MINUTES OF THE
SENATE COMMITTEE ON FINANCE
Sixty-seventh Session
March 3, 1993
The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Wednesday, March 3, 1993, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator William J. Raggio, Chairman
Senator Raymond D. Rawson, Vice Chairman
Senator Lawrence E. Jacobsen
Senator Bob Coffin
Senator Diana M. Glomb
Senator William R. O'Donnell
Senator Matthew Q. Callister
STAFF MEMBERS PRESENT:
Dan Miles, Fiscal Analyst
Bob Guernsey, Principal Deputy Fiscal Analyst
Jeanne Botts, Deputy Fiscal Analyst
Dee Crawford, Committee Secretary
OTHERS PRESENT:
Pat Eischeid, Self-Insurance Coordinator, Department of Insurance
Don Hataway, Chief Assistant Budget Administrator, Department of Administration
Judy Matteucci, Director, Department of Administration
Teresa Rankin, Commissioner, Department of Insurance
Steve Sisolak, Board Member, State Board of Telephone Sales Communications
Larry Struve, Director, Department of Commerce
Rochelle Summers, Principal Budget Analyst, Department of Administration
Senator Raggio announced Senator Glomb would be late and called the meeting to order at 8:00 a.m.
Consumer Affairs - Page 428
It was explained the agency is charged with protecting consumers from deceptive trade practices, encouraging free trade in the marketplace for Nevada businesses and furthering consumer rights eduction throughout the state. The agency is also charged with monitoring and evaluating health membership clubs as well as licensing and regulating companies and individuals operating telemarketing businesses.
Larry Struve, Director, Department of Commerce, introduced Darlene Loff, Jolene Rose and Joanne Gierer. He commended these individuals in their assistance with the agency budget preparation.
Mr. Struve explained, as part of the reorganization plan, the Consumer Affairs Division will move from the Department of Commerce to the proposed new Department of Business and Industry.
Drawing the committee's attention to the Executive Budget, Mr. Struve cited the narrative recommends 3.5 positions from the director's office of the Department of Commerce be transferred to the Consumer Affairs Division budget. The budget also proposes that the director of the Department of Commerce position be retitled to chief of consumer services.
Mr. Struve distributed Exhibit C, Statistical Report for the Deceptive Trade Unit, and Exhibit D, Regulation of Telemarketing Industry Statistical Summary, to the committee.
With reference to the Revenue sources category, Fiscal Year (FY) 1993-1994 and FY 1994-1995, Mr. Struve described the three sources of raising revenue for the Consumer Affairs Division Base budget. There is a General Fund appropriation of $406,000 and a category called Other. To understand the Other category, one needs to know that total comes from two sources: $l42,000 represents a transfer from the telemarketing budget number 3845.
Continuing, he explained the agency received an opinion from the attorney general's office stating it would be permissible to allow consumer service officers and staff, who are paid out of this budget, to perform duties for the telemarketing program. Explaining further, Mr. Struve declared that because of that legal opinion, the agency was able to reduce its General Fund appropriation to meet its budget reduction targets.
Mr. Struve pointed out:
The other $l8,000 of that $l60,000 figure, is the amount that is earned by investigators in the Consumer Affairs Division. If you look down in your Expenditure column, you will see an item called Investigations Recoverable of $l8,161. That $l8,l6l represents the balance of the $l60,544, which is an amount that investigators earn when they go out and negotiate assurances....Then that money is put back into the budget...so we can pay the cost of investigation.
The third category is called Agency Transfers. This continues a tradition that was started in the Department of Commerce, which I would call a home office fee where various non-General Fund budgets are contributing to budgets supported by the General Fund, but it is also facilitating reorganization in this budget. The $67,000 in the first year comes from three sources: the Manufactured Housing Division, because part of the year, manufactured housing is still under the authority of the Director of Commerce, $44,600 comes from the Nevada Housing Division. This is an amount that housing has traditionally paid to the director of commerce office....Under reorganization, housing is in the consumer services column of the new Department of Business and Industry. So the budget office has carried that support mechanism forward into the consumer affairs budget since the Director of Commerce position becomes Chief of Consumer Services which runs not only the division, but also the section on consumer services.
Finally, there is an $l8,000 transfer from the telemarketing program to this budget which is accounted for in the $67,000 figure....Likewise it's being continued much like the housing division transfer was paid....
Senator Coffin referenced the agency transfer amount increase from the housing division and noted it correlates with the amount that is theoretically being saved by the elimination of the deputy director's position and asked, "Is that the rationale for the increase?"
Mr. Struve deferred the question to Rochelle Summers.
Rochelle Summers, Principal Budget Analyst, Department of Administration, interjected to explain:
There has traditionally been a transfer from the housing division to the Department of Commerce director's office. It was as Larry [Struve] said, a home office fee for the support and administrative oversight the director's office gave to the housing division, since the housing division will be part of consumer services. The consumer services section of the business and industry account that is simply carried forward and it has been very close to this amount over the past 2 years.
Senator Coffin asked what was the transfer amount the previous year, "we don't show anything in actual."
Ms. Summers responded:
You're correct that you don't show this in Actual because this fee was carried in the Department of Commerce director's office prior to that. But if we refer back to the housing division budget, I'm certain we would see a like transfer during this Fiscal Year and last Fiscal Year, to the Department of Commerce....
Senator Coffin wondered if the reorganization savings from the Department of Commerce "is not absorbed someplace else in any of the other business and industry budgets."
Ms. Summer responded, "no."
Mr. Struve drew the committee's attention to the Expenditure category and pointed out the Governor recommended Personnel expenses in the amount of $5l8,43l. He stated:
This figure does reflect the reorganization savings the Governor hopes to achieve through the reorganization plan in the Department of Business and Industry. In checking the figures Rochelle [Summers] gave to me, the total amount of reorganizational savings in this category, for Fiscal Year l994, is $65,483 and in Fiscal Year l995, is $89,743....You need to understand the money for the Personnel expense in this budget already reflects those reductions. I asked the budget office to inform me on what basis that reduction was made and it was derived from two positions: the half-time salary position for the deputy director and the salary for the position of commissioner of consumer affairs.
Where it says Existing Positions, the budget does not recommend eliminating any positions. But in order...to achieve those savings, there will have to be some decision made in the new reorganization by the head of this program to determine how to arrive at a $65,000 savings in the Salary category and $89,000 in the second year in order to live within the budget that is recommended and to achieve the savings the Governor desires.
Mr. Struve contended the remainder of the budget is basically a current services budget with reorganization savings reflected in the In-state Travel category. He pointed out:
...Department legal costs have been transferred as was explained yesterday, to the new budget of the director of business and industry as well as the bond expense that was in the director of commerce budget....The enhancements are the same as you heard yesterday in all Department of Commerce budgets. The performance indicators listed on page 430 were prepared by Joanne [Gierer]....
Mr. Struve referenced Exhibit C and pointed out the information represents an enhancement of agency performance indicators. He drew the committee's attention to the statistics outlining the refunds returned to consumers in the amount of $l,5l9,935, representative of the time frame from July l, l99l to July 30, l992. Mr. Struve confirmed the top three complaint categories are mail order, automotive repair and general merchandise sales.
