MINUTES OF THE
SENATE COMMITTEE ON COMMERCE AND LABOR
Sixty-seventh Session
February 19, 1993
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:35 a.m., on Friday, February 19, 1993, in Room 208 of Cashman Field Center, Las Vegas, Nevada. Exhibit A in the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator Randolph J. Townsend, Chairman
Senator Ann O'Connell
Senator Mike McGinness
Senator Raymond C. Shaffer
Senator Leonard V. Nevin
Senator Lori L. Brown
COMMITTEE MEMBERS ABSENT:
Senator Sue Lowden, Vice Chairman (Excused)
STAFF MEMBERS PRESENT:
Brian Davie, Senior Research Analyst
Sheri Asay, Committee Secretary
Denise Pinnock, Committee Secretary
Frank Krajewski, Senior Research Analyst
OTHERS PRESENT:
Teresa P. Froncek-Rankin, Commissioner, Department of Insurance
Michael Griffin, Deputy Commissioner, Department of Insurance
Scott Young, General Counsel, Nevada State Industrial Insurance
System
John Wiles, Consumer Advocate, Department of Insurance
Senator Townsend called the meeting to order and announced that they would deal with that section of the statute over which the committee has jurisdiction, the Department of Insurance, Title 57. He introduced Terry Rankin, Department of Insurance, noting she would give a broad overview of her department, followed by a discussion on reorganization.
Teresa P. Froneck-Rankin, Commissioner, Department of Insurance, reviewed the history of the Department of Insurance noting that last session the department was again moved from a division to a department. She stated she is appointed by the Governor and reports directly to him. She said her job is to regulate all insurance activities in the state of Nevada, and noted that there is no federal regulation of insurance. She stated that there is an association of insurance commissioners from the states and territories, called the National Association of Insurance Commissioners, (NAIC), who jointly draft model regulations, model acts relating to insurance, and policies and procedures that they recommend the states adopt. She said the Nevada Revised Statutes (NRS), Title 57 requires the Insurance Department to assure the solvency of insurance companies, and protect the consumer, which requires constant balancing. She said they collect the premium tax for the state, which last year was $68 million, making them the third largest revenue source for the state of Nevada. She noted that they have made dramatic changes in their collection of taxes, reducing enforcement for unpaid taxes from 3 years to 3 months, and formulating projections that for one quarter were within $20 thousand of being correct on a $14 million collection. She indicated that regulation is one of the few things that the government should control, noting that the state does not want insurance companies regulating themselves as there would be abuse of the consumer. She pointed out that they collect about $5 million in various fees and penalties, collect several millions of dollars in assessments, license and regulate 1415 insurance companies, license 14,000 other types of licensees and entities, and review and approve rates for insurance companies, including SIIS.
Senator Townsend interrupted to ask Ms. Rankin what kind of premium increases would be necessary to get SIIS back to solvency within the next 2 to 5 years, if the legislature did not make changes in the system. He requested that she get back to him with her assessment.
Ms. Rankin agreed, and then referred the committee to a copy of the title page for Nevada Revised Statutes Title 57, Insurance (NRS) (Exhibit C). She reviewed and described the material covered in each chapter.
Senator Townsend asked, if a nonprofit chooses to operated as an Health Management Organization (HMO), are they required to get licenses under the HMO statute in addition to the one they currently have?
Ms. Rankin replied in the affirmative.
Senator O'Connell related information about a family who had Blue Cross, and moved to Nevada from another state right after renewing their policy. When they arrived here, they found their policy was no longer any good, nor could they get a refund. Senator O'Connell asked for an explanation.
Ms. Rankin replied that Blue Cross is not a national company. She said that her office might be able to help the couple recover some of their premium, and indicated that they should contact her office.
Senator O'Connell then asked if information, indicating that a policy was not transferrable if the policy holder left the state, was found anywhere in a policy.
Ms. Rankin replied that she was not aware that information of that sort was written in any policy. She continued explaining the chapters in the NRS that pertained to her department. She said under the federal code they are required to participate in the Nevada Early Intervention Interagency Coordinating Council which coordinates all services for children from birth to 3 years of age. She noted that they have just accepted a federal grant for $100,000 to begin an insurance counselling program for seniors. Ms. Rankin referred to another handout, Presentation to the Senate Commerce Committee (Exhibit D, Original is on file in the Research Library.) and described its contents.
Senator McGinness indicated, in looking for the Commission for Hospital Patients, he noticed that there are some hospitals that are unregulated. He asked which hospitals fall into that range?
Ms. Rankin replied that the only thing the hospital commission can do is "in patient" services. There is an out patient service at a hospital, or it is not a hospital. She continued, noting that the department actively participates in the NAIC. She stated that, during this session, they will mount a major effort regarding solvency regulation. They want the department recognized as achieving the standards necessary to regulate Nevada's domestic industry for solvency, and to participate in examinations of non-domestic insurers for solvency. Ms. Rankin said they will introduce a very comprehensive solvency package designed to put in place the laws that are needed to deal with the solvency issues that are not currently in the insurance code. She discussed the bill, and indicated they feel that these are important issues for Nevada to have in place, in order to increase the domestic industry, and to provide protection for the consumer through financial standards. Ms. Rankin stated that the NAIC has set up a program to certify that states are meeting the standards for solvency regulation. The department has had a pre-review by NAIC, and have been given a specific list of items needed to pass their standards. She described other bills that will be introduced this session.
