HB 36-MOTOR VEHICLE DEALERS: APPLIC.; INSURANCE  1:39:05 PM CHAIR MYERS announced the consideration of HOUSE BILL NO. 36 "An Act relating to an application for a license to operate as a dealer in motor vehicles; and requiring a dealer in motor vehicles to maintain liability and property insurance." 1:39:38 PM CHAIR MYERS moved to adopt Amendment 1, work order 32- LS0271\A.2: 32-LS0271\A.2 Fisher 4/14/21 AMENDMENT 1 OFFERED IN THE SENATE BY SENATOR MYERS TO: HB 36 Page 2, line 29, through page 3, line 2: Delete all material and insert: "Sec. 08.66.085. Insurance requirements. A dealer in motor vehicles shall maintain liability insurance for bodily injury and property damage on an auto dealer's form." SENATOR SHOWER objected for discussion purposes. 1:39:55 PM CHAIR MYERS explained that Amendment 1 was language requested by the sponsor and the Director of the Division of Insurance, Lori Wing-Heier. He asked the sponsor to explain HB 36. 1:40:09 PM REPRESENTATIVE MATT CLAMAN, Alaska State Legislature, Juneau, Alaska, as sponsor of HB 36, explained that Amendment 1 was language recommended by Lori Wing-Heier, Division of Insurance director as appropriate insurance for auto dealers. She also advised that minimum levels of insurance were not necessary because the insurance brokers would determine the right amount of insurance the specific dealer needed based on the volume of sales they had within the market. The key goal was to ensure dealers had insurance but not to mandate any specific level of insurance, he said. 1:41:34 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community and Economic Development (DCCED, stated that she met with the sponsor to discuss the insurance requirement in HB 36. Amendment 1 will provide the insurance requirement for automobile dealers that the sponsor intended, she said. 1:41:56 PM SENATOR KIEHL asked about price points for policies because the committee was interested in any increased costs for dealers. MS. WING-HEIER responded that the division researched premiums for the policies. She stated that premiums for auto dealers are rated on the number of fulltime employees. The annual rate per employee cost would be approximately $600 in Anchorage, $350 in Fairbanks and $300 for all other areas of the state. In addition, there would be loss cost multipliers (LCMs) to add and other factors, such as whether the employer had previous claims. She stated that the sponsor wanted liability insurance at $100,000 per accident with a $200,000 policy limit and a separate limit for property damage. She noted that she could not find an insurer that would write less than $1 million. She offered her belief that the rates would probably double the current dealer insurance rates. In addition, some insurance companies have a minimum insurance premium. It would be possible to have one fulltime employee and still pay $2,500. 1:43:55 PM CHAIR MYERS asked if that is per month. MS. WING-HEIER answered the rates were for annual policy amounts. Premiums would be based on what the company underwrites. For example, the insurance premium for a dealer with four employees at $600 each would total $2,400. In this instance, the rates were based on fulltime employees. 1:44:35 PM SENATOR SHOWER offered his view that the rates did not seem onerous. She asked what kind of impacts or barriers she foresaw for small businesses. He wondered if she had done any analysis. MS. WING-HEIER answered that she had not done so. She offered her belief that established businesses would receive better rates than a new dealer because the insurance company could review their claims. SENATOR SHOWER expressed concern that the capital outlay could be burdensome and create a barrier for a person who is just starting a business. 1:46:10 PM SENATOR MICCICHE joined the meeting. 1:46:24 PM REPRESENTATIVE CLAMAN outlined that the economic cost to become an auto dealer falls into two categories: the bond cost and the insurance cost. Currently, the cost of obtaining a bond of $50,000 is $500 to $1,000, depending on creditworthiness. An estimated increased cost of going from a $50,000 to $100,000 bond was $1,000 to $2,500. He clarified that he did not ask about the charge. He explained that typically the bond is sold by the same broker, so the minimum coverage might be less because the dealer would be buying the bond and insurance from the same broker. He estimated the total cost would range from $2,500 to $4,000 for someone initially starting a dealership. He said it strikes him as reasonable consumer protection considering that people would be spending from $15,000 to $30,000 for a used car. 1:48:14 PM CHAIR MYERS asked whether the costs would be too high for entry-level auto dealers. 1:48:48 PM MARTEN MARTENSEN, Owner, Continental Automobile Group, Anchorage, Alaska, related a scenario in which a wheel fell off while a driver was test driving a vehicle advertised on craigslist. MS. WING-HEIER answered the rates were for annual policy amounts. Premiums would be based on what the company underwrites. For example, the insurance premium for a dealer with four employees at $600 each would total $2,400. In this instance, the rates were based on fulltime employees. He related his understanding that every legitimate dealer has liability insurance and garage policies to protect themselves in the event of an accident. When Continental Auto takes a vehicle in trade, the dealer performs any reconditioning needed. If something goes wrong, the dealer needs that insurance coverage as protection. At a minimum, state law requires all vehicle owners to have liability insurance. He offered his belief that requiring liability insurance would not pose a barrier for anyone entering the car business; that's just something dealers must provide. 