Legislature(2009 - 2010)BARNES 124

03/11/2009 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
Moved Out of Committee
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 29(L&C) Out of Committee
HB 175-INSURANCE                                                                                                              
3:32:48 PM                                                                                                                    
CHAIR OLSON  announced that the  next order of business  would be                                                               
HOUSE  BILL NO.  175, "An  Act relating  to insurance,  including                                                               
treating  as confidential  certain information  submitted to  the                                                               
director of  insurance by the  National Association  of Insurance                                                               
Commissioners; clarifying  conditions for the release  of insurer                                                               
deposits;  defining travel  insurance that  may be  sold under  a                                                               
travel insurance limited  producer license; establishing criteria                                                               
for licensing  of nonresident  independent adjusters  as resident                                                               
adjusters;  exempting  rewards  under  a  wellness  program  from                                                               
treatment  as   insurance  discrimination  or   rebating;  making                                                               
certain insurance required of  the Comprehensive Health Insurance                                                               
Association permissive  rather than mandatory; providing  for the                                                               
administration  of loss  reimbursement policies  and payments  to                                                               
guaranty  associations  during   insolvency  proceedings;  making                                                               
certain  provisions relating  to statements  on applications  and                                                               
guaranteed   renewability   for   individual   health   insurance                                                               
applicable to  hospital and medical service  corporations; making                                                               
public certain forms and related  documents filed for approval by                                                               
a  hospital  or  medical  service corporation  after  the  filing                                                               
becomes effective;  relating to deposits of  self-funded multiple                                                               
employer  welfare   arrangements;  repealing  reasons   that  the                                                               
director of  insurance may use to  deny or revoke a  license; and                                                               
providing for an effective date."                                                                                               
3:33:09 PM                                                                                                                    
LINDA HALL,  Director, Division  of Insurance,  Anchorage Office,                                                               
Department of  Community &  Economic Development  (DCCED), stated                                                               
that HB  175 makes  various changes  to streamline  the insurance                                                               
laws  since   the  Division  of  Insurance,   DCCED  strives  for                                                               
efficient regulations.  She referred  to three general areas that                                                               
HB 175 addresses, beginning with  solvency oversight.  She opined                                                               
that  the  insurance industry  is  strong  and stable  right  now                                                               
although  she  expressed  some  concern  in  the  life  insurance                                                               
industry.     Some   insurance  companies   and  producers   make                                                               
statements  about guarantees  that the  State of  Alaska provides                                                               
for life insurance and annuities.   She emphasized that the state                                                               
does  not  guarantee life  insurance  or  annuities.   Next,  she                                                               
stressed  that the  division's  mission  is consumer  protection.                                                               
She related  that consumer  protection is  the major  emphasis of                                                               
the  division.   She noted  that the  division has  four consumer                                                               
service personnel whose job is  to interact between consumers and                                                               
insurance companies.   She indicated the division  has four fraud                                                               
investigators with  a law enforcement  background.   Finally, the                                                               
Division   of   Insurance   looks  at   a   healthy   competitive                                                               
marketplace, pointing out  that Alaska is a small  market.  Thus,                                                               
it is difficult to attract  insurance companies.  She offered her                                                               
belief that  the best consumer  protection is consumer  choice of                                                               
insurance companies.                                                                                                            
MS. HALL, in response to  Representative Buch, offered to discuss                                                               
fraud as  part of her  discussion.   She offered her  belief that                                                               
the Division of Insurance has  a criminal prosecutor and enforces                                                               
cases,   stipulates   agreements,  and   negotiates   agreements.                                                               
However,  she  explained  that  compliance is  a  goal  and  some                                                               
education is required.   She stressed that while  a guaranty fund                                                               
