HOUSE LABOR AND COMMERCE STANDING COMMITTEE April 7, 1997 3:26 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative John Cowdery, Vice Chairman Representative Bill Hudson Representative Jerry Sanders Representative Joe Ryan Representative Tom Brice Representative Gene Kubina MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 137 "An Act relating to veterinarians; extending the termination date of the Board of Veterinary Examiners; and providing for an effective date." - MOVED CSHB 137(L&C) OUT OF COMMITTEE * HOUSE BILL NO. 208 "An Act relating to the board of directors of the Alaska Aerospace Development Corporation." - MOVED CSHB 208(L&C) OUT OF COMMITTEE HOUSE BILL NO. 207 "An Act relating to employer drug and alcohol testing programs." - MOVED CSHB 207(L&C) OUT OF COMMITTEE HOUSE BILL NO. 218 "An Act relating to regulation and examination of insurers and insurance agents; relating to kinds of insurance; relating to payment of insurance taxes and to required insurance reserves; relating to insurance policies; relating to regulation of capital, surplus, and investments by insurers; relating to hospital and medical service corporations; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 137 SHORT TITLE: BOARD OF VETERINARY EXAMINERS; LICENSE SPONSOR(S): RULES BY REQUEST OF BUDGET AND AUDIT COMMITTEE JRN-DATE JRN-PG ACTION 02/13/97 334 (H) READ THE FIRST TIME - REFERRAL(S) 02/13/97 334 (H) LABOR & COMMERCE 03/21/97 (H) L&C AT 3:15 PM CAPITOL 17 03/21/97 (H) MINUTE(L&C)  BILL: HB 208 SHORT TITLE: ALASKA AEROSPACE DEVELOPMENT CORP. BOARD SPONSOR(S): REPRESENTATIVE(S) AUSTERMAN JRN-DATE JRN-PG ACTION 03/24/97 806 (H) READ THE FIRST TIME - REFERRAL(S) 03/24/97 806 (H) LABOR & COMMERCE 04/07/97 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HB 207 SHORT TITLE: EMPLOYER DRUG TESTING PROGRAM SPONSOR(S): REPRESENTATIVE(S) GREEN JRN-DATE JRN-PG ACTION 03/21/97 785 (H) READ THE FIRST TIME - REFERRAL(S) 03/21/97 785 (H) LABOR & COMMERCE, JUDICIARY 04/04/97 (H) L&C AT 3:15 PM CAPITOL 17 04/04/97 (H) MINUTE(L&C) BILL: HB 218 SHORT TITLE: OMNIBUS INSURANCE REFORM SPONSOR(S): LABOR & COMMERCE BY REQUEST JRN-DATE JRN-PG ACTION 03/27/97 872 (H) READ THE FIRST TIME - REFERRAL(S) 03/27/97 872 (H) LABOR & COMMERCE 04/04/97 (H) L&C AT 3:15 PM CAPITOL 17 04/04/97 (H) MINUTE(L&C) WITNESS REGISTER SHIRLEY ARMSTRONG, Legislative Assistant to Representative Norman Rokeberg Alaska State Legislature Capitol Building, Room 24 Juneau, Alaska 99801 Telephone: (907) 465-4954 POSITION STATEMENT: Provided information on CSHB 137(L&C). REPRESENTATIVE ALAN AUSTERMAN Alaska State Legislature Capitol Building, Room 434 Juneau, Alaska 99801 Telephone: (907) 465-2487 POSITION STATEMENT: Presented sponsor statement for HB 208. JEFFREY LOGAN, Legislative Assistant to Representative Joe Green Alaska State Legislature Capitol Building, Room 118 Juneau, Alaska 99801 Telephone: (907) 465-4931 POSITION STATEMENT: Presented sponsor's position on HB 207. MARIANNE K. BURKE, Director Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, Alaska 99811-0805 Telephone: (907) 465-2515 POSITION STATEMENT: Provided department's position and answered questions regarding HB 218. ACTION NARRATIVE TAPE 97-35, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:26 p.m. Members present at the call to order were Representatives Rokeberg, Cowdery, Ryan and Kubina. Representatives Brice, Sanders and Hudson joined the meeting at 3:27 p.m., 3:30 p.m. and 3:55 p.m., respectively. HB 137 - BOARD OF VETERINARY EXAMINERS; LICENSE Number 0030 CHAIRMAN ROKEBERG announced the first order of business was House Bill No. 137, "An Act relating to veterinarians; extending the termination date of the Board of Veterinary Examiners; and providing for an effective date." Number 0075 REPRESENTATIVE JOHN COWDERY made a motion to adopt as a work draft version 0-LS0549\E, Lauterbach, 4/3/97. CHAIRMAN ROKEBERG called a brief at-ease. He then asked the committee aide to explain the situation with HB 137. Number 0153 SHIRLEY ARMSTRONG, Legislative Assistant to Representative Norman Rokeberg, said when HB 137 was before the committee previously, they made changes to conform to changes the Senate Labor and Commerce Committee had indicated they would make. Since then, she had held the committee substitute drafted at that time. The Senate committee had made no further changes. Therefore, what the House Labor and Commerce Committee discussed at the previous hearing was exactly what was before them now. Number 0208 REPRESENTATIVE COWDERY asked whether the same fiscal note applies. MS. ARMSTRONG affirmed that. There was no increase in the number of members. The major change is on page 3, line 5. Some veterinarians had a problem with the practical examination; there is still no consensus on that. They would prefer to remove that exam, saying it is essentially the same as the other exam they already take. However, a group of veterinarians in Alaska believes they should have knowledge of Alaska-specific maladies. She cited the high incidence of rabies as an example. "If there is any controversy, that's the only one," she stated. "Other than that, everybody else has pretty much indicated the rest of the changes are not significant." Number 0337 REPRESENTATIVE JOE RYAN asked about the penned-in notation on page 3, line 18, of the draft. MS. ARMSTRONG advised that was her own note. Number 0376 CHAIRMAN ROKEBERG asked for verification that nothing in the bill affects Iditarod-type veterinarians, for example. MS. ARMSTRONG said no, they obtain permits under "that last section where we were making a note." She said there was a discussion about veterinarians coming to Alaska, setting up shop for two or three months in the summer and doing business. That was why she had made the notation, as she questioned whether that should be changed or reduced. For the Iditarod, for example, someone could get a 60-day renewable permit, for a total of 120 days. MS. ARMSTRONG said apparently the Senate had not dealt with that. "What they've been trying to avoid on these boards is so they don't have to go to a conference committee," she said. "So we've been trying to keep them the same. But they haven't reached any agreement on the Alaska issue, and I'm not sure what they would do if we changed the current law." CHAIRMAN ROKEBERG asked if there was any objection to passage of the bill. He advised that the committee substitute had already been adopted. Number 0497 REPRESENTATIVE RYAN made a motion to move CSHB 137(L&C) from committee with individual recommendations and accompanying zero fiscal note. CHAIRMAN ROKEBERG, hearing no objection, advised that CSHB 137(L&C) moved from the House Labor and Commerce Standing Committee. HB 208 - ALASKA AEROSPACE DEVELOPMENT CORP. BOARD CHAIRMAN ROKEBERG announced the next order of business was House Bill No. 208, "An Act relating to the board of directors of the Alaska Aerospace Development Corporation." Number 0568 REPRESENTATIVE ALAN AUSTERMAN, sponsor, asked whether this was on teleconference. CHAIRMAN ROKEBERG said no. Number 0616 REPRESENTATIVE AUSTERMAN explained that he has been serving as an ex officio member on the Alaska Aerospace Development Corporation (AADC) board of directors for the last two and a half years. During the first few months on the board, he became concerned over the lack of business people on the board, as well as with business practices within the corporation. This led to introduction of the previous year's HB 533, which passed the House and is identical to HB 208. REPRESENTATIVE AUSTERMAN referred to a break-down included in committee packets showing the existing board and proposed changes. The current board has four University of Alaska personnel. When they started the AADC, it was proper to have four university members who could study aerospace in Alaska as a science. However, they are past that point. They have determined this is feasible, scientifically sound and should be done. Adding business members will provide a broader business sense for running the corporation and the business of launching rockets in Alaska. REPRESENTATIVE AUSTERMAN advised that the AADC has projects that include more than the university, such as the ground stations in Fairbanks and the proposed Challenger Learning Center. They are also working with the Alyeska Pipeline Service to monitor pressure valves, for example, through use of satellites. REPRESENTATIVE AUSTERMAN said as the chart shows, they want to add two business people and another "commercial space" person. Currently, one board member is the executive director of the Alaska Science and