MINUTES OF MEETING
ASSEMBLY COMMITTEE ON COMMERCE
Sixty-seventh Session
May 14, 1993
The Assembly Committee on Commerce was called to order by Chairman Gene T. Porter at 11:38 a.m., Friday, May 14, 1993, in Room 332 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda, Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Mr. Gene T. Porter, Chairman
Mr. Morse Arberry, Jr., Vice Chairman
Ms. Kathy M. Augustine
Mr. Rick C. Bennett
Mr. John Bonaventura
Mr. Val Z. Garner
Ms. Chris Giunchigliani
Mr. Dean A. Heller
Ms. Erin Kenny
Mr. Richard Perkins
Mr. Scott Scherer
Ms. Myrna T. Williams
COMMITTEE MEMBERS ABSENT:
Mr. David E. Humke
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
None
OTHERS PRESENT:
Ms. Teresa Rankin, Insurance Commissioner; Mr. Jim Wadhams; Mr. Harvey Whittemore, Lionel, Sawyer and Collins; Mr. Fred Hillerby; Mr. Robert Crowell, Farmers Insurance Company; Mr. John Wiles, Advocate for Insurance Customers, Department of Insurance; Mr. Bob Barengo, Progressive Insurance Company (See also Exhibit B attached hereto).
Chairman Porter advised the committee AB 571 had been withdrawn.
AB 569 Makes various changes relating to regulation of insurance.
Ms. Teresa Rankin, Insurance Commissioner, testified. She advised AB 571 made changes throughout Title 57 of the Insurance Code and explained the purposes of various sections of AB 571 as follows:
Section 1: Required a person required to have a bond for licensure or other purposes to procure such bond from a licensed insurance company;
Section 3: Authorized the Insurance Commissioner to adopt regulations conforming to federal laws concerning Medicare supplements and to participate in a program of counseling for senior citizens regarding insurance;
Section 4: Clarified fines issued by the Insurance Commissioner were not aggregate fines but applied to each act and violation;
Section 5: Corrected amounts of fees payable by reinsurers and risk retention groups;
Section 6: Deleted a reference to taxing reinsurance;
Section 7: Concerned limits of risk and clarified standards relating to surety and limits of risk;
Section 8: Clarified the Insurance Commissioner could require a foreign insurer (an insurer licensed in another state but operating in Nevada) or a surplus lines insurer to make a special deposit in Nevada to protect Nevada policyholders in the event of a liquidation;
Section 9: Clarified an individual was required to have a minimum of one year's experience as an agent prior to being licensed as a broker;
Section 10: Clarified names filed by licensees, agents and brokers for (use as) corporate or other names and limited the number of names which could be used by bail agents;
Sections 11 and 12: Clarified life and health insurance agents must maintain records for auditing by the Department of Insurance and for public use;
Section 13: Increased amounts of fines imposed against adjustors to the level of those imposed against agents;
Section 14: Clarified the Insurance Commissioner's authority to issue cease and desist orders and impose fines and other regulatory proceedings against unauthorized insurers;
Section 15: Defined an entity acting as a health maintenance organization, prepaid plan or other such organization as an unauthorized insurer if that entity was not licensed;
Sections l6 and 17: Clarified a separate fine could be imposed for each act of an unauthorized insurer;
Section 18: Required premium financing companies to file schedules of their rates with the Insurance Commissioner;
Section 19: Increased fines for violations under the Unfair Trade Practices Act from $1,000 to $10,000 for each act or violation;
Section 20: Clarified an insurance company must retain an adjuster "licensed" in the state of Nevada;
Section 21: Required licensure of commercial premium financing companies;
Section 22: Increased the amount of bond for commercial premium financing companies;
Section 23: Extended time for Commissioner's review of forms used by premium financing companies;
Section 24: Required fees charged by premium financing companies be approved by the Department of Insurance;
Section 25: Prohibited premium financing companies from charging fees for canceling premium financing agreements;
Section 26: Concerned return of unearned premiums to insureds by agents or by premium financing companies;
Section 27: Concerned payments by premium financing companies to agents and brokers;
Section 28: Clarified agents and brokers could not receive additional commissions from premium financing companies;
Section 29: Increased fines imposed against premium financing companies from $500 to $1,000;
Section 31: Clarified that federal standards and Department of Insurance regulations governed sales of Medicare supplement policies;
Section 32: Concerned misquotes of insurance premiums and refunds due because of misquoted premiums and provided an insurer could be bound by an intentional misquote;
Section 33: Provided application of a loss ratio to premiums for both individual and group dental care coverage;
Section 34: Concerned filing of agreements by specialty health plans with the Department of Insurance and the manner in which the department reviewed those agreements;
Sections 35 through 38: Concerned cancellation provisions contained in NRS 687B;
Section 39: Expanded statutory provisions concerning cancellation and nonrenewal to NRS 688B;
Section 41: Concerned authorization of preferred provider arrangements for individual health insurance contracts;