Senator Rawson asked if Mr. Struve had any recommendations to add to the strength of Nevada's consumer protection laws.
Mr. Struve voiced his opinion the most important area to address is automotive repair. He disclosed the State of California has a bureau which licenses mechanics and automotive repairmen. He cited knowledge of Nevada's current law and explained it requires the repairman to merely post a notice that informs the consumer they have a right to receive a written estimate of the cost to repair their car. Once the estimate is given, the repairman has complied with the law. If no estimate is given, the repairman may be fined, he contended.
Senator Rawson urged Mr. Struve to continue the practice of maintaining statistics on consumer complaints for future reference and evaluation.
Consumer Affairs - Restitution - Page 432
Mr. Struve described this budget as "a holding account" and does not contain performance indicators. It was explained that when funds are recovered for on behalf of consumers, they are deposited into, and disbursed from, this account.
Mr. Struve addressed bonding companies and explained when businesses fail, and owe money to consumers, "they are walking away from their security [deposit] and therefore it is being deposited with the division...." He explained the deposit is disbursed to the affected consumers. "...The point is, we need the authority in this budget to receive that security and then disburse it when we get the mechanism in place to determine what each consumer is entitled to," he urged.
Mr. Struve referenced Exhibit C, specifically the amount of $l,519,935 which was recovered on behalf of consumers and described the mechanism of that collection process:
It does not mean that is necessarily flowing through this account. This only accounts for money that is given to the state, which has to be accounted for in the state system and disbursed through the state system. If money is being directly refunded to consumers because of our intervention, we are keeping track in our files of that service we are providing, but it does not necessarily go through this account....
Senator Raggio asked if proper audit control is maintained over the receipt and distribution of those funds.
Mr. Struve deferred the question to Joanne Gierer, who did not have the opportunity to testify as Senator Raggio moved the agenda to the telemarketing budget.
Telemarketing - Page 433
Because of numerous complaints, the 1989 session of the legislature empowered the Consumer Affairs Division to regulate telemarketers operating in Nevada. The Nevada statute, one of the first of its kind in the country, requires all telemarketing businesses and their salespersons to obtain a license unless they fall within statutory exemption. The statute and regulations, subsequently adopted by the Consumer Affairs Division, established standards of practice to which each licensee must adhere to, and administrative sanctions for, those who deviate from the standards.
Mr. Struve stated this budget is supported entirely from revenue collected from the business industries that engage in telemarketing. Mr. Struve referenced budget page 433 and said the indicated amount of $2,584,207 represents a carryforward of a reserve that has been building up in the account since inception of the program in l989. The calculation represents the agency's estimate of the amount of revenue the agency will earn in FY 1994 and FY 1995.
Mr. Struve testified six personnel are assigned to investigations and enforcement and six individuals are assigned to the clerical and licensing function. He pointed out the l989 legislative session authorized 5 positions for this program. In between the l99l and l993 sessions, the legislature authorized another augmentation to pay for a second deputy attorney general with related expenses.
Senator Raggio asked if the budget reflected the transfers to the Consumer Affairs Division.
Mr. Struve elucidated:
The $l60,784 should be thought of in two amounts. The $l42,000 is the amount I discussed with you in budget 38ll. That is to pay for the portion of the salaries of the deceptive trade officers who are doing telemarketing work. The other $l8,000 of this amount goes into intra-agency transfer, and that is a support fee that has been used in the past to support the director of commerce budget and now is being used to support the chief of consumer services, which is being rolled into budget 38ll.
The Reserve category is the category I think you really need to understand. You will notice that at the end of FY l994, it is estimated the reserve would build up to $l,672,826. The budget office is recommending that you pass a law this session that would cap the carryforward in this budget at $250,000. If you will subtract that amount from the $l,672,826, you will find that leaves an amount of $l,472,000, which is already plugged into the budget; and if you will look on the Revenue side, on page A4, you will see a category called Telemarket Licensing Fees, estimated FY l993 and FY l994, a General Fund contribution of $l,425,l90 and in FY l994 and FY l995, it's $287,667. So the point...is the budget is built on the passage of that law and that the $l.4 million in FY l994 is already in the budget, and the source of that money is this statute and the reserve that has built up in this program. In future years, starting in l995, it is also estimated there will be some additional monies above the $250,000. It's estimated that will be $287,000 in FY l995 and that money would, likewise, be transferred into the General Fund at the beginning of each new fiscal year. Then $250,000 would be carried forward in this budget to support the budget of the telemarketing program.
Senator Raggio asked what was the purpose of the reserve account and queried whether the amount in the account was adequate for its intended purpose.
Mr. Struve stated the reserve was not contemplated when the program initially started because the agency had no previous experience with this type of industry. "We had no idea how many business would pay $5,000 a year to be licensed and how many individuals were going to come forward and pay $l00...," he proclaimed.
Senator Raggio interjected:
When the program was created, it was anticipated, or at least understood, that the program was going to require funding to fill the positions that are required to regulate the industry, and it wasn't designed initially as a General Fund raising device. The question is, if we're now going to put all these funds into General Fund, with a limited reserve, are you going to be performing the functions adequately that were contemplated when we created this agency?
Mr. Struve responded:
...I think that we started on the assumption that the monies that were earned would be dedicated to the enforcement function. I think that was the rationale for setting up a separate budget with a separate revenue source. But as I indicated, we did not contemplate that we were going to be as successful in raising the revenue that we did, or there would be that many people that wanted to come forward and be licensed....With a $250,000 reserve, I've been assured by Joanne [Gierer], who keeps track of the numbers, that from the activity that she is seeing, and as best we can tell will occur in the next biennium, that reserve would be sufficient to maintain a current services budget. If there's going to be an enhancement, then obviously that involves a different policy procedure.
Senator Raggio asked whether the contemplated staffing is going to be adequate to deal with the complaints the agency anticipates receiving over the biennium. He referenced a newspaper article professing many complaints issued. The article made accusations the agency was inadequately staffed to address the complaints. He asked, "Are you going to be able to deal adequately with the complaints that you will be receiving, and is it appropriate to take this money, put it into the General Fund and not use it for these purposes?"
Mr. Struve responded he discussed that same question at length with staff and "I get different answers...."
Senator Raggio expressed his amazement at the funds collected by the agency on behalf of consumers over the time frame July l, l99l through July 30, l992. He wondered how much was lost in uncollected funds because of understaffing.
Mr. Struve stated, "I think our performance indicators indicate that we are contemplating a significant increase in the number of complaints."
Senator Raggio expressed his doubt the agency will be able to meet its goals under the same level of staffing.
Mr. Struve declared:
...We have to set priorities. If we had more staff, yes, we would probably be doing a lot more. But if the reality is, do we have to live within a current services budget...we'll try and deal with that work load, with the staff that we have, but we're obviously going to be limited with what those other boundaries are.
Senator Raggio reminded the committee the budget was established to allow the industry to be self-funded. He added:
If we're going to divert the funding to balance our budget, that's a policy issue, which, incidentally was not the policy set by this legislature....If you feel the budget is adequate to deal with the problems that you anticipate, that's fine. But if we're sweeping it under the rug because we want the money in the General Fund, then we're not dealing adequately with what was created by this legislature and by the executive branch....