Technology Foundation (ASTF), and one is the commissioner of the Department of Commerce and Economic Development (DCED) or the commissioner's designee; one reason for dropping the ASTF member is that the DCED has plenty of coverage. In fact, the commissioner could appoint the ASTF executive director as the designee. Number 0884 REPRESENTATIVE AUSTERMAN referred to page 2, lines 27 and 28, and advised that according to statute, the university president is a board member and is appointed as chairman. This bill changes it so that the board selects its own chair and vice-chair. REPRESENTATIVE AUSTERMAN discussed transitional provisions, listing expiration dates for several members' terms. Some positions being eliminated have already expired. He suggested the Governor make those appointments right away. Number 1003 CHAIRMAN ROKEBERG suggested other members would be allowed to serve out their terms and there would be an orderly transition. REPRESENTATIVE AUSTERMAN concurred. Number 1023 CHAIRMAN ROKEBERG asked whether Representative Austerman thinks there will be any difficulty in attracting aerospace or commercial space members. Number 1046 REPRESENTATIVE AUSTERMAN said no. He had talked to Pat Ladner, executive director of the AADC, and to others (such as board member Courtney Stadd) who believe there is enough interest in the rocket launch facility that finding members would not be a problem. Number 1077 CHAIRMAN ROKEBERG advised that a copy of committee minutes from the previous year's HB 533 was in the packet. That bill passed the House by a vote of 37 to 1. Number 1103 REPRESENTATIVE GENE KUBINA said he recently sent the sponsor a memo asking that he consider replacing the public member with a "K-12 educator" in order to get children involved in high technology science. Number 1154 REPRESENTATIVE AUSTERMAN advised that he had no problem with the public member. There are two business people; two from the university; the commissioner of DCED; and two from the aerospace or commercial space industry plus one from commercial space. He suggested that the committee decide whether to replace the public member with someone from the school system. Number 1188 CHAIRMAN ROKEBERG asked whether the Challenger Learning Center in Kenai was involved under the title of this bill. REPRESENTATIVE AUSTERMAN replied that it is a separate entity. CHAIRMAN ROKEBERG said there had been discussions in the past about some relationship with that. Number 1217 REPRESENTATIVE KUBINA said if someone is interested and has a background in the education community, children may become interested through the schools. It is a good way to get information out to the community and generate support. He suggested making it a public board member "and/or K-12 educator." That would make a statement but still leave the Governor the option of going a different way. REPRESENTATIVE AUSTERMAN said he had no problem with it. Number 1302 CHAIRMAN ROKEBERG asked Representative Austerman whether he knew of anybody that would not support the legislation as written. REPRESENTATIVE AUSTERMAN said the AADC is not necessarily happy with this. The university regents are not happy about being removed from the board. Additionally, the executive director is not happy with having the board changed. Number 1368 CHAIRMAN ROKEBERG said the fiscal note was for increased travel and honorarium expenses. He expressed concern about not having testimony from the executive director. However, the bill, which he believes is a good one, would go to the House Finance Committee. Number 1415 REPRESENTATIVE AUSTERMAN said the fiscal note is arguable. It is there because of adding a third commercial space member, who will likely come from outside the state. He suggested adding an Alaska school teacher and eliminating the third commercial space member would result in a zero fiscal note. Number 1467 REPRESENTATIVE KUBINA made a motion to delete one "aerospace or commercial space" and insert one "Alaska K-12 educator". That would eliminate the out-of-state person and thus the $10,000 fiscal note. CHAIRMAN ROKEBERG closed public testimony. He expressed concern because this is a business enterprise. He agrees with Representative Kubina's idea conceptually and that the more public input, the better. He noted that this had already created a little "flap" on Kodiak Island. However, this is rocket science. The corporation is moving from an incubation period into a business period. He believes hard and fast decisions need to be made on the board by business-related people. He said, however, he was certainly willing to listen to compromise suggestions if the sponsor is willing. Number 1566 REPRESENTATIVE AUSTERMAN said he had already spoken to the executive director. He referred to the "flap" on Kodiak and said that occurred because all the business of the AADC has been done in Anchorage. Nobody is directly interacting with the people of Kodiak regarding a new rocket launch facility going in there. REPRESENTATIVE AUSTERMAN stated, "We've been on AADC's case for three years now to hire somebody to do the PR work in Kodiak, to be the front person, to do the kind of things that naturally would be done. If you're putting a business into a new community, you go in and do your PR work and do all the stuff that's necessary as a business entity. But you don't ignore them." He suggested that even with a school teacher member, the way it is structured with two new business people plus the two aerospace or commercial space members, that board should have the ability to do what it needs to. Number 1620 CHAIRMAN ROKEBERG asked about the ex officio board members. REPRESENTATIVE AUSTERMAN said there is a Senate member and a House member. CHAIRMAN ROKEBERG asked whether an educator could be made an ex officio member rather than a voting member. He suggested that educator could be from Kodiak. Number 1653 REPRESENTATIVE RYAN questioned whether they would get a person with expertise in this field. He discussed having a K-12 local teacher who knew little about space versus someone living elsewhere in the state who was knowledgeable and excited about it. He said he had no problem with replacing the public member with a K-12 educator. Number 1693 REPRESENTATIVE TOM BRICE said while he understands the need for the board to have a high level of attention paid to it from the business end, he believes it still falls under the guise of state government. By putting an educator on the board, there is a large potential for dissemination of information. Instead of everything going into the board, something would come out of it. He suggested the teacher did not need to be from the math or science field but could teach economics or business, for example. He cited the board of regents, where 95 percent of members come from business backgrounds but there is a student regent with equal authority as far as voting. CHAIRMAN ROKEBERG asked whether there were strong feelings about this member being ex officio or replacing someone else. Number 1793 REPRESENTATIVE AUSTERMAN referred to the fiscal note. He said when the bill passed the previous year with the exact same make-up as in this bill, the AADC did not come forward with a $10,000 fiscal note. He again stated that the AADC is the one opposing this bill. Number 1820 REPRESENTATIVE BRICE asked whether an ex officio member would have the same ability as a full-fledged member to travel to board meetings and participate, but only be unable to vote. If that is the case, to him it is a toss-up. However, if an ex officio member does not get the same information everyone else does or is not allowed to participate in executive sessions, for example, he believes that is a concern. Number 1872 REPRESENTATIVE BILL HUDSON, who had recently joined the meeting, asked whether there was an amendment before the committee. CHAIRMAN ROKEBERG said they were talking conceptually about it. Number 1887 REPRESENTATIVE KUBINA offered a written amendment, which read: Page 2, line 16: delete "public member" and insert "public school educator" Number 1907 REPRESENTATIVE AUSTERMAN referred to Representative Brice's question and said currently in statute for AADC, it spells out that two members of the legislature shall be ex officio members. It also says voting and nonvoting members of the board are entitled to per diem and travel expenses authorized. Therefore, ex officio members would be covered. REPRESENTATIVE BRICE asked whether there was access to executive meetings as well. He said he would assume that. REPRESENTATIVE AUSTERMAN said he would assume that also. However, it does not specify executive