Section 42: Pertained to sale of only one Medicare supplement policy to a single individual;
Section 43: Clarified an administrator, as well as an insurer, might owe interest on an insurance claim if obligated to pay that claim;
Section 44: Concerned the providing of information regarding paid claims to a policyholder;
Section 45: Increased time allowed Department of Insurance to review a health maintenance organization's application to 90 days;
Section 46: Authorized brokers to sell health maintenance organization products;
Section 47: Clarified previously adopted regulations regarding marketing and administrative expenses for dental plans and verified the appropriateness of those regulations;
Section 48: Required dental plan organizations to maintain reserves against insolvency and clarified the manner in which trust accounts (for such reserves) were to be established and maintained;
Section 49: Extended application of statutory provisions pertaining to cancellation and nonrenewal of insurance policies to prepaid limited health care organizations and clarified agents and brokers might sell such plans;
Section 50: Clarified Insurance Commissioner's approval was required for a limited health care plan to expand to a full health maintenance organization;
Section 51: Increased fees payable by limited health care plans;
Section 52: Required surety bonds be obtained from authorized insurer;
Section 53: Increased time allowed for self-insured employers to fulfill worker's compensation deposit requirements to 60 days;
Section 54: Constituted an internal reference to the provisions of Section 53;
Section 55: Clarified revocation of a self-insured employer's certification in the event of insolvency or bankruptcy proceedings and provided monitoring of those proceedings by the Insurance Commissioner.
Mr. Scherer referred to page 1 of AB 569, lines 22 through 24, and asked if failure to pay a fine was grounds for revocation of a license. Ms. Rankin replied it was, as was failure to comply with an order.
Mr. Scherer asked if Section 41 of AB 569 referred to individuals' health care policies as opposed to group policies. Ms. Rankin replied it did.
Mr. Scherer asked the purpose of the limits imposed on deductibles by subsections 1 and 2 of Section 41. Ms. Rankin responded those limits pertained to differences in deductibles "between the PPO and the non-PPO" and not to a consumer's ability to elect a higher deductible. Mr. Scherer asked why an individual purchasing an individual plan for himself or his family should not be permitted more flexibility. Ms. Rankin indicated the provisions under discussion were "a direct carry- over from group," and the Department of Insurance had seen abuses (with regard to deductibles) in the area of group health insurance.
Mr. Bonaventura asked if all fees referred to in AB 569 which were collected by the Department of Insurance were placed in the General Fund. Ms. Rankin replied they were.
Ms. Giunchigliani asked the definition of "limited health care plan." Ms. Rankin explained a limited health care plan was comparable to an HMO except a limited health care plan, permitted under NRS 695F, offered a single health care service, such as alcohol and drug abuse treatment, rather than offering comprehensive health care. Ms. Giunchigliani asked whether a corporation which established multiple HMOs, each with a separate name and offering a separate service, would come under the provisions of NRS 695F. Ms. Rankin responded, "It would be under 695F, yes. If it's a separate corporation, yes." Ms. Rankin explained NRS 695C established clear requirements for a Health Maintenance Organization. She stated an HMO was required to offer comprehensive health care services and if an HMO offered only one service, it would violate both state and federal law.
Ms. Giunchigliani asked what agency licensed or certified self-insured health care providers which were "...modeled after ERISA but don't really fall under ERISA..." Ms. Rankin responded such providers were considered unauthorized insurers, and the Department of Insurance required them to be licensed as insurance companies "or leave."
A colloquy ensued between Ms. Giunchigliani and Ms. Rankin regarding unauthorized insurers and how the Department of Insurance dealt with them.
Mrs. Williams referred to Section 44 of AB 569 and asked what would be a reasonable fee for providing information to a policyholder regarding his policy and whether in fact such a fee should be charged. Ms. Rankin explained language similar to that in Section 44 was contained in a law which affected a different NRS chapter and which was passed during the last legislative session, and the provision under discussion would add such a law to the chapter of NRS dealing with Blue Cross and Blue Shield. She suggested some insurers had charged excessive fees for providing requested information, and Section 44 would allow the Insurance Commissioner to adopt regulations to ensure the fee charged was a nominal one. Mrs. Williams asked if the provisions of Section 44 pertained to an individual who wished information regarding his file as well as to a group policyholder. Ms. Rankin replied the language of Section 44 was broad enough to include individuals as well as group policyholders. Mrs. Williams suggested the language "reasonable fee" be replaced with more specific language. Ms. Rankin said she had no objection to Mrs. Williams suggestion.