is in the statute, it does  not mean the state guarantees payment                                                               
of  claims through  the guaranty  fund.   In further  response to                                                               
Representative  Buch, MS.  Hall  related that  any penalties  and                                                               
fines collected are deposited in the general fund.                                                                              
3:39:26 PM                                                                                                                    
MS.  HALL referred  to  eight  pages in  HB  175  that relate  to                                                               
insolvency.    She  mentioned  that provisions  in  HB  175  will                                                               
streamline  processes   for  the   division  and   the  insurance                                                               
industry, will clarify provisions in  the statutes, and will help                                                               
the  division achieve  compliance with  national standards.   She                                                               
stated  that  Section  10 covers  streamlining  processes,  which                                                               
allow the state  to license nonresident adjusters  whose state of                                                               
residence does not license adjusters.   She pointed out that most                                                               
nonresident licensing  is dependent  on home state.   Thus,  if a                                                               
person who  resides in Alaska  is licensed as an  insurance agent                                                               
or an insurance  adjuster the person will  be granted reciprocity                                                               
in another  state based on  the Alaska  license.  She  noted some                                                               
states  do not  license  independent insurance  adjusters.   This                                                               
provision  would  allow  the state  to  license  nonresidents  to                                                               
adjust claims  in Alaska.  She  also mentioned that Alaska  has a                                                               
shortage  of adjusters  and  the division  hopes  to ensure  that                                                               
sufficient numbers of adjusters are available.                                                                                  
3:41:51 PM                                                                                                                    
MS. HALL, in  response to Representative Holmes,  agreed that the                                                               
change  will allow  the  division  to license  the  person as  if                                                               
Alaska  were  his/her  home  state.   She  explained  Section  12                                                               
provides  a  simplification  in  the  insurance  statutes.    She                                                               
related  that third  party administrators  are  not licensed  but                                                               
must submit to  a registration process.  She  opined this process                                                               
is less  onerous for  third party  administrators, who  are often                                                               
out of state and may employ many  people such as in a call center                                                               
in Dubuque, Iowa.   This provision only  requires registration of                                                               
the firm, although  the firm is still accountable for  all of its                                                               
employees, she stated.                                                                                                          
3:43:14 PM                                                                                                                    
MS. HALL  explained that Section  18 would allow the  director to                                                               
accept  another regulator's  evaluation of  a nonresident  with a                                                               
felony  conviction.   Under federal  law, to  participate in  the                                                               
insurance  business,   a  person   must  have  approval   of  the                                                               
regulator.    In instances  in  which  the  person has  a  felony                                                               
conviction  for dishonesty  or  breach of  trust,  called a  1033                                                               
application,  the division  must  require  the full  application.                                                               
This  will   allow  the  division   to  accept   the  regulator's                                                               
evaluation  from the  person's home  state.   She also  mentioned                                                               
that electronic  resident licensing  will be activated  in Alaska                                                               
and beginning tomorrow Alaskans can apply online.                                                                               
3:44:27 PM                                                                                                                    
MS. HALL referred to Sections 5  and 6, which she stated refer to                                                               
deposits.    She  explained  changes  to  these  provisions  will                                                               
differentiate  between  domestic   insurers  and  those  insurers                                                               
domiciled  in  other states.    She  explained changes  to  these                                                               
provisions would  allow flexibility  for domestic insurers.   She                                                               
pointed  out that  these sections  relate to  insurers undergoing                                                               
insolvency.     Much  of   the  liquidation   and  rehabilitation                                                               
provisions  have  not  changed  since 1990,  she  offered.    She                                                               
related a  major rewrite of Chapter  78 would have resulted  in a                                                               
200-page bill.  She opined that  several provisions in HB 175 are                                                               