1:50:17 PM CHAIR MYERS related his understanding that HB 36 would effectively put what is already happening into statute. MR. MARTENSEN answered that legitimate auto dealers carry liability insurance. 1:50:45 PM SENATOR KIEHL pointed to a reputable dealer with a different business model. This dealer is not exclusively a car dealer but operates a boutique business on a very small scale geared toward a higher quality product. He stated that Amendment 1 would impose an increased obligation and cost for this dealer. He asked members to contemplate this. He said he would not object to Amendment 1, but he hoped to work with the Division of Insurance and the sponsor to explore lower-cost options to provide the minimum coverage. He stated that this remains a concern as the bill moves forward. 1:51:45 PM REPRESENTATIVE CLAMAN pointed out that Mr. Martensen brought up a good point. He highlighted the situation of an uninsured driver test driving a vehicle. He stated there should be protection for someone hit by an uninsured driver. That car should be insured just as his car is insured. If a driver test drives a car from the boutique dealer Senator Kiehl mentioned and the wheel falls off, it is due to a problem with the vehicle. If the driver is severely injured in that instance, the notion that the boutique dealer could operate without insurance would be troubling to the average consumer. The average consumer would expect a dealer to stand behind the defective vehicle, which is why liability insurance should be required. 1:53:10 PM SENATOR KIEHL agreed that uninsured motorists are problematic. He offered to continue to work on the issue going forward due to his concerns. He acknowledged that the potential insurance costs would more than double, so he would continue to contemplate it. 1:53:45 PM SENATOR MICCICHE offered his belief that the proposed insurance required by Amendment 1 appeared to be basic insurance coverage. He stated that he has insurance on every vehicle he owns. He said he wanted to be certain he understood Amendment 1. He asked what the difference was between the very basic level of insurance and Amendment 1. 1:54:47 PM CHAIR MYERS explained that Amendment 1 was recommended by the division. Currently, the bill takes the language aimed at an individual and applies it to a business. Amendment 1 would change the liability insurance requirements to better apply to businesses. The insurance company set the minimum requirements, not by statute. 1:55:24 PM SENATOR MICCICHE asked why the language "death" was being removed from AS 08.66.085. It previously read, "for injury, including death for any one person?." He asked whether the assumption was that the insurance for an auto dealer would include that level of protection. REPRESENTATIVE CLAMAN deferred to Ms. Wing-Heier. MS. WING-HEIER responded that the insurance policies currently have a single limit of $1 million, whereas personal auto coverage is $50,000 per person, $100,000 per accident and $25,000 for property damage. Amendment 1 would require the $1 million limit, which includes bodily injury, including death. 1:56:48 PM SENATOR MICCICHE asked what the cost increase will be to auto dealers. MS. WING-HEIER replied that it was impossible to find an insurance company to write a policy for less than $ 1 million. She suggested that the minimum premiums would likely run about $2,500, whether the dealer has one employee or four employees. She said insurance companies or brokers could not afford to write policies for less. She indicated that the base rate could be $600 for an auto dealer with one employee in Anchorage. SENATOR MICCICHE asked whether these fees were for annual premiums. MS. WING-HEIER answered yes. 1:58:07 PM SENATOR SHOWER removed his objection. There being no further objection, Amendment 1 was adopted. 1:58:37 PM SENATOR MICCICHE commented that he heard from several auto dealers in his region. He offered that HB 36 was not a burdensome bill. For example, if one of his daughters were to test drive a vehicle, he would want the dealer to be reputable, one who could be located if something went wrong, and one who has insurance coverage for test drives. He said he was worried about the cost of entry for smaller dealers. However, it seemed as though most held this level of insurance anyway. He offered his view that the provisions in HB 36 were not burdensome and seemed fair. CHAIR MYERS asked the will of the committee. 1:59:57 PM SENATOR SHOWER moved to report HB 36, work order 32-LS0271/ as amended, from committee with individual recommendations and attached fiscal note(s). CHAIR MYERS found no objection and SCS HB 36(TRA) was reported from the Senate Transportation Standing Committee. He stated that Legislative Legal is directed to make any changes to the language, including technical, conforming, or bill title changes to accomplish the intent of any conceptual changes to the bill.