sessions in statute; they would need to look at the bylaws. REPRESENTATIVE KUBINA asked whether adding another person would increase the fiscal note. Number 1946 REPRESENTATIVE AUSTERMAN restated that the previous year's bill carried no fiscal note. CHAIRMAN ROKEBERG said he had been leaning towards an ex officio member. However, by doing that, it would create a fiscal note, so he was withdrawing that idea. REPRESENTATIVE AUSTERMAN reiterated that he had no problem with replacing the public member. If they felt it necessary to replace one space member, he would argue against it a bit but would not oppose it. CHAIRMAN ROKEBERG concurred. He reminded them that the business of this business is to launch rockets. The three aerospace and commercial space members are fundamentally a de facto sales staff for the corporation because of their worldwide connections within that industry. That is why they are on the board and why their numbers are being increased. Number 2006 REPRESENTATIVE AUSTERMAN said there is also a good possibility the Governor might look at placing a school teacher as the public member anyway. All this would do is designate a school teacher instead of leaving it open-ended. CHAIRMAN ROKEBERG suggested making the amendment permissive. Number 2023 REPRESENTATIVE KUBINA said if the committee does not want to specify that, he would suggest saying "public school educator or public member". That would send a message indicating the desire for a public educator but leave it open. Number 2069 CHAIRMAN ROKEBERG stated that the amendment to the amendment is to put the words "public school educator or" before "public member". He asked if there were any objections. Hearing none, he advised that the amendment to the amendment was adopted. CHAIRMAN ROKEBERG asked if there was any objection to the amendment as amended. There being none, the amendment was adopted. Number 2085 REPRESENTATIVE KUBINA made a motion to move HB 208, as amended, from committee with individual recommendations and a zero fiscal note. CHAIRMAN ROKEBERG asked if there was any objection. There being none, CSHB 208(L&C) moved from the House Labor and Commerce Standing Committee with a zero fiscal note. HB 207 - EMPLOYER DRUG TESTING PROGRAM CHAIRMAN ROKEBERG announced the next item of business was House Bill No. 207, "An Act relating to employer drug and alcohol testing programs." CHAIRMAN ROKEBERG called an at-ease at 4:08 p.m. He called the meeting back to order at 4:15 p.m. He said HB 207 had been heard previously and testimony was by invitation. However, no one wished to testify. He closed public testimony. Number 2150 JEFFREY LOGAN, Legislative Assistant to Representative Joe Green, came forward to testify on behalf of the sponsor. He referred to a letter received from the Teamsters Local 959 dated April 7, 1997, which more clearly specifies some concerns they voiced last week. He reviewed these concerns for the committee. MR. LOGAN noted that in regards to the Teamsters' number one concern, the sponsor opposes it. The term "reasonable suspicion" only appears three times in state statute without a definition; only one time in case law, in a state court of appeals case, does it appear with some definition. The sponsor desires to replace this term. They asked the Teamsters for terminology from some of their current agreements that would fit into .620(b) to achieve the purpose they seek. The Teamsters' legal staff hasn't had time to do this yet but hope to do so by the time this legislation makes its way to the House Judiciary Committee. Number 2224 MR. LOGAN continued that in relation to item two, in the committee substitute, they could simply make a reference to federal standards in the testing. He felt this would achieve this objective. He felt the Teamsters' concern was that there is nothing in writing that the levels of the five main drugs should or should not be. If Alaska simply adopts federal standards, he felt this would take care of potential headaches. Number 2259 REPRESENTATIVE HUDSON noted that in looking over proposed amendments, almost every one has a legal implication. He suggested since the next committee of referral was the House Judiciary Committee, that the amendments be considered then. REPRESENTATIVE BRICE agreed with this assessment, but he thought Section 23.10.670 dealing with collective bargaining could be considered by the House Labor and Commerce Committee since it is so concise. He asked Mr. Logan to explain what this section does. Number 2322 MR. LOGAN stated that this language was inserted because in other states, labor representatives have requested this type of language. If their collective bargaining does come under the umbrella of this legislation, then they should have the right to do this. Organized labor would prefer this section be removed, and the sponsor has no problem with that. REPRESENTATIVE COWDERY stated that he was always reluctant to have amendments handed to them and absorb the related testimony. He felt they should move the bill with the attached correspondence so that the House Judiciary Committee could consider it. Number 2378 REPRESENTATIVE RYAN asked whether Representative Green had any problem with addressing these amendments in the House Judiciary Committee. MR. LOGAN responded that Representative Green has no problem addressing them, but adopting them there raises a few issues. Number 2390 REPRESENTATIVE BRICE stated that the only question he had related to .670 and the fact that there have been issues raised on other bills regarding rights of employees within collective bargaining units being of a different standard. He felt this establishes a potential situation like this again. If they pulled this out, they could possibly "head this off at the pass" before this issue ever arises, such as, "Well, these guys can do it because they're in a collective bargaining agreement, but these guys can't because they're not." CHAIRMAN ROKEBERG stated that his reading of Section .670 is that it would in effect negate any pre-bargained-for agreement by giving full benefits of this legislation to the employer, notwithstanding whatever the bargaining agreement said. He took exception to what Mr. Logan said earlier about this language not affecting existing collective bargaining agreements. Number 2449 MR. LOGAN responded that he didn't say it wouldn't have an impact. The point of this language is to allow for workers under a collective bargaining agreement, if they chose to adopt provisions outside of the umbrella of the bill, to do so. TAPE 97-35, SIDE B Number 0012 REPRESENTATIVE BRICE stated that what this section could potentially do, under existing agreements where the testing methods are not as tightly written as Representative Green's bill, is cause problems since the lesser standard would be applied. REPRESENTATIVE RYAN stated that if it was determined to be a lesser standard with a collective bargaining agreement, someone would still get the benefits, which means they avoid liability of being sued. His conversations with organized labor representatives indicate they would rather delete this and be on the same ground as everyone else, on a level playing field. They didn't necessarily want any special benefits. Number 0070 CHAIRMAN ROKEBERG said he appreciated this, but if they pass this law, the level playing field is the law then. He suggested that they remove the word "not" from the section. He noted that if the collective bargaining agreement was consistent with policies provided for in statute, the employer could have the immunity. Therefore, the collective bargaining agreement would have to be consistent with the law in order to acquire immunity. He noted that this was better than taking it out altogether. MR. LOGAN stated that this assessment was correct. This would be a good compromise. Number 0094 REPRESENTATIVE KUBINA noted that this option would dictate what goes into a collective bargaining agreement. CHAIRMAN ROKEBERG responded that this would have to be bargained for. If an employer wants to bargain for immunity, then he has to be consistent with the law. The unions would have to agree to this in the bargain. Number 0107 REPRESENTATIVE KUBINA added that by pulling it out, they have the testing program and they would be immune no matter what the collective bargaining unit says, because the law will supersede any collective bargaining unit. However, by taking the word "not" out, it seems like a mandate to be there. REPRESENTATIVE HUDSON stated that this was precisely why he suggested the committee not attempt to amend this legislation since this issue has legal