Mr. Struve upheld his position to support keeping the reserve in place in anticipation of an increase in work load. He maintained the decision to transfer the funds was made by the budget office.
Senator Raggio reiterated his question concerning whether the anticipated increase in consumer complaints will be adequately addressed in light of understaffing of the agency.
Mr. Struve insisted consumer complaints will be addressed, but in a less timely manner.
Senator Callister concurred with the chairman's concerns of understaffing and the anticipation of an increase in consumer complaints. He declared:
...I'm much chagrined to hear some of the responses this morning, and look at some of these numbers that suggest what it's really become is a revenue device. I'm not certain that was anybody's intent...and strikes me of a perversion of the original law. I am sick and tired of...hearing the feds have had to intervene in this state's affairs....To have it happen once in the Pioneer [Enterprises] case [pending action of the Federal Trade Commission against Pioneer Enterprises]...six months ago, was bad enough. To have it happen a second time...is just an absolute embarrassment to this state and, I believe Mr. Struve, to your division. I would additionally indicate that I don't take quite the same degree of satisfaction as you seem to in some of these statistics. The notion behind the law was to be preventative enforcement, not let's go find the fraud after the cow is out of the barn....I agree with the chairman, all that tells me is there is a fabulous extent of abuse going on within the State of Nevada and we're exporting it. I routinely hear of other states attorneys general who are laughing...at the image of Nevada as still continuing to be the home of...state-licensed fraud....One of the most compelling arguments that was made 4 years ago was the industry could have a beneficial impact if properly monitored and properly regulated....The argument was made the very nature and character of a telephonically-conducted sale was so fraught with the potential for fraud that we were going to be very cautious how we did it. I'm...not sure the law is now working....One of the most shocking things to me is that we've revoked one license in 4 years. I'd be a little embarrassed to reveal that....What I'd like to see...I'd like you to go back and give us a real world proposal for enforcement so that we don't have to have the recurring nightmare of having other states attorneys general cleaning up our messes, so we don't have to have the federal intervention that seems to continue to plague Nevada....
Ms. Summers clarified for the record:
This budget shows a reserve of $l.6 million and, at the moment, shows that approximately $l.4 million would end up reverting at the end of the fiscal year. That is an estimate based on our assumption that, at this moment, they have not presented an alternative spending plan. During the course of that fiscal year, they could come in and ask for an augmentation to beef up their enforcement, should they come up with the figures to support that.
Senator Raggio asked from where would the funding be allocated.
Ms. Summers answered it would come from the reserve that would have reverted.
Senator Raggio recounted, "But at the end of the year, you are anticipating leaving a reserve of only $250,000 and the remainder going into the General Fund."
Ms. Summers countered, "And the remainder may not be $l.4 million, it may be $950,000, or even less."
Senator Raggio voiced his understanding, "But that indicates to this committee that is the direction that you're going to follow and that the funding for this is going to be used, in some substantial part, to bolster the General Fund...."
Ms. Summers stated over the past biennium the agency has "failed to come to us with any request to augment for enforcement, or anything else...."
Senator Raggio expressed the committee's concern about the original purpose of the agency and its funding. Senator Raggio pointed out:
It appears there has been some limitation on its ability to staff, even though there have been ample funds in the reserve that haven't...been suggested for this purpose....I think we need to have a response that isn't only dictated by only fiscal considerations, but by performance....
Senator Coffin recounted the l989 legislature "sold the public on the idea that we were definitely going to stop this fraud." Senator Coffin expressed his embarrassment to discover the funds have been diverted elsewhere. He expounded:
That's part of the frustration of a 4-year effort going down the drain unless we intervene....It's a small fortune we're extracting from these people and it wasn't a license to steal, it was a license to be regulated....We are...licensing them and essentially are permitting them to do business. If some of these are sneaking through and doing a bad job and the feds are catching them for us, we really ought to be rethinking how this budget is portrayed. Maybe that's why the last director of consumer affairs quit, because of her frustration with this process and her knowledge that this money was being collected and realizing she couldn't appear here before us in the next year and defend the budget....I'm disappointed because this is a...6-year program that we see disappearing in front of our eyes. It's inviting federal intervention, I think.
Senator Raggio requested Mr. Struve to submit an amended budget which will adequately enable the agency to function in anticipation of the added work load. He stressed, "Give us a budget which you feel will enable you to deal timely with the complaints, and the number of complaints you anticipate to receive, during the next biennium...but within the existing revenue."
Steve Sisolak, Board Member, State Board of Telephone Sales Communications, distributed Exhibit E, minutes of board meeting of September 23, l992, to the committee.
Mr. Sisolak testified:
...I keep hearing the word, current services....Regulated licensed telemarketing industry is just as concerned about the problems that face our industry as you are today. To have to have the FTC [Federal Trade Commission] come in here and take actions and make million dollar fines...it's embarrassment to the rest of the industry that's trying to do a legitimate job....The legislature passed the bill and we agreed to fund it and it was supposed to be enforced to put everybody on a level playing field. But that's not happened....
To get restitution for somebody after the fact, is just not sufficient....Not all people know to complain....Some telemarketing companies, that are not operating totally above board, rely on the fact that everybody won't ask for their money back. So if l0 people are victimized and one asks for their money back, you're way ahead of the game because you still got to keep the money from the other nine people.
Mr. Sisolak urged strong legislation for the telemarketing industry. He expressed his frustration:
I applaud the effort the current staff from consumer affairs has done. You've got some very hard working individuals...there. But unfortunately it is nowhere near enough....I know at the last state board meeting I sat in on...one investigator left and his position remains open until authorization is received from budget to fill it. I don't understand the intricacies of government, but in the meantime, we don't have an investigator, that we want to be regulated and it hasn't been filled in 7 months. There hasn't been a commissioner in 7 months. I understand there's complications and a salary question and Mr. Struve and the Governor are doing the best they can, but I guess we need a life ring thrown to the industry. If somebody doesn't help, we're going to have a problem....We want to be regulated. That's why we agreed to the funding....There is just nowhere near enough staff. There's 80 licensed telemarketers....There's l5,000 salespeople....It's a monumental task and now there's three people left to do it....
Senator Raggio queried how active is the State Board of Telephone Sales Communications.
Mr. Sisolak responded:
Not very. We meet once every 3 months....The last time it took a year to get the regulations adopted....This isn't a slam against Larry [Struve], I appreciate the job he's done....It was December l99l when they were introduced and I think they took effect in January l993....You're not talking about one or two investigators, we need a major overhaul of the entire department....
Senator Raggio asked if the State Board of Telephone Sales Communications could provide any suggestions regarding "the major overhaul."
Mr. Sisolak responded, "No."
Senator Raggio urged input from the State Board of Telephone Sales Communications.
Senator O'Donnell asked if legislation has been introduced to strengthen the ability of the state to combat telemarketing fraud.
Mr. Sisolak answered, "I can't speak for consumer affairs....The industry is introducing three separate measures to try and strengthen the laws....I don't know how they can strengthen, when we can't enforce what we have now."
