (NFIP) could be addressed in state statute. MS. WING-HEIER replied she didn't know that amending state statutes would help when the requirement is in federal statute. CHAIR COSTELLO noted who was available to answer questions. 1:58:24 PM CHAIR COSTELLO opened public testimony on SB 160; finding none, she closed public testimony. 1:58:40 PM CHAIR COSTELLO held SB 160 in committee for future consideration.