The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:30 a.m., on Friday, February 26, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Kathryn Lawrence, Committee Secretary

OTHERS PRESENT:

Robert B. Feldman, Lobbyist, Nevada General Insurance Company, stated his letter (Exhibit C) explained this bill originated in 1996 when Senator Jon C. Porter, Sr., Clark County Senatorial District No. 1, conducted a task force on consumer fraud. He stated the committee devised several recommendations on how to contain insurance fraud. He explained one of those recommendations was immunity for insurance companies who report insurance fraud and who share file information for investigation. He explained in the State of Nevada, insurance fraud costs families $272 annually, which is approximately 60 percent higher than the national average. He pointed out there are attorneys who practice and will enforce suing for car accidents; and this bill would give the special investigative unit immunity to do their job, wherein different units can contact each other for information. He explained there are people within the state who make a living suing. He stressed they stage car accidents to sue people. He maintained passage of this bill would help all concerned to investigate these issues.

Sam Sorich, Lobbyist, National Association of Independent Insurers, stated his company is responsible for about 30 percent of the property casualty insurance premiums written in Nevada and thought sections 1 through 3 of S.B. 75 were very important. He recognized the current law is very unclear and is affecting the efforts of the fraud units in companies to do their job effectively. He pointed out it is also important to specifically allow all the citizens to fight the insurance fraud with a degree of immunity, as long as they are not acting with malice.

C. Joseph Guild, Lobbyist, State Farm Insurance Companies, introduced Ron Dohrendorf and stated the committee needed to hear why the present lack of immunity in the state hinders his job.

Ron Dohrendorf, Investigative Unit, State Farm Insurance Companies, stated he deals with the automobile problems of the insurance company. He pointed out individuals have moved into Nevada because the laws are not as stringent here against fraud as they are in California, Arizona, and Utah. He explained individuals have staged auto accidents on the highways and have become a threat to the motorists. He drew attention to the fact that these individuals consist of attorneys, doctors, and campers; and all work through a cell manager. He noted this is an organized effort and investigators have been tracing these incidences from California to the East Coast, with links to Nevada. He stressed with the immunity factor, investigators can speak with other carriers and law enforcement which can help us develop patterns. Chairman Townsend stated the language in the bill looked to be broad regarding exchanging information. Mr. Guild stated the language in the bill will enable the investigative unit in investigating fraud.

Robert Crowell, Lobbyist, Farmers Insurance Group, stated S.B. 75 is in the insurance commissioner statute and does not address an individual who is not an insurer or representative of an insurer. He pointed out S.B. 75, if adopted, would overhaul or reform the immunity provisions of insurance fraud issues.

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, stated Mr. Feldman addressed her concerns about wrongful use of information. She explained, in many states where the insurers are permitted to exchange information among themselves, the restrictions are subject to greater oversight. She pointed out the program is for the purpose of educating employees on how to maintain information on a confidential basis, so that it will not be wrongfully used for underwriting or discriminatory purposes. Ms. Molasky-Arman stated the plans are required to be followed with the commissioner’s office, and the plans are confidential. She stated she had concerns that without this kind of restriction, the exchange of information could encounter problems with privacy prohibitions. She maintained her agency does have one language that sets forth the parameters of how these programs will be established and stated many of the major insurers already have these programs in place. Senator O’Connell inquired if Ms. Molasky-Arman saw this applying to all workers’ compensation insurance. Ms. Molasky-Arman stated it would apply to all insurance.

Bill Bradley, Lobbyist, Nevada Trial Lawyers’ Association, stated the association also shares the concerns expressed by the commissioner and chairperson on the necessity of this language concerning the existing statutory language. He stated he is concerned about bad people who deserve to be put in prison and punished, but the association is not talking about someone who may have a problem with an insurance adjuster who may be unfairly targeted. He stated to show "without malice" is an extremely high standard and there would have to be proof that someone meant somebody else harm. He stated he preferred the language that anybody, with reasonable suspicion of fraud, should be entitled to report it; but if you are grossly negligent or if you have a problem with your neighbor, S.B. 75 is going way too far for the innocent people who may be wrongfully accused.

Mr. Feldman stated competition creates lower insurance rates and the flex- rating portion of S.B. 75 somewhat follows in the State of New York. He stated the department should not be concerned with the flex-rating but pursuing workmen’s comp fraud and working to keep the market solvent.

Ms. Molasky-Arman stated she disagreed and expressed concern this section would essentially gag the commissioner. She stated Assembly Bill (A.B.) 609 of the Sixty-ninth Session was established to ensure that insurers did not come into this state and lowball or undercut prices to gain a strong segment of the market; and then be unable to afford to pay claims, thus ending in insolvency.