Mr. Struve cited knowledge of a request for a bill draft to address strengthening telemarketing laws but stated it has not yet been introduced.
Senator Raggio asked what will be proposed in the bill draft.
Mr. Struve answered:
...Generally, there is going to be increased security from telemarketing licensees, based on a scale of what their actual work load is, so that if we do have to go for restitution there's going to be a sufficient pop there to deal with the anticipated complaints that we're going to get. I believe other changes deal with the administrative procedures that we enforce....
Mr. Struve maintained the current level of bonding is inadequate and suggested to increase the amount of the security bond companies post.
Mr. Struve informed the committee one of the functions of the telemarketing unit was to cooperate with other law enforcement agencies "that have far greater authority to take action against the hard crime that may be going on in some of this industry...." Continuing, he noted:
Some of the raids that Senator Callister was referring to...done by the Federal Trade Commission and other authorities, were done with full cooperation of the Consumer Affairs Division...and the telemarketing unit.
Continuing, Mr. Struve opined the magnitude of the problem is going to require cooperation with other law enforcement agencies in consort with the authority of the Consumer Affairs Division. "It can't simply all be done...through a single unit, because some of the activity that has to be stopped does not just involve the licensing statute, it can involve other criminal laws...," Mr. Struve repeated.
Senator O'Donnell asked if it had been proposed to increase the licensing fees.
Mr. Struve responded he was not aware of any fee increases. He added, "...The $5,000 initial fee was basically geared at funding the budget."
Insurance Regulation - Page 339
The Department of Insurance performs a myriad of functions including the economic regulation of the insurance industry including the licensing of insurers and industry professionals. The agency also administers and enforces the collection of the third largest revenue source for the State of Nevada; the 3.5 percent tax on insurance premiums which exceeded $67 million during Fiscal Year l992. Ms. Rankin maintained the premium tax collections for Fiscal Year l995 are projected to reach $7l million.
Teresa Rankin, Commissioner, Department of Insurance, introduced Michael Griffin, Deputy Insurance Commissioner, and Pat Eischeid, Self-Insurance Coordinator, Department of Insurance. Ms. Rankin
distributed Exhibit F, Presentation to the Senate Committee on Finance, (Exhibit F - Original on File in the Research Library) to the committee, and Exhibit G, written testimony, (Exhibit G - Original on File in the Research Library). Ms. Rankin testified while referencing page 2 of Exhibit F.
Ms. Rankin drew the committee's attention to page 339 of the Executive Budget and outlined that the Base budget includes a reduction in the General Fund appropriation of approximately $l.4 million from FY l992 and FY l993. These savings to the General Fund are made possible because of transfers from the Examination fund and Cost Stabilization fund. These transfers total approximately $l.l million in each year of the FY l994-l995 biennium. The use of these transfers is a new source of revenue, different from the increase in insurance fees previously raised by the legislature from $578 to $2,450 for each insured. That money is being deposited in the General Fund, Ms. Rankin announced.
Commenting further, Ms. Rankin maintained the agency has embarked on a critical project over the next biennium. They are seeking to raise the standards for the regulation of a "solvency of insured to an appropriate level and the enhancements you see deal with both budgeting, staffing and statutory changes that are required," she proclaimed. The standards are intended to insure that the financial review of the insured in Nevada are completed in a timely and appropriate manner to ensure the "financial solvency and well being of each citizen of this state...," she contended.
The other critical request of the agency is the goal of attaining accreditation with the National Association of Insurance Commissioners (NAIC) standards by the end of calendar year l993.
Ms. Rankin testified the NAIC identified deficiencies in staffing statutes and, therefore, the budget now includes the staffing levels that are required for that accreditation and solvency review. She explained achieving the standards for solvency regulation is crucial to the department and essential for the economic development within Nevada. Ms. Rankin reported the other issue in this budget are reorganization savings of approximately $92,000 and $l25,000. The savings are accomplished by losses of certain salaries.
She also pointed out the budget reflects a transfer of three positions to the Department of Taxation to achieve the transfer of the premium tax collection duties to that department. Those three positions are the insurance tax examiner, a tax examiner and a clerical position.
Other changes for this budget include the addition of the federal grant for the Medicare insurance counseling program. Increased legal category expenses, attorney general, attorney general cost allocation increases and an expenditure for new telephone equipment. She pointed out a typographical error on page 344, performance indicators, and declared:
Total dollars collected for consumers, you can see projected FY l993 is $3.5 million, but the next column is $35 million...it should stay level. On line 6, Fines and Penalties projected for Fiscal Year l993 is $478,000, the next column is $4.8 million, that is also a typographical error.
Senator Raggio referenced Ms. Rankin's support of the consolidation of the industrial relations budget with the insurance division budget and queried Ms. Rankin about the merits of combining the two diverse functions of the agencies.
Ms. Rankin distributed Exhibit H, Bureau of Insurance Functional Organization Chart, expressed her opinion the change proposed would not be unique and pointed out the State of Oregon has a similar arrangement. Ms. Rankin shared her recent conversations with her Oregon counterpart:
...DIR [Department of Industrial Relations] regulates both SIIS [State Industrial Insurance System] and self-insurance for what we would term in the insurance area as market conduct....where we are responsible for the financial well being of the self-insured employers under workers' compensation at the present time, in addition to our insurance duties. What he has found in dealing in Oregon is that having occupational safety and health and all aspects of the workers' compensation regulation under him, allows him to deal with rate filings...and to deal with those employers who, perhaps, aren't correcting their safety problems through the rating mechanism or other market conduct mechanisms....
Senator Raggio pointed out it has been proposed to eliminate the commissioner of insurance position.
Expressing her opinion, Ms. Rankin said, "I think it's better to look at it as a reorganization savings like we had a budget savings in position. She stated she has been assured that since there is a bureau chief, "and the McCarran-Ferguson Act would require a regulator of insurance then, in fact, there will be a person who stands in the shoes of the commissioner of insurance...."
Judy Matteucci, Director, Department of Administration, declared:
Terry [Rankin] has represented our understanding of the situation and...when you bring two departments together, you have two department directors and...you don't really need two department directors. But there will have to be someone that does serve, and probably the same title, as the insurance commissioner.
Senator Raggio declared an increase in the number of self-insureds is anticipated and "certainly the Governor recommended that in is state-of-the-state message. With that kind of increased activity and the combination of and some net loss of positions, is it really feasible at this time to do this?"
Ms. Rankin declared:
...I do have some numbers that show a substantial increase in self-insurance. There is a personnel reorganization savings listed in there. Right now it is listed as Ms. Eischeid's position...but I think it is still better to address this as a budget savings than a person deletion and allow the new bureau chief to juggle....
Senator Raggio interjected, "Who is going to assist her [Ms. Eischeid] with this increase in the kind of audits that are performed with respect to self-insured? Is there somebody from the insurance side now given that added responsibility?"
Ms. Rankin replied:
I know in the Department of Industrial Relations budget, they have certain reorganization savings in both our main budget and our self-insurance budget reflects reorganization savings....I can't tell you who is going to do which piece of paper right now. I think that needs to be left to the bureau chief, including, maybe not filling new vacancies to keep old positions....