implications. Number 0150 REPRESENTATIVE KUBINA offered that the committee ought to do their own work and said he didn't know what kind of deals have been made on this legislation. He said he was not big about moving it on to the next committee where the sponsor of this legislation is the chairman. He'd rather the House Labor and Commerce Committee spend the time and effort to make sure it's a good bill. CHAIRMAN ROKEBERG said no deals have been made. Number 0186 CHAIRMAN ROKEBERG agreed that on this particular labor issue, it belongs in the purview of this committee. As to the other amendments, he agrees with Representative Hudson. REPRESENTATIVE BRICE stated that the last clause of this section should be cut out, after the phrase, "even if the policy is not consistent with AS 23.10.600 - 23.10.699." Drug testing must be at this point in time up to standards with .670. Number 0234 CHAIRMAN ROKEBERG said he would prefer to go with, on page 7, line 5, deleting the words "even" and "not". REPRESENTATIVE RYAN reiterated that the sponsor included this language with the idea that they would protect the unions. The unions said they don't want it, and the sponsor said he doesn't care. Representative Ryan asked why they were addressing this language issue. He wondered why they just didn't delete it. Number 0253 CHAIRMAN ROKEBERG thought this option would encourage both the unions and employers to bargain, based on this law, and they could even adopt it by reference in their contract, which would be a very noncontroversial method of handling this situation. It gives both sides an argument that there is an existing state law and in order for an employer to have immunity, they must go through these other procedures, provided in the law, to protect the employee. Leaving this section alone is not fair either. It would have a negative impact on the worker or negate the collective bargaining process. CHAIRMAN ROKEBERG suggested moving an amendment on page 7, line 5, to delete the words "even" and "not." REPRESENTATIVE COWDERY made a motion to adopt that amendment. Number 0302 REPRESENTATIVE JERRY SANDERS objected. He believes they should remove the whole Section 23.10.670. CHAIRMAN ROKEBERG requested a roll call vote. Representatives Cowdery, Hudson and Rokeberg voted yes. Representatives Brice, Kubina, Ryan and Sanders voted no. Amendment 1 failed. Number 0378 REPRESENTATIVE SANDERS made a motion to remove Section 23.10.670 in its entirety. CHAIRMAN ROKEBERG objected for the purpose of discussion. Number 0388 REPRESENTATIVE COWDERY also objected and noted that these changes had legal ramifications. The information from the Teamsters came to the committee late, and he felt this issue should be debated in the House Judiciary Committee. CHAIRMAN ROKEBERG removed his objection. Number 0411 MR. LOGAN commented that they are committed to working with employer and employee groups, which both agree to a drug-free work place. He clarified that while they don't have a problem with removing this section, they haven't had a chance to look at this issue. They want to research the ramifications of taking this section out. He stated, "I want make sure the committee understands that if we do have an opportunity, which I'm sure we will, to look at it more in-depth in the next couple of days and it reappears in a Judiciary version, I hope the committee understands that we're not trying to go around anyone's back." REPRESENTATIVE COWDERY removed his objection. CHAIRMAN ROKEBERG advised that as the objection was removed, Amendment 2 was adopted. Number 0465 REPRESENTATIVE RYAN made a motion and asked unanimous consent to move HB 207, as amended, out of committee with individual recommendations and accompanying zero fiscal note. REPRESENTATIVE KUBINA objected for question purposes. He asked whether the chairman believes all remaining labor issues involved with this legislation should be under the purview of the House Judiciary Committee, along with the statement the sponsor's representative has made. Number 0492 CHAIRMAN ROKEBERG said absolutely. He commented that he is a member of the House Judiciary Committee. He promised the House Labor and Commerce Committee and the bill sponsor that there would be a full review of the Teamsters' letter, as well as issues relating to subjects that letter addresses. He also said he would work further on the section in question to accomplish everything the House Labor and Commerce Committee has attempted. Number 0526 REPRESENTATIVE KUBINA withdrew his objection. CHAIRMAN ROKEBERG, hearing no further objection, stated that CSHB 207(L&C) was moved out of the House Labor and Commerce Committee. Number 0534 CHAIRMAN ROKEBERG called an at-ease at 4:38 p.m. He called the meeting back to order at 4:39 p.m. HB 218 - OMNIBUS INSURANCE REFORM Number 0539 CHAIRMAN ROKEBERG announced the final item of business was House Bill No. 218, "An Act relating to regulation and examination of insurers and insurance agents; relating to kinds of insurance; relating to payment of insurance taxes and to required insurance reserves; relating to insurance policies; relating to regulation of capital, surplus, and investments by insurers; relating to hospital and medical service corporations; and providing for an effective date." Number 0564 MARIANNE K. BURKE, Director, Division of Insurance, Department of Commerce and Economic Development (DCED), came forward to testify. CHAIRMAN ROKEBERG noted that before the committee was version 0- LS0850\E, Ford, 4/3/97, adopted at the previous hearing. He asked Ms. Burke to confirm that this is the same language as in the companion Senate bill. MS. BURKE affirmed that. CHAIRMAN ROKEBERG asked Ms. Burke to describe the amount of review the bill has had on the Senate side. Number 0606 MS. BURKE explained that she had gone through the bill section by section in testimony before the Senate Labor and Commerce Committee. She had provided reasons for the proposed legislation, what prompted it, and comments, if any, received from the industry, the producers and the public. CHAIRMAN ROKEBERG asked if that generated the committee substitute. MS. BURKE said yes. In her opinion, it had a thorough review in the Senate. CHAIRMAN ROKEBERG requested a section-by-section review. He advised there is also a sectional analysis in the bill file. Number 0640 MS. BURKE said the first section clarifies something already in practice. When volunteers serve on technical committees, they are usually from industry. Transportation is paid and costs are reimbursed by their companies. However, volunteers could conceivably claim per diem and transportation expenses if it is not clear in Title 21 that this is voluntary participation. The division has requested that clarification. MS. BURKE discussed Section 2. The division is required by statute to submit an annual report to each member of the legislature. The original language was written years ago. When the division reviewed the statutes last year, they discovered much of the information required was no longer available, much less relevant. The division is asking that the language be updated and modernized to include the information that the division submits as to companies authorized to do business in the state and regulatory actions, if any, taken against them. This would include information regarding a company put into liquidation. MS. BURKE said Section 3 is a clarifying section. According to statute, when the division conducts a statutory examination of an insurance company, the company must reimburse the state for costs incurred. Currently, the division bills and is paid for transportation, salaries and benefits of examiners, out-of-pocket expenses and so forth. They are asking that this be expanded to include "what's actually happening." Number 0773 CHAIRMAN ROKEBERG asked what examinations are given. MS. BURKE explained that the division is required by statute to do financial examinations of companies doing business. CHAIRMAN ROKEBERG said this is not a test, then, but a financial examination. MS. BURKE said there are financial examinations and market examinations. They see that companies are abiding by contractual arrangements with policy holders and are not in violation of unfair trade practices under Chapter 36 of Title 21. She said it is a condition of doing business in all 50 states that companies must submit to an examination when called for, and Alaska Statutes spell out specific times. Number 0821 MS. BURKE said Sections 4 and 5 relate to collection of premium tax. The division is responsible for collecting, on behalf of the general fund, tax on