Chairman Porter referred to Section 20 of AB 569 and asked if Ms. Rankin could explain the reason for changing "resides" to "is licensed." Ms. Rankin advised NRS Chapter 684A provided an exemption for adjusters who lived within 50 miles of the Nevada border and who came into Nevada to adjust catastrophic claims, while a provision of the Unfair Trade Practices Act stated an adjuster must reside in Nevada. She explained the Department of Insurance encountered difficulty in reconciling those two provisions.
Chairman Porter stated a bill was passed by the legislature in 1989, with the legislative intent to require an insurance company to have a local adjuster. Chairman Porter said he wished to know why, despite the clear legislative intent of that statute, neither Commissioner Rankin nor her predecessor had chosen to enforce the statute. Ms. Rankin responded if an adjuster was an employee of an insurer, the adjuster was exempt from licensure and residency requirements under NRS 684A, but if an insurer "uses an adjuster" to examine a claim, Section 20 of AB 569 applied. She suggested the problem might result from the language (of the law). Chairman Porter assured Commissioner Rankin any problem with the language of the law would be resolved.
Mr. Jim Wadhams testified. He advised because AB 569 covered many areas of NRS Title 57, he had several different clients who were interested in different aspects of AB 569. He said AB 569 was necessary but he wished to raise certain questions on behalf of his clients.
Mr. Wadhams referred to Sections 1 and 52. He contended there were circumstances in which insurance or bonds could not be obtained from licensed insurers, and said the Nevada insurance code contained a provision which permitted transactions by unlicensed insurers. He advised such unlicensed insurers must be approved to conduct business in Nevada.
Mr. Wadhams cited the language in Section 4 "if any person violates an order" and expressed concern about "how that language is read in the context of the differential fine between insurers and agents." He suggested the word "person" created a conflict in interpretation. He contended $500 was a significant fine when imposed on an agent.
Mr. Wadhams suggested the proposed deletion, in Section 6, of the phrase found at lines 42 and 43 on page 5, might result in double taxation of the same premium.
He suggested adding to Section 14 a provision prohibiting an individual found guilty of an unauthorized insurance transaction from being licensed for a period of at least one year, rather than allowing such individual to pay a fine, obtain a license and reap the benefits of his wrongdoing.
Mr. Wadhams referred to Section 32 and suggested an insurer who issued a misquote should be allowed to correct his quote if it had not been acted upon.
Mr. Harvey Whittemore, Lionel, Sawyer and Collins, testified on behalf of Health Insurance Association of America (HIAA). Mr. Whittemore pointed out the internal reference to "company" in Section 18, at line 24, on page 12, required one to refer to NRS 686A.330 for the definition of "company." He suggested in Section 18, "company" be defined as "premium finance company" to avoid any misunderstanding of the intended application of that section.
Mr. Fred Hillerby testified. He advised he represented a variety of insurance agents and companies. He indicated he concurred with most of Mr. Wadham's testimony but had some additional concerns.
Mr. Hillerby referred to Section 26 of AB 569, page 5, line 33, and proposed the time period provided for an agent to refund unearned commissions be increased slightly, perhaps to 15 "working days."
Mr. Hillerby said he would underscore Mr. Wadham's comments concerning the $10,000 fine which could be imposed under the provisions of Section 4. He advised that fine would be in addition to other fines already imposed by statute and could result in an individual agent being fined $10,000 in addition to being fined $500.
Chairman Porter closed the hearing on AB 569 and assigned AB 569 to himself as a subcommittee of one.
AB 574 Clarifies that coverage for medical expenses under policy of motor vehicle insurance is primary.
Chairman Porter turned over the meeting to Vice Chairman Arberry and testified in support of AB 574.
Chairman Porter advised in 1989, the legislature amended NRS 687B.145 to require all insurance companies (providing automobile insurance) doing business in Nevada to offer their insureds an option to purchase coverage in an amount of at least $1,000 for payment of reasonable and necessary medical expenses arising from an automobile accident. Chairman Porter explained under a legal concept known as "subrogation," if an individual caused such medical expenses to be paid under his major medical insurance policy, the major medical insurer was entitled to reimbursement; however, if he caused those expenses to be paid under the medical payment provisions of his automobile insurance policy, the automobile insurer was not entitled to reimbursement.