critical  and  need to  be  addressed.    She stated  that  these                                                               
provisions  clarify  deposits  for  insurers as  well  as  define                                                               
"working day" uniformly throughout the insurance statutes.                                                                      
3:46:39 PM                                                                                                                    
REPRESENTATIVE  HOLMES  related   her  understanding  that  these                                                               
sections   would  give   the   Division   of  Insurance   greater                                                               
MS. HALL answered yes, since these  sections of the bill refer to                                                               
delinquency  proceedings  for  domestic regulators.    Thus,  the                                                               
department can work with the  domestic insurer on rehabilitation.                                                               
She remarked that most of the  cases eventually go to court.  She                                                               
mentioned  the  division  wants   to  ensure  that  the  domestic                                                               
insurers have proper  oversight but the division  also would like                                                               
them to  succeed, to  pay claims.   She  emphasized that  when an                                                               
insurer  enters true  liquidation, the  company would  rarely pay                                                               
"100 cents  on the  dollar."   Thus, these  changes are  good for                                                               
MS. HALL  referred to Section  8 and Section  9 of HB  175, which                                                               
relate to  uniformity.   She stated the  compliance officer  in a                                                               
firm  makes  certain that  the  firm  complies  with all  of  the                                                               
state's statutes  as the  responsible party.   She referred  to a                                                               
chart, not in members' packets.   Ms. Hall applauded the Division                                                               
of Insurance for  reaching national compliance.   She opined that                                                               
very few  states have reached  full compliance with  the national                                                               
uniform standards,  but Alaska  has done so.   She  remarked that                                                               
the division has a licensed compliance officer.                                                                                 
3:48:49 PM                                                                                                                    
MS.  HALL related  that Section  9 updates  the travel  insurance                                                               
MS.  HALL referred  to page  8 of  HB 175,  to Section  11, which                                                               
would allow  the DOI director  to order summary suspension  of an                                                               
agent's license.   She related  that if protection of  the public                                                               
requires  emergency  action the  finding  is  incorporated in  an                                                               
order.   The licensee can  request a  hearing which must  be held                                                               
within 20  days and the decision  must be issued within  30 days.                                                               
She stated that this proceeding would  not be under the Office of                                                               
Administrative  Hearings  (OAH),   Department  of  Administration                                                               
(DOA).   She explained the  reason for  this is the  division had                                                               
two instances  of fraud  last fall.   She  related a  scenario in                                                               
which a  consumer complained that he/she  had purchased insurance                                                               
but  did  not  receive  the   policy.    She  indicated  that  an                                                               
investigation  revealed   an  agent  had  collected   $27,000  in                                                               
premiums, spanning 72 victims of  fraud.  The criminal prosecutor                                                               
has  drawn   up  criminal  charges  listing   39  felony  counts.                                                               
However,  the  person could  still  retain  their license.    She                                                               
mentioned  that  in  this instance,  the  individual  voluntarily                                                               
surrendered  their  license.   She  stressed  the  importance  of                                                               
amending the statutes to allow the division to revoke licenses.                                                                 
3:51:22 PM                                                                                                                    
MS. HALL, in response to  Representative Buch, explained that the                                                               
division has the authority to  revoke a license, but this section                                                               
allows  the division  to immediately  revoke a  license, and  not                                                               
have the license stayed by the licensee's request for a hearing.                                                                
3:52:25 PM                                                                                                                    
REPRESENTATIVE  HOLMES asked  for  the rationale  for a  separate                                                               
hearing structure.                                                                                                              
MS. HALL  addressed the  question, stating  that the  Division of                                                               
Insurance has a formal hearing process  in Title 21.  She related                                                               
that she also serves as a  hearing officer.  She related that the                                                               