premiums written in Alaska. Currently, the statute says the insurance company will pay that tax on or before March 1 each year. For these two sections, as well as sections pertaining to other lines of insurance, the division is proposing to collect those taxes on a quarterly basis. The division is also proposing that the director be allowed to use modern technology such as electronic transfer of funds so the state will receive the money more promptly. She advised that she had anticipated this being fought by "our domestics," which are already set up and already reporting on a quarterly basis in many states. Number 0899 CHAIRMAN ROKEBERG asked whether this is where the state is picking up an extra $485,000. MS. BURKE affirmed that. When talking about close to $30 million, receiving it a few days earlier and on a quarterly basis, as opposed to yearly, has a significant financial impact. CHAIRMAN ROKEBERG asked whether that is money generated from interest. MS. BURKE said yes. CHAIRMAN ROKEBERG asked whether that is applicable to the DCED or is general fund money. MS. BURKE replied that it is general fund money. CHAIRMAN ROKEBERG said that is a calculation on general fund cash management, not premium income cash management. MS. BURKE concurred. Number 0933 REPRESENTATIVE RYAN referred to page 3, beginning with line 26, and continuing to page 4, line 10. He asked whether that is existing language with the exception of the portions for collecting. MS. BURKE said that is correct. Just the underlined portion is new. Number 0964 REPRESENTATIVE RYAN asked Ms. Burke to provide the history of why and where this particular amount of tax was ascertained to be equitable, as well as why the structure is set up to not allow people to take operating expenses under their claims. He said he was trying to figure the margin with this particular tax. MS. BURKE said she would be happy to provide that. "It is a most interesting history," she remarked. Number 0997 CHAIRMAN ROKEBERG asked whether this is similar to many other premium taxes "where you take the gross amount of premiums paid, less the losses, and that's where you calculate the tax, on the remainder of that calculation." MS. BURKE replied that the property and casualty companies are taxed a straight 2.7 percent of the premium. The hospital and medical corporations are taxed 6.5 percent of their premiums less their expenses. Title insurance is taxed at yet another rate. MS. BURKE explained, "If you take the actual expenses as reported in their annual statements to all states in the union, there is very little difference in the way that it works out, if you take a gross premium less expenses. Over time, there is going to be a variation between the bottom line. Sometimes it will be higher, sometimes it will be lower. But historically and for ease of collection, most states have a straight percentage of premium, depending on the type of insurance it is." She noted that surplus lines, which are lines not admitted in the state of Alaska, pay an additional 1 percent for the added risk involved and the additional oversight the division must give them because it has no statutory right of examination. CHAIRMAN ROKEBERG asked if they were at Section 6 now. Number 1124 MS. BURKE said yes. This is a simple matter of requesting that insurers that do business in Alaska inform the division when they change their address, phone number, articles of incorporation or other information that they had presented to the division to obtain a certificate of authority. The division believes 90 days is a reasonable time. She said it is surprising that many companies do not bother to notify them of such changes. Number 1170 MS. BURKE discussed Section 7. It basically levels the playing field. Domestic insurers are already required to maintain records for a certain period of time. The division is asking that all insurance companies maintain their records for a uniform, reasonable length of time. CHAIRMAN ROKEBERG noted that it specifies ten years. He asked what the length of time is now. MS. BURKE said it varies. CHAIRMAN ROKEBERG asked whether it varies with different types of lines. MS. BURKE said in Alaska, for domestic companies, it is ten years. MS. BURKE referred to Section 8 and said it is an interesting dilemma the division caught last year "that through inadvertent statutes several years ago, we are requiring that companies from other countries who want to come into Alaska and do business provide us with a certificate of solvency from their country." She said unfortunately, there is only one other country in the world that provides such a certificate. It was never anyone's intent to exclude every country in the world except Great Britain, which the current statute does. She said even though a company has no certificate of solvency from their country, it still must have its audited financial statements. Number 1294 REPRESENTATIVE RYAN referred to page 5, line 8. He said a trustee's basic job is administration and keeping records. He noted that the legislature is requiring audits from everybody; those go in a drawer and are not looked at. Meanwhile, millions of dollars are paid to certified public accountants to do this. He asked whether it would be acceptable if a person could come up with a certified audit in the normal course of business. He said he does not want this language to preclude that. MS. BURKE replied that the trust referred to here is the U.S. trust for companies from foreign countries doing business in the U.S. It arose during World War II, when companies from Germany, for example, could not pay claims from U.S. policy holders. All states agreed one trust agreement would be established for all entities wishing to do business in the United States. A certain dollar amount would have to be on deposit in a U.S. bank to assure U.S. policy holders of having money to pay claims. She said to the extent the word "trust" is used here, that is the context in which it is used; she cited an example. She said those trusts are audited one time, and only once, for all states. "We do not do a separate audit, nor do we have the authority to do a separate audit of a trust that has already been audited for all members of the states," Ms. Burke added. Number 1486 REPRESENTATIVE RYAN said nobody with a considerable amount of money would put it in a U.S. bank, which would provide a negative return and be throwing it down the drain. MS. BURKE offered to discuss it with Representative Ryan further, stating that it is in U.S. banks. CHAIRMAN ROKEBERG asked whether this is a common business practice. MS. BURKE replied, "And it has been for the past 50 years." Number 1539 MS. BURKE said Section 9 is an interesting situation. As the law is written, only property and casualty companies can provide stop- loss insurance, which is an insurance that kicks in when a certain dollar level is reached. She explained, "You decide that you will keep the first $25,000 or $100,000, or whatever, uninsured; that's just your risk. But you don't want your risk to be unlimited. So you buy stop-loss insurance." As increasing numbers of employers look to self-insure for health insurance, they are purchasing stop- loss insurance. CHAIRMAN ROKEBERG asked if that is like reinsurance. MS. BURKE said it is a form of reinsurance but somewhat different in that it contractually spells out the dollar amount for each party. It is sometimes referred to as "self-insurance retention." Section 9 would permit companies writing health insurance in Alaska to also write stop-loss insurance. MS. BURKE said Section 10 defines stop-loss insurance in statute. "Right now, it refers only to property and casualty," she added. "Again, this is to bring us into the modern age." Number 1648 REPRESENTATIVE RYAN noted that the state would be self-insuring beginning July 1. He asked whether the state will buy one of these policies to cover the portion over and above what they themselves would put up. MS. BURKE said she does not know, as they are not involved in that. Number 1690 MS. BURKE said Section 11 clarifies that the domestic insurer will provide information. Right now, the division must send a letter requesting information each year. They want some efficiency and for the insurer to automatically submit that information. MS. BURKE explained that Section 12 is also an efficiency provision, clearly defining "risk based capital instructions". This would permit the director, after holding an open hearing in accordance with appropriate statutes, to adopt those instructions for the insurers. She stated, "They must have those instructions. Currently, we