Chairman Porter advised Colonial Penn, an insurance company specializing in senior citizen's insurance, offered medical payment coverage to its insureds, but when an insured attempted to collect on that coverage, it was virtually impossible for him to do so. Chairman Porter read the second and third paragraphs of a letter from Colonial Penn, dated January 8, 1993, concerning Patrick Sullivan (Exhibit C). He then referred to a document headed "Medical Insurance Certification" (Exhibit D) and advised if an individual had any of the insurance coverages listed in items 1 through 4 or items 6 and 7, Colonial Penn would not make payments pursuant to the medical payments provisions (of its automobile insurance policy). He declared what Colonial Penn offered its insureds was a sham and a fraud, and stated Colonial Penn had collected premiums from its insureds "for an illusory coverage."
Chairman Porter advised AB 574 provided if an insurance carrier sold "med-pay" coverage, that coverage would be the primary coverage, and there would be no dispute regarding who was responsible for claims resulting from an insured's involvement in an automobile accident.
Mr. Robert Crowell, Farmers Insurance Company, testified. He stated Farmers Insurance Company supported AB 574.
Mr. John Wiles, Advocate for Insurance Customers, Department of Insurance, testified. He declared Chairman Porter was correct, and insurance customers had been paying for a benefit they did not receive. He said he believed AB 574 would correct the situation.
Vice Chairman Arberry closed the hearing on AB 574 and turned the meeting over to Chairman Porter.
ASSEMBLYMAN BONAVENTURA MOVED DO PASS AB 574.
ASSEMBLYMAN GARNER SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY BY ALL THOSE PRESENT.
AB 579 Prohibits insurer from basing rates for motor vehicle insurance upon factors other than year, make and model of insured vehicle.
Vice Chairman Arberry left his chair to testify in support of AB 579. He stated a former constituent noticed a drastic change in his automobile insurance premiums when he moved to a different district. Mr. Arberry said when he, Mr. Arberry, called various insurance companies on the pretext of obtaining automobile insurance coverage, he was asked his zip code or the area in which he lived. Mr. Arberry explained when he provided different zip codes in response to that question, he was quoted different premium rates.
He said it appeared insurance companies discriminated against people who lived in middle income or lower income areas. He contended it was unfair to discriminate against individuals and charge them higher insurance premiums because those individuals lived in areas in which the insurance company believed their vehicles might more likely be stolen than if they lived in other areas. Mr. Arberry stated he had seen no information provided by insurance companies which indicated a higher incidence of stolen vehicles in areas with particular zip codes.
He advised the purpose of AB 579 was to provide parity and ensure insurance premiums were based on the insured and not the insured's living conditions.
Mr. Porter stated the concept to which Mr. Arberry alluded was known as "territorial rating" and was one in which an insurance carrier used the neighborhood in which an individual lived as a factor in the carrier's actuarial equation. He advised insurance companies had done this historically, and they used zip codes as a matter of convenience.
Chairman Porter said he understood under AB 579, insurance companies would not be permitted to consider any factors other than the year, make and model of a vehicle (in determining automobile insurance premiums). He asked if consideration of driving characteristic factors such as age, gender and ethnicity, among others, would be prohibited. Mr. Arberry responded AB 579 was a skeleton bill which he hoped would prompt insurance companies to assist the legislature in creating a better piece of legislation. He said it was not his intent such factors as gender or that an individual was a nonsmoker or had a good driving record not be considered.
Ms. Teresa Rankin, Insurance Commissioner, testified. She advised under the existing insurance code, distinctions based on race, color, creed or religion were prohibited. She stated any insurer using those factors in a rating mechanism would be subject not only to having their rates "thrown out" but to additional penalties.
Ms. Rankin advised theft would fall under the comprehensive coverage provisions of an automobile insurance policy and indicated premium rates for both collision coverage and comprehensive coverage had decreased over the previous three years.
She advised many insurers considered as many as 200 factors in determining the premium rate for a particular policy, and any rate factor used would necessarily have a discriminating effect. She advised no factor could be used unless there was data which would justify its use.
Mrs. Williams suggested ratings based on zip codes were not "territorial ratings." She stated zip codes covered large areas and conditions could vary in different areas which had the same zip code. She said based on testimony heard in previous years, it was clear "...the weighting of the zip code far exceeded those 200 other factors that you mentioned." She contended the zip code factor was unfairly weighted and expressed hope insurance companies would offer suggestions as to how to address that problem.
Ms. Giunchigliani asked if automobile insurance companies tended to establish premium rates based on the youngest member of a household or considered that only as one factor. Ms. Rankin said if the youngest member of a household was listed as a driver, that factor would be considered. She advised the combination of drivers covered by a policy was rated, and a rate would be established per person based on such factors as the person's driving record, qualification for discounts and primary use of a vehicle.