Senator O'Connell asked how the proposal to collect $30 million from the insurance companies would be collected. He said that if it was going to be given back to them, would it be done on their estimated, and if so how would the state replace it in the following budget.
Ms. Rankin replied that currently, the premium tax is paid on a quarterly basis by each insurance company, based on the prior year's total writing divided by 4. She said what is proposed, is that on March 1, 1995, the companies would estimate and pay all of their tax owed for the year, without using the quarterly system. She indicated that the $30 million quoted is a combination of getting all the money in at once, plus the state's earning on having that money come in early. Ms. Rankin concluded saying, that by the following year, on March 1, there would be just a one-time payment.
Senator O'Connell asked for confirmation that what Ms. Rankin was proposing was simply changing from paying in arrears, to now paying an estimated tax on what they are going to be doing in the future.
Ms. Rankin said they are still paying on the prior year, that this year is going to look like the prior year only they are paying on March 1 instead of in quarterly installments. Regarding the $30 million number, Ms. Rankin indicated she would have her deputy, Michael Griffin, confirm that for Senator O'Connell.
Senator Brown said this change was explained to her as a way to bring money in to deal with the state deficit immediately, and asked if this is considered the way to do it for the whole time.
Ms. Rankin replied, "Yes." She said once the change is made, her understanding is that it would be permanent.
Senator Townsend asked if this one time up-front payment shift put any of the smaller insurers in a position of creating a solvency question?
Ms. Rankin indicated that it was a concern of theirs, and that they had provided that information to the Budget Office. She said their statement in resolution of that problem, for companies who needed to take a loan to make that payment, was to allow the loan to be an admitted asset.
Senator Townsend stated their reason for concern was that, while Ms. Rankin's role is to make sure everyone is solvent, the committee's job is to see if they can get as many solvent people in the market to drive competition for the consumer. Senator Townsend requested that Ms. Rankin provide the committee with the approximate number of people currently turning in premium balances that might be impacted by this bill.
After agreeing, Ms. Rankin discussed the Governor's reorganization proposal to combine the Department of Industrial Relations, (DIR) and the Department of Insurance, (DOI). She noted that since the two entities are so similar in many of their regulatory aspects, she thinks there are efficiencies and cross knowledges to be shared in regulating the workers' compensation area that will be the real benefit of the combination. She continued stating, the DOI primarily does market conduct, and the combination would allow DIR's expertise in the workers' compensation area to be shared with DOI's expertise in market conduct type activities. Her major concerns were first, that there be enough time to make the transition, and second, that the solvency protection and consumer protection functions would not affected by the reorganization.
Senator O'Connell asked if they were talking simply about placing DIR under her division, not about commingling funds?
Ms. Rankin said she had not seen a proposal on commingling funds.
Senator O'Connell asked Scott Young if Article 9, Section 2 of the Constitution would be involved at all with this placement?
Scott Young, General Counsel, Nevada State Industrial Insurance System (SIIS), said potentially it could be. If money was taken from the state insurance fund which is used for workers' compensation, and more money was taken from that fund than was necessary to run the DIR portion of the operations, he believed there would be a problem.
When Senator O'Connell asked Ms. Rankin if she was aware of that she replied that she was. She noted that they presently receive money from the DIR assessments to support the three workers' compensation self-insurance staff that they have, and that the money is segregated, and not used for insurance functions.
Senator O'Connell said she understood the benefits, but her concern was how exactly the day-to-day work was going to be separated so as not to be in violation of the constitution.
Ms. Rankin replied that they probably have more experience with that than DIR, because they currently have that entity which has a separate budget and operates separately within their department. She then explained how the DIR currently uses their resources.
Senator Townsend told Ms. Rankin that this merger was something the committee was going to need to discuss with her. He indicated they need to make sure that they neither end up with some kind of overlap between the system and DIR, nor that they miss something completely. Secondly, he said, they have heard from a number of insurance companies that the money they raise is going more to the General Fund, and the committee needs to discuss this.
Senator Shaffer asked about the details of the reorganization plan. He said the only thing that people seem to know is that there is going to be a change. He asked if she had any indication from the Governor's staff, or the Governor, when some of the details will finally filter down to people like herself?
Ms. Rankin, though she had no information on details, shared her concerns relative to her department as well as her experience in transiting from a division to a department.
Senator Shaffer said that some of the detail portion of the transition is important to the committee as they are trying to anticipate what is going to happen.
John Wiles, Consumer Advocate, Department of Insurance, identified a handout, PRESENTED TO THE SENATE COMMITTEE ON COMMERCE AND LABOR, (EXHIBIT E), that he noted contained the statute that described his powers and duties. This position, he stated, is a compromise of several bills that were before the senate and assembly last session. Essentially, he said, the advocate, from the point of view of the customer, intervenes and participates in those matters, before the commissioner, concerning private passenger automobile insurance rates, solvency issues, and other related matters.