have to do it through regulation, which is very costly and inefficient." Number 1756 MS. BURKE discussed Section 13, which establishes minimum reserves for health insurers. Sections 13, 14 and 15 apply to actuarial determinations of how much an insurance company should have available. She emphasized these are minimum standards. Comments the division had received from insurers representing 60 percent of all insurers in the country have supported this methodology. MS. BURKE said Section 16 is to protect both policy holders and companies. If there is an agreement to hold securities, the custodian must indemnify them if they lose those securities by theft, mysterious disappearance or destruction, for example. She said it is a good business practice, and most companies have it in their agreements. However, insurance companies have not been able to get this kind of an agreement. "And we feel that that is important for the security of everyone," she stated. Number 1850 MS. BURKE said Section 17 is editorial, adding the word "or". MS. BURKE said Section 18 eliminates a redundancy in statute. She stated, "If an attorney in fact of a reciprocal insurer such as Alaska Timber is only providing services to Alaska Timber ... and they are licensed appropriately, they should not have to have an additional license to do work that they're not doing. We would like to be as efficient as we could." MS. BURKE stated that Section 19 codifies a current procedure. When a licensee applies for a license, they submit the information, certified, to the division. She explained, "We ask them to do so under oath. We have found that it is much easier to not grant a license than take a license away when we find out someone has been convicted of embezzlement or someone has been convicted of ripping off a trust account. And that is currently being done. We would just like to codify it." Number 1941 MS. BURKE referred to Section 20, relating to shared commissions. Currently, if any licensee gives kick-backs, which is what shared commissions are, that is illegal. But a person who is not licensed can give kick-backs on these commissions. The division wants an even playing field. Number 1990 REPRESENTATIVE RYAN asked why someone should not be able to help somebody else and be paid compensation for that help. MS. BURKE replied that the cost of shared commissions or kick-backs is passed on to policy holders. She said part of the division's responsibility, as defined by the Alaska Supreme Court, is to ensure there are no unfair trade practices. "If I give you a portion of my commission and then pass that cost on to the consumer, I am charging that consumer more than what would be charged to another consumer," she stated. "And that has been considered and ruled by the supreme court to be an unfair trade practice." Number 2108 CHAIRMAN ROKEBERG asked whether there is any tradition or custom in the insurance industry of paying referral fees to any outside party. MS. BURKE replied, "Not anywhere in the United States." CHAIRMAN ROKEBERG asked why they were worried about prohibiting it. MS. BURKE replied, "Because they don't call it a referral fee. They say, `I'm just taking part of my commission and giving it to you.'" REPRESENTATIVE RYAN said that is standard practice in a lot of businesses. CHAIRMAN ROKEBERG asked whether insurers were allowed to pay any kind of referral fee to another business entity that refers business to them. MS. BURKE said no. That is true throughout the United States. Number 2172 MS. BURKE said Section 21 is to conform the division's licensing with the welfare bill passed the previous year. It permits a temporary license. MS. BURKE said Section 22 is to modernize language. Currently, the division can only serve an individual a notice by certified mail. The previous year, an agent had a totally computerized business with a "remote delete ability." The division obtained a court order to go in immediately because of the fear that as soon as the agent was served notice, he would delete those records. She advised that the agent has been convicted of misappropriating $160,000 of policy holder money. "We would like to be able to serve notices in person," she stated. MS. BURKE said Section 23 is to ensure that a person illegally transacting insurance business cannot receive financial rewards for doing so. She advised that people from the Lower 48 sell bogus insurance policies in Alaska and keep the money, for example. Number 2324 MS. BURKE said Section 24 is a barrier that requires "that a third- party administrator can be a very reputable third-party administrator as a spinoff of another very reputable company, but unless they've got two years of stand-alone financial statements, we cannot issue them a license." The division would like to be able to look at businesses for the time they have been in business and make "a reasoned decision" on that. MS. BURKE said Sections 25 and 26 recognize that Lloyd's is no longer an entity unto itself; there are both personal and incorporated syndicates, which these sections establish as recognized entities within the state to do business under statutes formerly reserved for Lloyd's only. TAPE 97-36, SIDE A Number 0006 MS. BURKE advised that Sections 27 and 28 are the same scenario described earlier about collecting premium tax on a quarterly basis and using modern technology to do so, only these sections apply to surplus lines. MS. BURKE said Section 29 is a clarification using the proper name for the entity referenced in that particular section, which is the Comprehensive Health Insurance Association. MS. BURKE said Section 30 is a requirement that has been subject to the review process of the National Association of Insurance Commissioners (NAIC) model unfair trade practices act, which requires an insurance company to maintain records of complaints they receive, which the division then reviews during a "market conduct examination." Number 0111 MS. BURKE said Section 31 is to provide that an insurance policy can only be "nonrenewed" at the anniversary date. This only applies to personal property or casualty. It provides assurance that rates will not go up every month or two. "But you still have the right to rerate at the end of the policy period," she added. Number 0157 REPRESENTATIVE COWDERY proposed an example and asked whether an insurance company has the right to raise rates for any reason. MS. BURKE replied, "Property and casualty, they must raise rates uniformly, and they must get our approval. They've got to show us that it is justified. And they do have criteria that has to be filed with us. If you have a history of claims of so many a period, then that is a legitimate reason to look at it as an underwriting criteria." REPRESENTATIVE COWDERY said he would contact Ms. Burke later. Number 0337 CHAIRMAN ROKEBERG asked for confirmation that property and casualty insurance does not include auto insurance. MS. BURKE replied, "Yes, it does." CHAIRMAN ROKEBERG said under the present statute, if there was going to be a "nonrenewal," only 20 days' notice was required to an individual policy holder. MS. BURKE said that is correct except for a corporation, for which it is 45 days. CHAIRMAN ROKEBERG suggested that is not fair to "John Q. Public." It is existing statute not covered by the bill, however. MS. BURKE said she believes it is 30 days but is unsure. Number 0413 MS. BURKE advised that Section 33 is a requirement that if insurers and licensees have people who are embezzling or guilty of defalcation, they must notify the director. The division wishes to avoid the prevalent situation where a producer goes from one state to another. "If we haven't been notified of it, we are at their mercy," she said. "Currently, all insurance companies must notify us. But agencies, et cetera, do not." CHAIRMAN ROKEBERG asked what "defalcation" means. MS. BURKE said embezzlement and defalcation are basically the same. Defalcation, however, does not require proof of deliberate intent. Number 0526 MS. BURKE said Section 34 is to put in the term "construction industry," omitted in HB 237 two years before. MS. BURKE said Section 35 clarifies that the issue of rates for individual health insurance is not a separate issue when talking about Medicare supplemental insurance. She explained, "The wording makes it sound like they are two different things, when in fact, using federal language, it is Medicare supplemental individual health insurance. It is a clarification that has created some major problems, and we would like to be consistent." MS. BURKE stated that Section 36 is long overdue. It is