Ms. Matteucci referenced Exhibit G, Department of Insurance Budget Presentation, in response to Senator Raggio's question.
Senator Raggio asked for comment by Ms. Eischeid.
Pat Eischeid, Self-Insurance Coordinator, Department of Insurance, testified:
Based upon the escalation in the self-insurance applications within the last l2 or l3 months, we had 32 come on board in l980. So far this year, there are 37 who are on board and we are not through with this fiscal year, yet....We are looking at self-insuring about 35 percent of the total employees within the state. This type of a program requires serious monitoring. We deal with a limited staff...a heavy accounting background is very important for this particular job. You are looking at constant financial reviews under legislative mandate to reflect demonstrated ability to pay, their ability to stay within the regulations under a $2.5 million tangible net worth....When I came on board in March of l990, there were 70 self-insured. Today there are l32 and I have 22 applications in the drawer ready to go. So you can see what this escalation has done, and what it is going to continue to do as long as the publicity from SIIS creates a knowledge that there is a self-insurance availability. Many people did not know this and that has increased the number of people who made application over the last 2 years.
Senator Raggio voiced his understanding the Governor's proposal was to allow groups of companies, who otherwise wouldn't be qualified, to qualify for self-insurance.
Ms. Eischeid replied:
...if the law goes into effect on July l, l996, my talks with...SIIS have estimated there will be approximately l00 applications for self-insurance for these particular associations....This is going to take a serious monitoring situation. Right now we only have $2 million- plus in our insolvency fund. I have some security deposits out there that are over $7 million. When you look at this kind of a vulnerability, you are constantly monitoring the financial ability to pay....We do a dual monitoring on these twice a year, and so far the only way my limited staff have been able to do this is to follow the motto analyze, organize and computerize....The number of audits that are going to be demanded shortly is going to be more than even a two-man office can handle. We are working right now on only two trips a year to Las Vegas. That is going to have to increase severely over the next year or two. So when you look at all the things that are required, and it's a very special type of section, that is dealing with a very special type of organization, I don't think you can just bring anybody in to do the job."
Senator Raggio referred the committee to the Self-Insured Workmen's Compensation budget on page 355 and solicited input from Ms. Rankin.
Ms. Rankin pointed out the two changes in the budget:
The reduction of the amount provided by the DIR of approximately $42,000 each year of the biennium, that money provided from DIR is through an assessment...to the self-insured employers and SIIS to support DIR. Part of that money has been transferred for the support of this unit. That transfer would be reduced by $42,000 for each year of the biennium. In addition, there are reorganiza- tion savings designated of $42,254 and $56,678 for each year of the l994-l995 biennium. I would emphasize on the group self-insurance provision of the bill draft being reviewed by Senate Committee on Commerce and Labor, that would have a separate fiscal note on it....These are reorganization savings that show at the present time elimination of Ms. Eischeid's position, but again I think you need to look at those as budget reductions rather than person reductions.
Senator Raggio pointed out the division will still be losing one position.
Ms. Matteucci avowed:
No, we took the value of those particular positions and it would be up to the new director to determine which of the positions would be removed and that's why we did not remove the specific position. It's similar to the reorganization savings that we've put throughout the budgets....The position has not been eliminated, the value of those savings have been placed in the budget as a result of that particular section being merged in with the DIR activities...
Senator Raggio directed the attention of Ms. Matteucci to page 356 of the Executive Budget, FY l994 and FY l995, and stated, "The total resources...are $l09,000 the first year and $96,000 the second year. How many positions does that support?"
Ms. Matteucci confirmed the resources support two positions and added, "But if you look at the existing FTE [full time equivalency], there are still three positions there." She insisted:
As we have indicated throughout this entire budget, we are working without department directors. Department directors are going to have the flexibility to make the decision as to which positions are going to be eliminated and which positions should not be eliminated. Our attempt was to eliminate upper management positions and deputy directors throughout here, but we did not take the positions. One of the things I think is causing great confusion, is that everybody is assuming because the position has been valued-out, that position is gone. That decision will be made by the director of the division and the department.
Senator Raggio emphasized:
That's why I'm looking at two budgets together. You're going to combine them. We're hearing from Ms. Eischeid, for example, the extent of their involvement in this process. We know there's added responsibility coming on, and when you combine these departments, we're looking at whether or not you call it reorganization savings, some bodies are not going to be here when you combine this, whatever the decision made by the director is. Ms. Eischeid is saying...that the kind of expertise that is required must be available to deal with this increasing work load. So the question is, with the reorganization savings built into this consolidation, is there going to be the staffing...expertise that is required, in this very sensitive area to determine...the solvency of not only the existing, but the new companies coming in, and I'm not hearing that from what I'm seeing in the budget page?
Ms. Matteucci responded:
I'm suggesting to you that you have the commissioner of insurance and you've already had the director of the Department of Industrial Relations indicate to you that, yes, you're forgetting that DIR has a lot to do with self-insured also and, by combining their activities, they both have assured you that they are not concerned about the situation as it comes together to be combined....Ms. Eischeid may be able to make a very good argument to the chief of this particular bureau...that her work load is such that she should not be eliminated or it should be augmented....
Senator Raggio asked for confirmation from Ms. Rankin that in anticipation of the proposed consolidation of the agencies, under the indicated budget, will the level of expertise and ability necessary to manage the increase in work load be accomplished.
Ms. Rankin described previous conversations with the current director of DIR in Las Vegas and proclaimed, "Even with...reorganization cuts we can, in fact, provide for the appropriate level of staffing in both her agency and my agency at the time of the merger."
Senator Raggio wondered if the level of expertise that Ms. Eischeid refers to will also be maintained.
Ms. Rankin answered:
That expertise absolutely has to be there. I agree with Ms. Eischeid and especially if we add group self-insured association plans as the Governor has proposed. That expertise in the financial area, absolutely must be there.
Senator Raggio asked Ms. Eischeid if she had any concern with what Ms. Rankin has stated.
Ms. Eischeid responded:
No, not based upon the way you're going. The only emphasis I was making was that based upon what we have now, we are not looking at something starting downhill. We are looking at an increased escalation in this area...but this sounds like a viable solution.
Senator Callister asked how the three positions would be funded.
Ms. Rankin outlined the procedure explaining DIR collects an assessment from the self-insured employers and SIIS. That collection creates the budget they operate under and "they transfer a part of that under our budget account 4684 to support the existing three people in our department that do the financial reviews," she described.
Senator Callister offered the comment, "Essentially the funding comes from assessment against the self-insured."
Ms. Rankin responded in the affirmative.
Senator Callister asked Ms. Matteucci why there should be concern over reorganization savings for an agency that is not supported by the General Fund.
Ms. Matteucci described the process followed when the reorganizational proposal was developed. Once the upper management positions were identified, she declared:
The value of which could be removed and not the positions...without regard for a funding source. If you just look at where we can achieve savings on the General Fund side of things, and let everything else run, I don't think that your philosophy carries throughout the entire reorganization. So funding source was not a driving issue.