Ms. Molasky-Arman stated there is $917 million spent in Nevada for auto insurance and if there is a 1-percent error in reviewing those rates, that results in a cost of $9.17 million upon consumers. Ms. Molasky-Arman stated she had three standards for reviewing rates; which were adequacy, excessiveness, and they must not be unfairly discriminatory. She stressed her agency’s primary role is to protect the consumers and to assure they are not subject to unfair discrimination. Ms. Molasky-Arman stated she brought the "Consumers Guide to Auto Insurance" (Exhibit D. Original is on file in the Research Library.) to let the committee see what different rates the insurance companies charged. Senator O’Connell asked Ms. Molasky-Arman to inquire about a two-tier system and report back to the committee. Chairman Townsend requested the next publication of the booklet to have larger print.

Robert K. Cedar, Actuary, Division of Insurance, Department of Business and Industry, stated in his chart (Exhibit E) that individuals of the 70-plus age group have been charged more for their homeowners insurance even though their homes were valued at less. He explained he has witnessed companies pricing themselves so low they were losing market share and income. Mr. Guild suggested that companies who have a long solvency record should not be burdened. He stated a solvent company could come into the market in Nevada with adequate supervision by the commissioner, and still raise its rates 10 percent without a complete overview by the commissioner. He explained there is an established rate in a given line of insurance and this committee could hear a range of numbers in the option area. He asserted it would free up the commissioner’s office to be more efficient in pursuing fraudulent cases. He agreed to obtain information for a two-tiered system for the committee.

James L. Wadhams, Lobbyist, American Insurance Association, U.S. Bank Plaza, pointed out in the book, "Consumers Guide to Auto Insurance," on page 25, to exemplify how different the rates could be with the same person and same driving record. He claimed there are hundreds of competitors out there and every opportunity for the consumer. Senator Shaffer and Chairman Townsend both agreed the rates do not necessarily reflect the service and there are other benefits such as service.

Chairman Townsend closed the hearing on S.B. 75 and opened the meeting on S.B. 224.

J. Marty Howard, Senior Deputy Attorney General, Insurance Fraud Control Unit, Office of the Attorney General, stated he supported this bill. He provided the committee a letter (Exhibit F) and a booklet regarding insurance fraud (Exhibit G). He stated the money from this bill would help the attorney general’s office (AG) investigate the fraud claims and would provide money to the insurance commissioner to help them perform their duties. Mr. Sorich stated support for S.B. 224. He explained as an insurance company, they have a responsibility to make sure the premium dollars go to pay only legitimate claims, and customers expect that to fight fraud. He explained it is good to fight fraud because it enables a company to hold down its costs. He urged the committee to support the fraud-fighting efforts.

Judith M. Fitzgerald, Lobbyist, Associate Vice President and Director of Government Affairs, National Insurance Crime Bureau (NICB), stated she fully supports the passage of S.B. 224. The NICB works very closely with the federal, state and local law enforcement agencies to investigate organized criminal conspiracies. She stressed they would like to see additional resources devoted to the AG for this program. She stated it would benefit the department because they could utilize these funds for specific investigative purposes. She submitted her written testimony to the committee (Exhibit H).

Jack Kim, Lobbyist, Sierra Health Services, stated he does support this bill. He emphasized his concerns are that the health care specialists may have to pay two separate fraud assessments, and does not think that was intended. He stressed his other concern is the need to look at assessments in this bill; they increase the costs and premiums for the general public as a whole. Mr. Feldman stated these assessments triples the rates that his small company has to pay for insurance fraud, but he supports the bill.

Jim Werbeckes, Lobbyist, Farmers Insurance Group, stated he supports this bill, although this bill would increase their funds from $2,500 to $7,000. He stated his company is more than willing to pay to fight fraud. Senator O’Connell asked what the percentage increase would be to the customers. Mr. Werbeckes stated there would be no increase. Senator Amodei queried Mr. Werbeckes if he foresaw rates decreasing if the bill passes and fraud decreases. Mr. Werbeckes stated there should be a rate decrease and Farmers Insurance Group predicted a 3.6-percent decrease.

Mr. Guild expressed favor for the bill and submitted his amendment to the committee (Exhibit I). He stated the amendment would broaden the scope of the insurers who would have to pay the increased fraud assessment. He stated State Farm Insurance Company would gladly pay the additional assessment for fraud investigation and there would be no increase to the customer.

Richard E. Shrader Jr., Lobbyist, AAA Nevada Insurance Agency, stated for the record he also supported S.B. 224.