division has  a specific  process that  supersedes the  Office of                                                               
Administrative Hearings  (OAH) since the division  holds specific                                                               
hearings.   However, she remarked  that while some appeals  go to                                                               
the OHA, the  remainder of the division's  hearings are conducted                                                               
internally following due process.                                                                                               
3:53:20 PM                                                                                                                    
REPRESENTATIVE  HOLMES  emphasized  her concern  to  ensure  that                                                               
these changes will not violate due process rights.                                                                              
MS.  HALL   assured  Representative  Holmes  that   the  language                                                               
deserves discussion.   She opined that the bill  has had thorough                                                               
legal reviews  by the  Department of  Law and  legislative legal.                                                               
She pointed out the OHA has  also "signed off" on the provisions.                                                               
She stated  that the behavior is  serious.  She related  a second                                                               
scenario  in which  an employer  reported an  employee had  taken                                                               
premium funds  from the  employer's safe on  two occasions.   She                                                               
related that  the employer brought  the employee to  the Division                                                               
of Insurance and  the employee surrendered his/her  license.  She                                                               
opined  while the  consumer can  sue it  is not  likely that  the                                                               
consumer will recover  the payment.  She stated  that one statute                                                               
states "payment  to the agent  is payment  to the company."   She                                                               
advised that these matters are infrequent but impact consumers.                                                                 
3:56:14 PM                                                                                                                    
REPRESENTATIVE  BUCH inquired  as  to  whether investigators  are                                                               
actively   pursuing   investigations   on  behalf   of   Alaska's                                                               
MS. HALL  answered that  with 40,000  licensed agents,  and 2,000                                                               
insurance  companies,  it is  not  possible  for investigator  to                                                               
audit  each  licensee.   She  offered  that  the division  has  a                                                               
variety of methods to ensure  oversight and to meet the statutory                                                               
requirements.   She opined that  the DOI does not  have resources                                                               
to  audit every  one  of  the licensees  and  frequently rely  on                                                               
MS. HALL, in response to  Representative Buch stated that she was                                                               
not sure  how to answer  his question about the  industry growth.                                                               
She related  that in 2003,  the state  had 14,000 agents  and now                                                               
there  are  40,000.     She  pointed  out  that   the  state  has                                                               
approximately the  same number of  insurance companies,  but only                                                               
4,000  are resident  agents.   She  mentioned that  the rest  are                                                               
nonresident so the  primary regulator is elsewhere.   She offered                                                               
her belief that the division is okay.                                                                                           
4:00:17 PM                                                                                                                    
REPRESENTATIVE BUCH inquired as to  whether it is unusual to have                                                               
five times the growth in the industry over a five-year period.                                                                  
MS. HALL  offered one explanation  for the increase  in licensees                                                               
is a new  requirement that people who sell  and solicit insurance                                                               
must be licensed.  She  related that individual employees in call                                                               
centers  were  not  required  to  be licensed  but  now  must  be                                                               
licensed.   She  remarked that  40,000 people  in Alaska  are not                                                               
actively   selling   insurance.      In   further   response   to                                                               
Representative  Buch, Ms.  Hall  offered another  example of  the                                                               
insurance industry  growth.   She stated that  if a  person works                                                               
for an  auto dealership and  sells a protection policy  plan, the                                                               
person must be  licensed.  She stressed that  the division's goal                                                               
is compliance and strives to educate the public and insurers.                                                                   
4:03:48 PM                                                                                                                    
CHAIR OLSON asked the amount of  premium tax that is generated in                                                               
one year.                                                                                                                       
MS. HALL  related that  the division has  a premium  tax auditor,                                                               
and  based on  the  premium  tax the  estimate  for  2009 is  $50                                                               