Senator Callister posed the question that if the legislature determines the reorganization in this one instance would not be effective, "Would you not suggest that the fact that it is non-General Fund monies might be a component of the decision-making processing about whether we ought to consider leaving that position intact instead of taking it?"
Ms. Matteucci responded, "If you feel that this position, in view of the reorganization and the assurances that have been given to you, want to put more money back in this account to assure that...."
Senator Callister interjected, "I'd want to keep the same level, I don't want to put more money back in."
Continuing, Ms. Matteucci said:
But as Senator Raggio has already pointed out, instead of $l50,000, we've got $l09,000 in this particular account. If you do not want to accept the reorganization savings in there, then you would have to eliminate the value of the reorganization savings that we placed in that account. I point out to you, that as a result of the reorganization, there are still some l5 management positions between the two departments that can oversee much of the management work. If you went through here and put blinders on and looked at every program then you would probably want to add back all the reorganization savings because how can it work? The fact that you're bringing two very significant departments together that have their existing management structure already established, and the fact that you bring them together, you can eliminate management structures....But certainly, of all the non-General Fund savings that are, as a reorganization savings, you feel more comfortable adding back, that is certainly an option the legislature has before it.
Senator Callister referenced Exhibit F, page 3, subsection 5 and asked Ms. Rankin:
You state that the most critical request contained within...the budget request is contained in budget account 38l3. Then you talk about NAIC standards for accreditation for your auditors. I'm interested in the interaction between this proposal for accreditation and existing examination law under 679-b, which requires you to examine as often as advisable. This accreditation by NAIC...how is that going to interact with Nevada's existing statutory obligation for examination?
Ms. Rankin responded:
First of all, the existing examination fund...pays for the examination of insurance companies, we bill the insurance companies for that. The NAIC program, we already participate in what's called NAIC zone examinations. In other words...we went in to examine USAA Life and USAA Insurance Company in San Antonio....That is such a big company, more than one state needs to participate in that examination. We have substantial premium volume, so we're interested in the companies. We sent two of our examiners to participate and be examiners on that program. In the accreditation program, a state that does not meet the minimum solvency standards, that does not reflect in their own review and in their examination procedures, adoption of the NAIC models, adoption of certain model acts of the handbooks, they cannot either participate on those examinations or certainly be an examiner in charge of an examination in an accredited state. In addition, domestic insurers in our state cannot, if we are not accredited by NAIC, after the end of this year...expand to other states and be accepted without new examination or other financial requirements....So we feel this is an absolutely critical issue that we be accredited to put our domestics on an even footing and to allow us to participate in the regulation of other insurers....
Ms. Rankin distributed Exhibit I, NAIC Regulation of Insurers for Solvency, explaining the accreditation program, to the committee.
Senator Raggio drew the committee's attention to budget 341 and said, "The agency has requested $979,000 and $966,000 currently for this purpose and not much is being recommended. I think we need to know if there's adequate money in the budget to accommodate this."
Ms. Rankin replied:
In the agency request of $600,000 for accreditation needs, I'm reading on page 34l under Expenditure Accreditation Needs, that was part two, our on-site review of NAIC. We had to have the budget in May and they came in November. We were not sure exactly which staff positions would be identified as critical to accreditation. We had those identified before the final budget was printed. So the list of personnel you have in front of you...are the ones that we were told in our accreditation review, we need, to be up to snuff. That is less than you approved last session.
Senator Callister asked if the agency were not accredited, would examination of non-domestics still be possible.
Ms. Rankin said:
We would be able to examine them, it would be separate than their domestic state, or an accredited state's examination and we would be billing them twice....In other words, our examinations won't count if we are unaccredited and therefore the accredited states can go in and still examine them.
Senator Callister asked, "...If in our unaccredited exam we determined something we thought was worthy of taking some action, would we be able to do it based on our unaccredited exam?"
Ms. Rankin explained:
We would be able to tell their home state, their domiciliary state, we think we found a problem. But that domiciliary state couldn't accept our exam without going in themselves and so now you are double-billing the company. We, then, would take action under our own statutes against the company if we found there was something wrong in Nevada....
Senator Raggio recessed the meeting at 9:55 a.m. and reconvened the meeting at l0:07 a.m.
Senator Coffin drew the committee's attention to the agency performance indicators and declared, "...I can't find the amount of money coming in from fees and from companies and individuals."
Ms. Rankin stated in Fiscal Year l99l, the transition from the insurance company fee from $578 to $2,450 had not "completely shown up." Continuing, she stated:
In Fiscal Year l99l, those companies, not [the] licensing fees [generated] were $7l4,63l. In Fiscal Year l992, which reflects the March l renewal date for the insurers, plus new insurers seeking licensure throughout the year...became, in Fiscal Year l992, $3,296,056. Therefore, the increase was $2.5 million between those two.
Senator Coffin asked for input regarding agent licensing.
Ms. Rankin clarified:
Agent licensing fees, all I have at this point is Fiscal Year l992...the fees stayed the same so any increases would be numbers of people licensed. In Fiscal Year l992 it was $969,l03 for the agent fees. As you recall, those were raised in, I believe, l989 to support some of our enforcement activities....
Senator Coffin asked, "...When you look at the number of agents, and how many are there...18,000? Does that include nonresident agents as well as agents?"
Ms. Rankin replied:
The indicators you have before you are dramatically improved from last session. Last session we had three indicators, they did not reflect what the department was doing at all....For instance, in self-insurance, I get vast amount of information from them. We're trying to fix all sections of the department to update performance indicators....
Senator Coffin opined the agency should be accredited. "...It just doesn't seem fair to those people in my shoes who are paying the money, but not getting the regulation that we're paying for."
Ms. Rankin distributed Exhibit J, Financial Regulation Standards and Accreditation Program of the National Association of Insurance Commissioners, (Exhibit J - Original on File in the Research Library) to the committee and stated:
...The cost to examine an insurance company or bill the company on the per diem rate of our contract examiner...plus an override set by the commissioner, that override has been set since late...January l992....It has stayed there. This budget is based on it staying at 50 percent and...assuming we are accredited, then our examinations are accepted, we keep all our examiners, they should be active in examinations for unaccredited states that need an accredited state to assist them. Hopefully with that override and some increase in activity, it will make enough. Otherwise, by the second year, we will eat our seed corn, we will not have a reserve.
Senator O'Donnell asked, "Is that going to equate to a $l.7 million increase? Is that going to increase $900,000 by keeping it at 50 percent?"
Ms. Rankin responded:
...Right now, the reserve that is currently in that budget...is a combination of when we still had the l00 percent and when we've been at the 50 percent level. For some exams, like SIIS, we don't charge an over ride....That current reserve has been generated just from that and then assuming that same level of activity, and maybe a little increase, we should generate enough for a reserve to carry it in the second year....
Senator Glomb asked to be provided with an accounting of the cashflow that passes through the agency budget as well as information indicating the amount of revenue that is generated by the agency. Senator Glomb expressed her dismay that even though the agency is "bringing in almost $l00 million, you are still not accredited."
Ms. Rankin proudly proclaimed:
We're the third largest revenue producer for the State of Nevada. We're the only revenue source that did not decrease and we were within $20,000 of our projections off the $l4 million. I think we've done real well on the premium tax.