requiring that insurance companies coordinate benefits. Currently, a person can make money on the "business of being sick," collecting more than is spent. There is no statutory prohibition against it. Ms. Burke cited an example involving a state employee who collected $65,000 in excess of what she paid because two insurance companies did not bother to coordinate benefits. This drives up the cost of health care. Number 0711 CHAIRMAN ROKEBERG noted there are many instances where two wage earners in a family have different coverage, with one covering the deductible, for example. MS. BURKE responded, "Up to 100 percent. That's still permissible. But it shouldn't pay you 200 percent." CHAIRMAN ROKEBERG asked if that particular 100 percent provision is in statute now. MS. BURKE said this would put it there. Coordination of benefits is defined as no greater than 100 percent. CHAIRMAN ROKEBERG asked whether that is being added with this provision. MS. BURKE replied, "And requiring the insurance companies to coordinate those. If you're covered under your policy for 80 percent and your spouse has a policy that also covers you, they will pay the additional 20 percent. So you're reimbursed fully for all of your cost." CHAIRMAN ROKEBERG asked: If he had two policies on a piece of personal property and it was stolen, could he make two claims? MS. BURKE replied, "Up to the limits of your policy on each one of the claims, yes." CHAIRMAN ROKEBERG asked whether the earlier discussion applies only to health insurance. MS. BURKE affirmed that. CHAIRMAN ROKEBERG suggested if he had paid the money for two premiums, he should be able to double-dip. MS. BURKE replied that under health insurance, a person could manipulate it. "If you had your vehicle stolen, it can only be stolen one time," she noted. "But it is possible to go into the doctor every couple of days for a complaint." Number 0839 MS. BURKE said Section 37 clarifies when the insurance coverage will change as a result of legislative mandates. It will either be the effective date of the law or the next renewal date. There has been a major problem of trying to change those provisions in mid- policy. MS. BURKE advised that Section 38 puts into statute that rates not be excessive, inadequate or unfairly discriminatory for health insurance. That is already a requirement for all other types of insurance. MS. BURKE said Section 39 is premium tax again, as it applies to the title insurance industry. Number 0911 MS. BURKE said Section 40 is the result of a task force formed to look into title insurance, as a result of legislation introduced the previous year. "This is the consensus of the industry and the division that investment income should be an element considered," she stated. CHAIRMAN ROKEBERG asked: Considered for what? MS. BURKE replied, "In determining whether the cost is excessive, inadequate or discriminatory." CHAIRMAN ROKEBERG asked whether that is for calculating premium rates. MS. BURKE said yes. She noted that a bill introduced the previous year related to title insurance. She stated, "And one of the problems had always been for us to get the information we needed to determine if it was adequate, not excessive, because there was no definition of what went into those categories. Investment income on the collected premiums is a major source of income and should be considered." MS. BURKE advised that Section 41 is in response to a request by a domestic insurer. She said 95 percent of its shareholders reside in Barrow. However, statutes require that their annual meeting be held in the city of their principal office, which is Anchorage. She stated, "We are requesting that upon showing of good cause, that the director be allowed to permit them to have an annual meeting in a location other than their principal place of business." Number 1046 MS. BURKE explained that Section 42 refers to what is known in the industry as "surplus notes," a loan put into the equity section rather than on the liability side. She stated, "We would like to be able to approve such a transaction before they enter into it and that they only be allowed to repay that money with the permission of the director. What happens is a parent company will infuse $10 million to make their subsidiary's balance sheet look good, but it's not really a loan. They put it in, $10 million cash and $10 million of equity. But they expect to get it back. We just want to be able to know what they are doing and approve when they pay this money back, so as not to put the shareholders or the policy holders at risk. This is in statute in most other states; it has not been addressed in Alaska." CHAIRMAN ROKEBERG asked what surplus funds are. MS. BURKE said they call this note a "surplus note." Although they infuse money, when the parent company needs some back, they take it straight out of equity. CHAIRMAN ROKEBERG asked whether they were meeting some underwriting requirements and their equity positions with this surplus note. MS. BURKE said, "With a pseudo-loan. We like to think of it as creative, and we want to know when they're involved in creative accounting." CHAIRMAN ROKEBERG asked whether this would be a burden on companies. MS. BURKE replied, "None of our domestics, with the exception of one that is in financial trouble, has ever attempted to do it." Number 1182 MS. BURKE said Section 43 is simplification. She stated, "And it gets back to what I described earlier. If an individual is acting as attorney in fact for a wholly-owned subsidiary and no other company, that they would not need to have an additional license." She said there is such a thing as overkill in licensing and that it does not add assurance. MS. BURKE defined companies: A domestic is an Alaska company; a foreign is a U.S. company; and an alien is from another country. Number 1255 MS. BURKE advised that Sections 44 and 45 apply to the "joint insurance arrangement" (JIA). Current statute requires the JIA to provide two different reports, one to the legislature and one to the director. She explained the JIA is a group of governmental entities, political subdivisions and school districts to which the legislature granted authority to enter into self-insurance many years ago. "We have no authority to regulate them," she stated. "The regulation is entirely the responsibility of the legislature. But we were receiving a report from them, which we can just file." CHAIRMAN ROKEBERG asked whether the Municipality of Anchorage was self-insured for liability insurance. MS. BURKE said they are not part of the JIA, which is usually smaller political subdivisions. MS. BURKE said under this section, the JIA would file the same report with the division as with the legislature; it would also give them additional time to complete the report. She explained, "Right now, they're not in compliance with law because the time given them is not realistic. And they had asked for the additional time, which we agree makes sense. We'd rather have an accurate report than a report that's rushed to us." MS. BURKE said as she reads it, this group is allowed to self- insure because they have the ability to tax. They can, if faced with a severe, catastrophic loss, raise the money through taxation. The legislature has been careful to not expand that arrangement to other entities lacking that kind of fall-back. CHAIRMAN ROKEBERG asked whether they have a "mutual aid agreement." MS. BURKE replied, "They enter into an agreement where they share any losses among themselves. They have been quite successful. They've been very conservative. They started out fully funding, putting all the necessary funds into the JIA. They run it exactly like an insurance company." CHAIRMAN ROKEBERG suggested it is a huge jump from 60 to 150 days. MS. BURKE said that is correct. However, they are required to give an actuarial opinion on their reserves. It usually takes from 30 to 60 days to close the books on a company. CHAIRMAN ROKEBERG asked whether this is an annual report. MS. BURKE affirmed that. She stated, "The actuary cannot begin their work until after the books are fully closed." CHAIRMAN ROKEBERG asked how they did it before. MS. BURKE replied, "They didn't." Number 1469 MS. BURKE advised that Section 46 has to do with liquidations of insurance companies. She cited an example from the l980s where a company that sold workers' compensation insurance went into liquidation. The division has been trying to close that estate for almost ten years. However, whenever they get ready to close it, the state of Washington files another claim against it. MS. BURKE explained, "We would like to be able