million.  She explained that a  portion of the tax directly funds                                                               
workers' compensation.  She highlighted  that the figure does not                                                               
include  fees  which  the  Division  of  Insurance  collects  for                                                               
regulating  entities,   which  she  estimated  at   $10  million.                                                               
Therefore,  the  total  collected   would  be  approximately  $60                                                               
million for FY 09, she stated.                                                                                                  
4:05:47 PM                                                                                                                    
CHAIR   OLSON  pointed   out  that   the  division   generates  a                                                               
significant amount of money for the general fund.                                                                               
MS.  HALL offered  that the  agency is  a receipts-based  agency.                                                               
She opined  that the division  is generally  in the top  three or                                                               
four sources for generating money to the general fund.                                                                          
MS. HALL, in  response to Representative Holmes,  stated that the                                                               
division's budget is approximately $6.9 million.                                                                                
4:06:51 PM                                                                                                                    
MS. HALL  referred to  Section 17,  on page  10 of  HB 175.   She                                                               
related that  the top complaint  the office receives is  the cost                                                               
of health  insurance, either  the high  cost of  health insurance                                                               
cost or that the reimbursement  is not sufficient.  She explained                                                               
this section requires a wellness  program must follow the federal                                                               
HIPPA requirements.   She stated that the provision  will allow a                                                               
health  care provider  to encourage  wellness  programs to  offer                                                               
rewards  to encourage  wellness programs.   The  rationale is  to                                                               
reduce health claims and the reward is not considered a rebate.                                                                 
MS. HALL, in  response to Representative Holmes  explained that a                                                               
rebate  is  an inducement  to  buy  insurance,  or is  an  unfair                                                               
discriminatory premium.   She related the incentive  would be for                                                               
participating in  a walking  program and when  50 percent  of the                                                               
employees  participate,  the  employer  received  credit  on  the                                                               
MS. HALL  related that  the changes to  Section 24  establish the                                                               
eligibility for  high risk pool  which uses the  same eligibility                                                               
as the Permanent Fund Dividend program criteria.                                                                                
4:09:58 PM                                                                                                                    
MS.  HALL  referred  to  Sections  25,  which  she  stated  is  a                                                               
reiteration  of the  priority of  distribution  claims which  are                                                               
paid in what  is equivalent to a bankruptcy.   She explained that                                                               
insurance  companies do  not undergo  bankruptcy, but  are placed                                                               
into  liquidation   proceedings  with  the  receiver,   which  is                                                               
generally the DOI director.                                                                                                     
4:11:31 PM                                                                                                                    
MS. HALL referred  to Section 26, relating  to the administration                                                               
of loss reimbursement policies.   She offered a scenario in which                                                               
an  insurance company  must pay  first dollar  claims for  claims                                                               
under a  workers' compensation  policy.   She explained  that the                                                               
insurer  would  retain  $100,000  of the  risk  of  the  workers'                                                               
compensation claims.   The insurance company would  still pay the                                                               
claim, the injured worker is  assured the claim, but the employer                                                               
must repay the insurance company  the $100,000.  She related that                                                               
the repayment is  not currently addressed in statute  in the case                                                               
of liquidation.   She  indicated that  this section  outlines the                                                               
process.   She pointed out  that this guarantees for  an employer                                                               
who has the reimbursement obligation,  the collateral in the form                                                               
of  a letter  of credit  or  a cash  deposit can  be "tapped"  by                                                               
either  the receiver  or the  guaranty fund.   The  guaranty fund                                                               
would  then pay  the claim  on behalf  of the  insolvent insurer.                                                               
She stressed the goal is that  in instances in which the employer                                                               
owes the guaranty fund, that the  guaranty fund needs to have the                                                               