Senator Glomb asked how many other states are not accredited.
Ms. Rankin answered l9 are accredited and added, "there's 53 that have to be because of the territories...." She explained:
The NAIC has put in a program because of the cutoff date on January l, the maximum number of them should be done by the first of the year, by January l, l994. However, the NAIC itself has recognized there still will be about a dozen states left that will have to be done in l994. We have had our pre-review. We can get the staffing on board, do the other pieces we need to do internally on our procedures, get the bill draft on solvency passed, we should be in good shape for our review by the end of the year.....
Ms. Rankin concluded the Department of Insurance supports the consolidation within the Department of Industrial Regulations.
National Association of Insurance Commissioners - Page 345
This fund is utilized to pay for the travel and related expenses incurred by the insurance commissioner and staff members to attend the National Association of Insurance Commissioner meetings.
Ms. Rankin explained this budget collects $25 from each licensed insurer to fund agency activities in the NAIC.
Senator Raggio asked for clarification why the fees are kept in light of the amount of accumulated reserve.
Ms. Rankin responded:
First of all, they need to be segregated because that is what we use for out-of-state travel to participate in NAIC....The reserve that's been in there pretty much has carried through for the last few years and I think that is an appropriate level.
Senator Raggio pointed out, "But you're using about $l9,000...for actual expenditures in this regard."
Ms. Rankin responded in the affirmative and clarified:
In addition...we pay our dues to NAIC out of there, we pay for activities and, in addition, NAIC provides us some education money back, which we supplement with this fund for staff training and education.
Insurance Fraud Section - Page 347
It was explained the Insurance Commissioner is required to establish a program to investigate any act or practice which violates the Nevada Revised Statutes as it pertains to the submission of fraudulent claims or attempts to defraud an insurer.
Ms. Rankin declared this budget contains two material enhancements. She explained there has been a $l29,000 increase in the attorney general cost allocation, which is funded by an assessment of the l,450 insurers licensed in Nevada. The change in the budget will increase the assessment from $300 to approximately $460, she reported. In addition, the budget includes six new positions from the Department of Industrial Regulations to furnish provider fraud investigation. Salaries to support this function are $209,000 and $275,000 for each year. Ms. Rankin stated, "There is a fiscal note from the attorney general on SIIS fraud. This budget was submitted before that. We don't know what the impact of that fiscal note will be...."
Senator Glomb referenced page 349 regarding the transfer of six positions and asked if it was shown as an enhancement.
Ms. Rankin responded in the affirmative and added, "But those six positions are not charged to the insurers, it is charged to the DIR budget, I wanted to emphasize that."
Senator Glomb asked if there were performance indicators showing the number of cases pending and/or closed.
Ms. Rankin declared that information was not yet available.
Insurance Cost Stabilization - Page 35l
The l987 legislature created a system for the commissioner of insurance to collect, analyze and distribute information concerning the cost of insurance in order to stabilize the cost.
This budget is funded through an assessment paid by property and casualty insurers permitted to conduct business in the state.
Ms. Rankin testified the budget contains three separate changes which she reviewed:
A transfer of approximately $55,000 to the department's Operating budget....The transfer represents the salary plus benefits of the consumer advocate for auto insurance....The second change is a $30,000 enhancement to fund contract services used by the consumer advocate during automobile rate proceedings. The third is a $l7,000 enhancement to fund contract services used by the department...for actuarial review of property and casualty filing, either within the context of an auto rate filing or separately.
Continuing, Ms. Rankin pointed out this budget is funded by an assessment which does not exceed $500,000 to all licensed property casualty insurers. The proposed enhancements do not raise that assessment, she stated.
Senator Raggio asked for an update of the consumer advocate position.
Ms. Rankin stated the position is located in the Las Vegas office. The incumbent was hired in February l992 and is an attorney licensed to practice in the State of Nevada. She advised he has participated both in rate filings and consumer complaints.
Senator Raggio asked, "Has he filed a report with someone?"
Ms. Rankin replied, "He has presented something to Senate Committee on Commerce and Labor...."
Senator Raggio asked for a copy of the performance of that incumbent.
Ms. Rankin agreed to supply the committee with a copy of the consumer advocate report as well as information concerning the activity of the incumbent.
Senator Raggio asked if a report was available regarding whether or not insurance costs were stabilizing.
Ms. Rankin stated, "You should have each received...a report of the status of property casualty insurance in this state. That is required for this budget and is produced every biennium by our department. In there, we emphasized auto insurance and medical mal-practice...."
Self Insured - Workmen's Compensation - Page 355
Qualified employers of Nevada are allowed to self-insure for workers' compensation. The insurance commissioner is responsible for establishing standards, guidelines and requirements for certification and operation of this self-insurance program.
Senator Raggio asked if the agency imposed a moratorium on new applications for the self-insured.
Ms. Rankin responded she had not. She clarified, however, the agency imposed a moratorium on insurance company applications in the "End of l99l through...about May of l992 and then we lifted it with pre-screening." She added:
But they do not have access the way they used to. That does affect the competitive market, however, we just don't have the staff to process the applications.
Senator Raggio asked how many applications were deferred as a result of the moratorium.
Ms. Rankin stated approximately 70.
Senator Raggio posed the question the state lost revenue from applications that were not accepted as a result of the moratorium.
Ms. Rankin agreed.
Senator Raggio asked if all applications were denied or were some given priority.
Ms. Rankin said, during the moratorium, all applications were denied. Currently, "we determine whether they have presented us with a plan in a letter saying they are going to provide a market that we feel we need. If they are not, we will not even accept their application...," she proclaimed.
Insurance Examiners - Page 358
This budget was established to act as a revolving fund to reflect the reimbursements from insurance companies for expenses incurred by division staff and contract examiners of the insurance division while conducting examinations of insurance companies.
Ms. Rankin explained the two changes are the transfer of approximately $l.l million to the department's Operating fund and a $60,000 increase to support an examiner education program. "This education program is part of the solvency accreditation standards," she avowed. Funding for the additional expense of $60,000 is supported by an increase in the examiners per diem of $9.
Senator Raggio asked, "Is this the budget you indicated the reserve is anticipated to go down about $500,000...in l995?"
Ms. Rankin responded in the affirmative and said, "During change in a fiscal year...we need about $250,000 to float bills from the examiners while we're changing all the budgetary accounts."
It was explained that in the past, the agency has added an additional overhead amount to the cost of conducting a financial examination to partially offset the administrative costs associated with managing the insurance examinations. This overhead charge has ranged anywhere from 25 percent of the actual cost of an examination to l00 percent. The l99l legislature expressed concern with the agency's billing rate of l00 percent over actual costs, and during the current biennium, the agency lowered its overhead charge to 50 percent of actual costs.
Continuing, Senator Raggio asked, "You're still anticipating that during the biennium you will not have to increase the overhead factor by more than 50 percent?"
Ms. Rankin said, "That's what we've been told."
Senator O'Donnell asked, "Who told you that?"
Ms. Rankin advised, "That's supplied by the budget office. We did request a higher increase."