to avoid the cost of litigating every single claim and ask the judge to decide whether or not the receiver's decision is valid, and put an end to it." She said the only people who make money on this are receivers and attorneys. The policy holders and the guarantee funds that put up the money are still waiting to be paid off. She said, "We have more than 100 percent that we can return to these people. But we can't because of these constant claims. And we have to defend, and that just erodes the estate." CHAIRMAN ROKEBERG asked whether this language would cut off these claims. MS. BURKE said that is a good question. She stated, "No, the liquidation procedure is a very detailed set of procedure. It sets a time for the judge to bar claims. They have so many years in which to come forward with claims. This legislation would address those claims that come in after bar dates and are called `contingent claims.' You still have to litigate them. Throughout the country, receivers are charged with standing in the shoes of the company. If they exercise judgment outside of the statutory authority, the judge has the right and the responsibility to overrule them. This particular statute would simply say that when the judge says, `That's it,' that is, in fact, it." She said she hopes in her lifetime to see some of these closed. This will help. Number 1620 MS. BURKE explained Sections 47 and 48. They update terminology to recognize that there are managed care arrangements within the traditional indemnity companies. The terminology is archaic and the division wants to bring that up to date. MS. BURKE said Section 49 conforms the form filing requirements for medical hospital service corporations, "which in our case is Blue Cross," to the same as all other insurers offering the same line of business. Number 1663 MS. BURKE advised that Section 50 is to even the playing field again. Statute requires hospital and medical corporations to file their rating formulas with the division. This is proprietary information. Blue Cross and Alaska Vision are the only two such corporations in Alaska, and no other insurer has to do this. So the division immediately gets requests from all the other insurers for freedom of information to access the proprietary information and obtain their competitors' formulas. CHAIRMAN ROKEBERG asked how they were addressing this. MS. BURKE replied that on each piece of information, they rule that it is proprietary and deny the right to it; this can be challenged and dragged out for some time. The division wants to say that proprietary formulas do not have to be filed with them. If the division needs to see formulas, they can go to that company and look at them without bringing them into the division and subjecting them to a raid by competitors. CHAIRMAN ROKEBERG suggested if the division went to a company to review files, that would become part of the division's files and therefore be accessible under the freedom of information act. MS. BURKE replied, "Our exam files are confidential." Number 1846 MS. BURKE said Section 51 is for consistency. Currently, the hospital medical groups, Blue Cross and Alaska Vision, do not have to have the same reserves as other health insurers; however, they are in the same business. The division would like for anyone in the health business to have the same criteria for reserves. CHAIRMAN ROKEBERG asked what Blue Cross says about this. MS. BURKE replied, "They are currently doing this, but they don't have to. And if they chose to change it, they could do so and we could not say anything. They have concurred with this bill." Number 1961 MS. BURKE referred to Section 52 and said, "We're talking about the auto policies and the nonrenewal. This just makes it clear it does not apply to the seven-day policies that you can get on rental cars. This is a totally different animal than your personal car." MS. BURKE said Section 53 is a result of some companies trying a "flanking motion" against Alaska policy holders. She stated, "They have said that they don't issue policies, they issue certificates of insurance, and therefore, they're not subject to our safeguards and they are not subject to compliance with our laws. This would simply provide that no matter what they call it, if it's insurance, they are subject to Alaska law." This arose from an insurance company refusing to place a newborn on a family policy by saying although Alaska allows 31 days to put a newborn on a policy, that company did not have to comply because they were writing a certificate, not a policy, in Alaska. Number 2033 MS. BURKE referred to Section 54 (misstating it as Section 57) and said it defines financial statements. She reported that one company had tried to put together its own in-house financial statements, calling them financial statements for purposes of being admitted. She stated, "That was not the intent. It was to be financial statements presented in accordance with generally accepted accounting principles and certified by an independent accountant, not done by the bookkeeper without full disclosure." CHAIRMAN ROKEBERG, referring to language on page 26, lines 22 and 23, asked who an "accountant that holds a substantially equivalent designation" would be. He asked whether there are anything except certified public accountants (CPAs) in the U.S. MS. BURKE said Canada calls them "chartered accountants." CHAIRMAN ROKEBERG asked whether Section 55 was the chapter on Lloyd's. Number 2101 MS. BURKE stated, "In 1995, the entire chapter was superseded, but we forgot to repeal the old chapter." CHAIRMAN ROKEBERG asked what it was superseded by. MS. BURKE replied, "By AS 21.09.310." She said that was SB 53, introduced in 1994 and passed in 1995. Number 2158 MS. BURKE noted that the final two sections, Sections 56 and 57, provide for effective dates. CHAIRMAN ROKEBERG asked her to explain reasons for the differences. MS. BURKE replied, "Those that are applying to premium tax, we don't want them to have to apply two different ways within one year. That's why we're asking them that they be effective at the beginning of a calendar year, since all insurance companies report on a calendar-year basis." CHAIRMAN ROKEBERG said Section 56 was for the premium tax. MS. BURKE replied that Sections 4, 5, 27 and 28 are also premium tax. She stated, "Section 29 is replacing a name, the proper name of the Comprehensive Health Insurance Association. Again, that's on a calendar basis; they would have to change all their forms mid- year if it became effective July 1." She specified she was referring to effective dates other than July 1. CHAIRMAN ROKEBERG suggested those were in Sections 4, 5, 25, 26, 27, 28 and 39. MS. BURKE countered with Sections 4, 5, 27 and 28. CHAIRMAN ROKEBERG stated, "Well, they're not in the bill. It's on the sectional of 29, but ... 29 is not in the bill." AN UNIDENTIFIED SPEAKER suggested that needs to be put in there. MS. BURKE concurred. CHAIRMAN ROKEBERG suggested maybe that "tweak" could be made in the Senate bill. Number 2290 MS. BURKE stated, "Sections 25 through 28, that apply to the syndicates, that is correct. It should be effective date at the beginning of a calendar year, because again, they are reporting on a calendar year." CHAIRMAN ROKEBERG said there seem to be other sections that are inconsistent. "The sectional and the bill are different as it relates to the various sections under Section 56," he stated. MS. BURKE stated, "Mr. Chairman, you're right. The sectional analysis is not correct." CHAIRMAN ROKEBERG asked how this should be amended. MS. BURKE stated, "We want Section 4 and 5, Section 25, which is Lloyd's syndicate, 26, to be as of a calendar year. Section 27 and 28, again refer to the premium tax." AN UNIDENTIFIED SPEAKER asked whether that would be on a calendar year. MS. BURKE said yes. Number 2340 CHAIRMAN ROKEBERG asked whether Ms. Burke wanted to add Section 29. MS. BURKE replied that Section 29 is July 1. Section 39 is a calendar year. CHAIRMAN ROKEBERG asked, "So 29 is okay; it doesn't have to be in Section 56?" MS. BURKE said that is correct. She stated, "The sections that are listed in the CS in Section 56 are correct." CHAIRMAN ROKEBERG asked whether Sections 25 and 26 should be added, and Sections 29 and 41 deleted, from the sectional analysis. MS. BURKE said, "That's correct. And 30." CHAIRMAN ROKEBERG asked for confirmation that the bill is okay, then. MS. BURKE replied that the bill is okay and apologized for the oversight. (HB 218 was held over) Number 2398 ADJOURNMENT CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing Committee meeting at 5:53 p.m.