ability to collect the money owed.                                                                                              
4:14:29 PM                                                                                                                    
REPRESENTATIVE  BUCH inquired  as  to how  many insolvencies  Ms.                                                               
Hall  has  experienced in  her  tenure  as  the director  of  the                                                               
Division of Insurance (DOI).                                                                                                    
MS.  HALL   answered  she  has   not  experienced   any  domestic                                                               
insolvencies,   but   the   division   experienced   a   workers'                                                               
compensation  insolvency,  and the  guaranty  fund  did not  have                                                               
sufficient funds  to pay claims.   She stated that the  DOI needs                                                               
to be prepared.                                                                                                                 
4:15:32 PM                                                                                                                    
MS.  HALL  referred  to  page  19  of  HB  175,  to  proposed  AS                                                               
21.78.328,  which relates  to early  access  disbursements.   She                                                               
related that  in the previous  scenario, the estate  of insolvent                                                               
insurer,  with  the  court's approval,  disbursed  funds  to  the                                                               
guaranty.  She explained that  this provision requires a receiver                                                               
to apply  to the court  to make the  payments.  She  offered that                                                               
the  division  does not  currently  have  the requirement.    She                                                               
stressed  the   importance  of  the  guaranty   fund  having  the                                                               
mechanisms in  place to obtain  payment in the case  of insolvent                                                               
insurers.    She  characterized  this  section  as  updating  the                                                               
rehabilitation and liquidation statutes.                                                                                        
4:17:02 PM                                                                                                                    
MS.  HALL  referred  to  page  21  of  HB  175,  to  proposed  AS                                                               
21.85.100.  She indicated this  provision requires that the self-                                                               
funded health care  entities that are known  as multiple employer                                                               
welfare  arrangements  must  adhere   to  the  administration  of                                                               
deposits statutes.   She pointed  out two things that  were added                                                               
to  the hospital  and medical  service corporation.   First,  the                                                               
statutes that relate to representations  on applications apply to                                                               
these  entities.   Second,  the  federal  law requires  that  the                                                               
guaranteed renewability  of individual  health care  insurance is                                                               
applicable, as well.                                                                                                            
REPRESENTATIVE HOLMES referred to page 12,  line 23 of HB 175, to                                                               
Section 22, which refers to  the supplemental plans for Medicare.                                                               
She asked for clarification of the changes.                                                                                     
MS. HALL stated that this section  would allow the high risk plan                                                               
to have more  flexibility in the plan that it  offers to Medicare                                                               
eligible individuals.                                                                                                           
REPRESENTATIVE   HOLMES  related   her  understanding   that  the                                                               
intention is  not to reduce options.   She opined that  the state                                                               
already has a hard time with  Medicare coverage and she wanted to                                                               
be certain Medicare options were not reduced.                                                                                   
MS. HALL said,  "Absolutely not."  She offered  that AS 21.55.100                                                               
(b) refers to the "state plan"  which is the high risk pool known                                                               
as   the  Alaska   Comprehensive  Health   Insurance  Association                                                               
4:21:21 PM                                                                                                                    
CHAIR  OLSON  announced  that  he  would  hold  open  the  public                                                               
testimony on HB 175.                                                                                                            

Document Name Date/Time Subjects
01 HB78 ver A.pdf HL&C 3/11/2009 3:15:00 PM
HB 78
01 HB175 ver A.pdf HL&C 3/11/2009 3:15:00 PM
HB 175
02 HB78 Sponsor Statement.pdf HL&C 3/11/2009 3:15:00 PM
HB 78
03 HB78-CED-CBPL-03-06-09.pdf HL&C 3/11/2009 3:15:00 PM
HB 78
04 HB78 LBA Audit Summary #08-20056-09.pdf HL&C 3/11/2009 3:15:00 PM
HB 78
01 HB86 ver A.pdf HL&C 3/11/2009 3:15:00 PM
HB 86
02 HB86 Sponsor Statement.pdf HL&C 3/11/2009 3:15:00 PM
HB 86
03 HB86-CED-CBPL-03-06-09.pdf HL&C 3/11/2009 3:15:00 PM
HB 86
04 HB86 LB&A Summary.pdf HL&C 3/11/2009 3:15:00 PM
HB 86
02 HB175 Sponsor Statement.pdf HL&C 3/11/2009 3:15:00 PM
HB 175
03 HB175 Sectional Analysis.pdf HL&C 3/11/2009 3:15:00 PM
HB 175
04 HB175-CED-INS-03-09-09.pdf HL&C 3/11/2009 3:15:00 PM
HB 175
05 HB78 LBA Full Audit Report #08-20056-09.pdf HL&C 3/11/2009 3:15:00 PM
HB 78
05 HB86 LB&A Report.pdf HL&C 3/11/2009 3:15:00 PM
HB 86
15 HB29 Amendment A.3 Effective Date Change.pdf HL&C 3/11/2009 3:15:00 PM
HB 29