Ms. Matteucci interjected:
I believe there was certain representations made to the industry last time and that's why the l00 percent was reduced to 50 percent and we're attempting to hold that overhead at 50 percent. This budget anticipates much more activity as a result of the accreditation which is why the accreditation is so important to support their account. The activity at the 50 percent level will continue to carry them through.
The major issue facing the insurance examination fund is the proposal for the agency to seek accreditation by the NAIC. If the agency does not become accredited before January l994, examinations of insurers may only take place on companies based within the State of Nevada, and the department would have great difficulty in seeking reimbursement for examinations out of state.
Senator O'Donnell asked what will occur if the accreditation is not forthcoming.
Ms. Matteucci said, "If you don't get the accreditation, then I think you need to come back and look at this budget account."
Senator Raggio pointed out the agency is required to audit domestic companies every 3 years. He asked if foreign companies were audited on a regular basis.
Ms. Rankin stated, "If the nondomestic company has not been examined by their domiciliary state within the time frame set in the statute, we have the ability to go in and examine them if we choose to."
Senator Raggio asked, "Does that raise the issue of whether or not domestic companies are paying a disproportionate share of the assessment cost as a result of their frequency of audit."
Ms. Rankin said, "Possibly."
Senator Raggio asked what percent of the Nevada market do those companies represent.
Ms. Rankin said, "...Most of our domestic market is in health insurance....area, 50 to 70 percent [approximately]."
Senator Callister drew the committee's attention to the agency budget reflecting $60,000 for training of the examiners. He asked, "Aren't they independent contractors and aren't they very highly paid?"
Ms. Rankin said, "By qualification, they have a pay scale. So it depends where they are on the scale."
Senator Callister pointed out a lot of the people live out of the state, yet contract with Nevada for services. "I wonder why we're paying out of our budget to train them," he queried.
Ms. Rankin answered:
As a part of the solvency review, they must stay current in their education....What we have found is there is a disincentive for them as an independent contractor to seek that education because they lose both their per diem and their salary while they are in that education. And yet as a department, we are required to show that they have that training. So what we proposed was to have the insurers they were examining assist through the $9 per diem add on to pay for their education so they are properly paid while they are getting the education.
Senator Callister asked if there was a shortage of this type of independent contractor and was it common practice in other states to have to pay the fee.
Ms. Rankin responded in the affirmative and explained, "Some states have them as employees....We do compete with other states for our contractors. Our rates...are often not competitive with Delaware and some of the other states that go higher than those standards...."
Commission for Hospital Patients - Page 36l
The Commission for Hospital Patients was established by the l99l legislature. This commission is responsible for hearing and arbitrating disputes relating to the charges for care provided to patients. The funding for the program comes from each hospital, other than federal and state hospitals, with 49 or more licensed or approved hospital beds, paying an annual assessment for support of the commission.
Ms. Rankin declared the budget assessment amount stated does not comply with the statute in the revenue authority. "Therefore, we need to fix, either in your budget documents, or through an Interim Finance Committee change, the correction of the revenue assessment," she stated.
Ms. Rankin reported since the incumbent has been hired, February l992, she has recovered $500,000 for Nevada consumers.
Senator Raggio recessed the meeting at l0:50 a.m. and reconvened the meeting at ll:20 a.m.
Senator Callister pointed out the issue of chronically late-paying members of the industry and asked what could be done to motivate prompt payment of insurance premium taxes. He suggested to assess penalties and fines to late-paying members of the industry.
Ms. Rankin suggested to broaden the language in the statute.
Senator Callister suggested to assess penalties and fines to late paying members of the industry.
Insurance Education and Research - Page 365
Ms. Rankin testified one clerical position has been requested for this budget which increases the salary expense category by $25,000 each year of the biennium. This budget is funded through the agent recovery fund, she advised.
Insurance Insolvency Fund - Page 368
Per statute, the commissioner may assess all self-insured employers to provide for claims against any insolvent self-insured employer. All monies received are deposited into the account for the self-insured employer, it was reported.
The trust account is funded through an initial and annual assessment by all self-insured employers and from the interest earned on the assets of the fund. Each self-insured employer is initially assessed .5 percent of its expected annual expenditures for claims. Thereafter they are assessed an annual rate of .25 percent of the employer's current security deposit amount. Self-insured employers contribute to this fund until it reaches $3 million, or 20 percent of the amount of the total security deposits being held.
Ms. Rankin explained this fund is related to the self-insured workmen's compensation fund. It includes the deposits made to insure payment of claims if a self-insured employer becomes insolvent. There are no enhancements or changes in this budget, she advised.
Senator Raggio asked if funding was adequate.
Ms. Rankin responded in the affirmative.
Senator Raggio asked, "Is the assessed rate after they're in .25 percent of the security deposit amount?"
Ms. Rankin responded in the affirmative.
Senator Coffin referenced the dramatic increase in the number of people changing to self-insured status and asked if Ms. Rankin felt the reserve was still adequate.
Ms. Rankin responded in the affirmative and explained, "...You have some other mechanisms there. No only does each employer have his own bond or deposit in place....plus excess coverage for catastrophic losses...and the insolvency fund. You end up going through those first two mechanisms before you even hit the insolvency fund...."
Senator Coffin asked for a copy of the loss ratios for self-insureds.
Senator Callister asked to be provided a summary of the total loss to Nevada insureds as a result of insolvency.
Insurance Recovery - Page 370
It was explained this special non-reverting account was created in l977 and replaced the bonding requirements for brokers, surplus- line brokers and adjusters. Each new licensee-renewal application submitted by agents and brokers must be accompanied by payment of $l5 to fund this program. A balance of not more than $40,000 is maintained and utilized to satisfy claims against persons licensed under the insurance chapters. The limit of liability is $5,000 per fiscal year for any one licensee.
Senator Raggio asked what was the recoverable amount allowed for each claimant.
Ms. Rankin declared, "Up to $5,000 each for a total per year of $40,000 and they must have a court judgment...."
Senator Raggio asked how many such claims have been paid out of this particular budget.
Ms. Rankin stated, "I'm only aware of one that ever occurred and that was 6 or 7 years ago."
Prepaid Funeral and Cemetery - Page 37l
It was explained that this program is funded from fees paid by the regulated parties pursuant to statute required to conduct examinations of funeral sellers, burial sellers, and endowment care cemeteries. During the l987 legislature, statutes were amended to allow for the cost of the examination to be recovered from the companies being examined. Ms. Rankin advised there has been no action in this account and suggested to move it to the General Fund.
Senator Raggio asked if there were ongoing examinations.
Ms. Rankin responded in the affirmative and added, "...The costs charged and the costs recovered are run through 38l7 [budget account] Examination Fund...."
Senator Raggio asked how much was actually received and spent for examination purposes.
Ms. Rankin did not have the information readily available but estimated it to be approximately $l2,000 to $l5,000.
There being no further business to come before the committee, Senator Raggio adjourned the meeting at ll:40 a.m.
RESPECTFULLY SUBMITTED:
Dee Crawford,
Committee Secretary
APPROVED BY:
Senator William J. Raggio, Chairman
DATE:
??
Senate Committee on Finance
March 3, 1993
Page 1