Senator Shaffer asked if he got involved with any rate setting?
Mr. Wiles indicated that the Commissioner of Insurance approves automobile insurance rates in the state, that he makes recommendations concerning what those rates should be. He said he presents the facts from the consumer's perspective that are most favorable to them.
Senator Shaffer inquired into Mr. Wiles' qualifications?
Mr. Wiles indicated that he is an attorney with experience in administrative law, insurance defense, and construction litigation.
Senator O'Connell asked what his budget was.
Mr. Wiles replied around $70,000 (Salary, $45,000; benefits, $10,000; travel expenses, educational expenses, and retaining an expert on one case, about $8,000). When Senator O'Connell asked about staff or office, Mr. Wiles replied that the Department of Insurance provided him with office space, supplies, and the staff to answer the phone.
Senator O'Connell asked if he was paid from the $5 million that are paid in premiums.
Mr. Wiles answered that he thought a portion of his pay came out of the cost stabilization fund which is a separate fund within the department. He noted that there is an educational fund for educational expenses.
Senator O'Connell asked how many cases Mr. Wiles had been involved with during the past year.
Mr. Wiles replied that he had considered about 50 matters since he took office. He indicated that some of these recommendations were jointly made with the department actuarials. He noted that he has recommended about $1.6 million in cuts, of which about $800,000 have been passed on to the consumer in savings in rates that were less than the companies requested. He said approximately $275,000 in savings to insurance customers was attributable solely to his recommendations. He further stated that he had intervened in two hearings this past year: State Farm where he argued successfully against a $5 million increase, however, a judicial review is currently pending; and Farmer's Insurance Group where he retained an expert who authored a report that indicated companies should get about $3 million less than they asked for. That matter is still pending before the commissioner.
Senator O'Connell inquired whether his involvement in these matters was initiated by individuals or simply by his reviewing the matter and thinking he should be involved.
Mr. Wiles replied that the statute says that he can intervene or participate on behalf of an insurance customer, or a group of insurance customers. He noted that the way the rate review process is currently structured is that both he and an actuary of the Department of Insurance author a recommendation memorandum on every automobile rate increase sought by any company in the state. The recommendations, along with the supporting data from the insurance company, go to the commissioner who makes the decision. By statute, companies are required to provide Mr. Wiles with the same information and the same filing that they provide to the Department of Insurance.
Senator O'Connell asked if he felt that the legislature has prolonged the process so that it is more costly in the long run to the consumer, or is it more cost efficient in the end?
Indicating he would be as objective as possible, Mr. Wiles said the way it works currently is that, after the department actuary has had time to gather information, their recommendation is sent to him and he prepares his recommendation. Both recommendations are then forwarded to the commissioner for decision. In the past, due to backlog and staffing problems, there has been a lag-time in reviewing and approving filings. They are working toward a more efficient and effective turnaround time.
Senator O'Connell then asked approximately how many calls, relating directly to him, does he feel his office takes in a month?
Mr. Wiles replied approximately 30. He noted that he also tries to fulfill the educational function of his office in terms of correcting misunderstandings on the part of insurance customers, not only on the policies and the rates they are charged, but about whether or not insurance companies are "ripping the public off."
Senator Shaffer asked Mr. Wiles where his office was located.
Mr. Wiles replied that his office is located in the Las Vegas office of the Department of Insurance. He indicated that he often goes to Carson City to expedite rate filings for hearings or other matters.
Ms. Rankin noted that Mr. Wiles had deemphasized his role in reviewing the forms of insurance policies themselves. He also spent a lot of time putting together the auto insurance booklets found in Exhibit D, and getting them ready for publication.
Senator Townsend inquired if there were any plans to develop an auto insurance program for use in school districts which would explain to students what is in an automobile insurance policy?
Mr. Wiles said that it was an excellent idea, and they would have to plan the time to develop such a program.
Senator Townsend indicated he asked for two reasons. First, he said that Senator Brown, who is a teacher, might be able to work with him on the direction the approach should take for middle and high school students. Second, he said that these things, which have been considered before by this committee, may be included on the driver's test.
Ms. Rankin told Senator Brown that they have a video tape program on automobile insurance, developed for high school students by Charter Property Casualty Underwriting, that she might like to see. Ms. Rankin indicated that students react favorably to the video, noting that the film gets the issues across in terms of choices in purchasing, choices made driving down the street, and how a person gets involved in accidents. She pointed out that there is a difference between what students are taught in driver education and how they drive a car.
Agreeing, Senator Nevin noted that, from his 14 years as a driver education teacher, it is entirely different sitting in a car with an instructor than sitting in a car of your own.
Mr. Wiles stated that students need to know what insurance costs their parents when they start driving, and indicated that students do not realize that they can reduce insurance costs by being good students.
There being no further business, the meeting was adjourned at 10:15 a.m.
RESPECTFULLY SUBMITTED:
Mavis Scarff,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE:
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Senate Committee on Commerce and Labor
February 19, 1993
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