Theresa C. Bedoy, Lobbyist, Government Relations Manager, Allstate Insurance Company, stated she agreed and would be happy to participate in the increased fraud assessment. She said it would ultimately help impact the consumer. Chairman Townsend asked how much of the assessment is preventative and if it would send a message to the crime rings. She stated it was sending a good message, and that the dollars invested into any antifraud fight will ultimately discourage more fraudulent claims. Ms. Bedoy stated the investment does pay off for the consumer; and as insurers, we have a vested interest in educating the public of the cost of fraud.

Mr. Bradley stated this bill is a good idea; and there is a need to also address nationwide fraud on insurance companies because fraud can be on either side. He explained some insurance companies start adjusting claims of underprivileged families at a substandard value. He remarked if a person were a minority, poor, unable to defend himself, and owns property lines worth $1,000, this same insurance company would pay $100. He noted these companies know when individuals are having financial problems and they hope to buy off cheaply. He pointed out these companies are being misleading to the public and are not being prosecuted. Ms. Molasky-Arman commended the industry to fight fraud. She stated the funding for the fraud assessment is to support the efforts of the fraud unit and the AG to help fight fraud by consumers, such as fraudulent claims. She explained insurance fraud amounted to $250 per citizen per year. She stated the other purpose for that assessment is to assist in supporting the commissioner’s program of compliance with chapter 686A of Nevada Revised Statutes (NRS). Senator Amodei inquired why nothing had been done in this Legislature to deal with unauthorized insurers. Ms. Molasky-Arman stated part of the funding is going to go to the commissioner’s program. She stated her agency refers cases to the district attorneys (DAs) and the AG for prosecution. Senator Townsend stated the AG is more likely to be taken more seriously than the Division of Insurance.

Fred L. Hillerby, Lobbyist, American Council of Life Insurance, stated premiums are being paid to fight fraud, and now those premiums are going to increase. He stated his fee will go from $500 to $1,500, but he feels the money is not going to fight fraud. Chairman Townsend asked Mr. Hillerby to work with the AG’s office on how to best deal with the fraud issue. Mr. Hillerby agreed.

Janice C. Pine, Lobbyist, Saint Mary’s Health Network, stated she would like to illustrate how much money insurers are currently paying. She stated St. Mary’s is a health maintenance organization (HMO). She stated Saint Mary’s Health Network presently pays to the state in licenses, fees and taxes in excess of $400,000; and she stated they should not have to pay more money.

Chairman Townsend closed the hearing on S.B. 224 and opened the hearing on S.B. 225.

Ronda Clifton, Deputy Attorney General, Fraud Control Unit for Industrial Insurance, Office of the Attorney General, stated the passing of S.B. 225 will enhance her office’s ability to prosecute insurance fraud. She stated she would like to propose an amendment (Exhibit J), as those people would be entitled to immunity from disclosing information on fraudulent claims; and would like the words added at the beginning of section 9.

David F. Sarnowski, Chief Deputy Attorney General, Criminal Justice Division, Office of the Attorney General, stated his office needs the budget flexibility to allocate resources. He stressed the DAs have the jurisdiction to convict crimes, unless the cases are released to our office. Mr. Sarnowski stated the statutory language would have to be revised to state that the AG has the primary jurisdiction and would need the assets to execute that mission. He explained the proposal in S.B. 225 provides the assets minimally. He averred the AG’s office needs to be more effective in prosecuting the crimes for which we already have jurisdiction. Chairman Townsend inquired if the AG’s office would have to be designated as the prime area of jurisdiction. Mr. Sarnowski stated, "Yes, it needs to be made very clear that we are the primary prosecuting agency for insurance fraud." The Chairman concurred.

David A. Edwards, M.D., Board of Homeopathic Medical Examiners, stated the board desires the bill be amended to exclude alternative forms of medicine that are licensed. He presented a proposal from the Federation of State Medical Boards of the United States (Exhibit K), a letter from F. Fuller Royal, M.D. (Exhibit L), and a statement from the Board of Homeopathic Medical Examiners (Exhibit M).

Doug Collins, Legislative Chairperson, Associated Builders and Contractors, stated support for the insertion of the aforementioned language. He stated alternative medicine is very important to northern Nevada and there should be a choice of doctors within the state.

Earlene Forsythe, Family Nurse Practitioner, Nevadans for Health Freedom, stated she supported this language, also.

David Horton, Lobbyist, Nevada Homeopathic Medical Association, agreed and stated alternative therapy is not a form of insurance fraud. He presented his written statement (Exhibit N).

The meeting was adjourned at 10:25 a.m.

RESPECTFULLY SUBMITTED:

Kathryn Lawrence,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

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