Mr. Jim Wadhams testified. He offered to work with Mr. Arberry (in refining AB 579). He declared "red lining" was totally inappropriate and was not supported by anyone in the insurance industry. He suggested territories should encompass broader areas and be based on some rationale.
Mr. Robert Crowell, Farmers Insurance Company, testified. He said he wished to reiterate Mr. Wadham's comments. He provided a document containing information about premium rates established by Farmers Insurance Company for a policy to insure a vehicle in three areas of Las Vegas (Exhibit E).
Mr. John Wiles, Advocate for Insurance Customers, Department of Insurance, testified. He advised territorial rating was very complex and suggested sometimes it was difficult to determine how data should be applied. He explained two individuals who lived on opposite sides of the same street could have different premium rates because their zip codes differed. He likened applying the rating system to slicing a pie and suggested it was contrary to the basic premise of insurance, which was to spread the risk of loss. He said as people were more and more finely categorized (by insurance companies), the risk of loss was not spread as broadly in some instances as in others.
Mr. Bob Barengo, Progressive Insurance Company, testified. He said if, under AB 579, only an individual's vehicle was considered (in determining automobile insurance premium rates) and not the individual's driving record, insurance companies would have to spread the risk of bad drivers among good drivers and rates would be raised. He advised Progressive Insurance Company would work with Vice Chairman Arberry to make AB 579 a workable bill.
Chairman Porter closed the hearing on AB 579 and assigned AB 579 to a subcommittee comprised by Mr. Perkins, Ms. Augustine and himself, as chairman of the subcommittee.
Chairman Porter called attention to a "draft letter" which Senator Townsend wished to send to all professional and occupational licensing boards on behalf of the Senate Committee on Commerce and Labor (Exhibit F). He explained Senator Townsend wished those boards and commissions to report to the Legislative Counsel Bureau the frequency and purposes of disciplinary actions the boards and commissions imposed. Chairman Porter asked if the committee wished to join Senator Townsend in his request.
Discussions were held among committee members. It was decided a letter would be drafted on behalf of the committee which paralleled Senator Townsend's letter.
AB 300 Makes various changes to provisions governing hearing aid specialists.
A motion to amend and do pass AB 300 having been unanimously carried during the meeting of the committee on April 21, 1993, Ms. Augustine presented the written proposed amendment to AB 300, Amendment No. 350 (Exhibit G). Discussions were held among committee members concerning the proposed amendment.
Ms. Kenny referred to the provision, contained on page 2 of the proposed amendment (Exhibit G), that an application could be disapproved if the applicant had been convicted of a felony. She stated Mrs. Williams and Mr. Arberry had expressed strong concerns regarding that provision, and if those concerns still existed, she would oppose AB 300. Chairman Porter advised the committee had discussed the fact the provision said an application "may be" denied and had determined to leave that discretionary provision in AB 300. Mrs. Williams said the concern she and Mr. Arberry had expressed was still valid. She stated "may" would be interpreted in most instances "to mean they will."
Further discussions among committee members.
ASSEMBLYMAN PERKINS MOVED TO ADOPT AMENDMENT NO. 350 TO AB 300.
ASSEMBLYMAN AUGUSTINE SECONDED THE MOTION.
ASSEMBLYMAN WILLIAMS MOVED TO AMEND THE MOTION TO ADOPT AMENDMENT NO. 350 TO AB 300 TO INCLUDE A MOTION TO AMEND AMENDMENT NO. 350 BY DELETING THE LANGUAGE ON PAGE 2 "BEEN CONVICTED OF A FELONY."
ASSEMBLYMAN ARBERRY SECONDED THE MOTION.
Discussions among committee members.
THE MOTION OF ASSEMBLYMAN WILLIAMS TO AMEND THE MOTION
TO ADOPT AMENDMENT NO. 35O TO AB 300 WAS CARRIED UNANIMOUSLY BY ALL THOSE PRESENT.
THE MOTION TO ADOPT AMENDMENT NO. 350 TO AB 300, AS AMENDED, WAS CARRIED UNANIMOUSLY BY ALL THOSE PRESENT.
Chairman Porter assigned Amendment No. 350 to AB 300 to Ms. Augustine for a floor statement.
There being no further business before the committee, Chairman Porter adjourned the meeting.
RESPECTFULLY SUBMITTED,
_______________________
SARA J. KAUFMAN
Committee Secretary
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Assembly Committee on Commerce
May 14, 1993
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