MINUTES OF THE meeting
of the
ASSEMBLY Committee on Commerce and Labor
Seventy-First Session
April 23, 2001
The Committee on Commerce and Labor was called to order at 4:04 p.m., on Monday, April 23, 2001. Chairman Joseph Dini, Jr. presided in Room 4100 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Joseph Dini, Jr., Chairman
Ms. Barbara Buckley, Vice Chairman
Mrs. Dawn Gibbons
Ms. Chris Giunchigliani
Mr. David Goldwater
Mr. Lynn Hettrick
Mr. David Humke
Ms. Sheila Leslie
Mr. Dennis Nolan
Mr. David Parks
Mr. Richard D. Perkins
COMMITTEE MEMBERS ABSENT:
Mr. Morse Arberry Jr.
Mr. Bob Beers (Excused)
Mr. John Oceguera (Excused)
GUEST LEGISLATORS PRESENT:
Senator Maurice Washington
Senator Maggie Carlton
STAFF MEMBERS PRESENT:
Vance Hughey, Committee Policy Analyst
Rebekah Langhoff, Committee Secretary
OTHERS PRESENT:
Jim Werbeckes, Legislative Representative, Farmers Insurance Group, Reno, Nevada
Mark Tratos, Attorney, Quirk & Tratos, Las Vegas, Nevada
Joel F. Bower, M.D., Vice President, Medical Affairs, St. Rose Dominican Hospital, Henderson, Nevada
Larry Lessly, Executive Director, Special Counsel, Board of Medical Examiners, State of Nevada, Reno, Nevada
Janice Pine, Legislative Representative, Saint Mary’s Health Network, Reno, Nevada
Alice Molasky-Arman, Commissioner of Insurance, Insurance Division, Department of Business and Industry, State of Nevada, Carson City, Nevada
Cliff King, Chief Insurance Examiner, Property and Casualty Section, Division of Insurance, Department of Business and Industry, State of Nevada, Carson City, Nevada
Janice Moskowitz, Lead Actuary, Property and Casualty Section, Division of Insurance, Department of Business and Industry, State of Nevada, Carson City, Nevada
Sam Sorich, Legislative Representative, National Association of Independent Insurers, Sacramento, California
Robert Feldman, Legislative Representative, Nevada General Insurance Company, Las Vegas, Nevada
Scott Craigie, Legislative Representative, Farmers Insurance Group, Reno, Nevada
Chairman Dini called the meeting to order and a quorum was present. The hearing was opened on S.B. 6.
Senate Bill 6: Prohibits practice of requiring borrowers to insure improvements to real property for more than replacement value as condition of obtaining loan. (BDR 57-665)
Senator Maurice Washington, sponsor of the bill, introduced S.B. 6 to the committee, noting the bill was requested by the insurance industry and cleaned up issues regarding property insurance.
Jim Werbeckes, Legislative Representative, Farmers Insurance Group, stated S.B. 6 mirrored language contained in A.B. 447; however, Mr. Werbeckes indicated S.B. 6 was more narrow than A.B. 447. He stated S.B. 6 sought to prevent mortgage companies from requiring insurance companies to insure to the full value of a loan, rather than insuring to the replacement value of the property. Mr. Werbeckes provided an example of a mobile home worth $40,000 that sat on ten acres of land and had a combined loan value of $80,000. Mr. Werbeckes stated the mortgage company currently required the insurance company to place an $80,000 policy on the combined property, knowing full well that if the property burned the next day, the maximum the insurance company would pay was $40,000. Mr. Werbeckes felt it was unfair for the insured to be forced to pay a premium based on $80,000 when the replacement cost of the home was only $40,000, and he noted S.B. 6 would prevent such a practice.
There were no other witnesses to testify either in support or opposition to S.B. 6 and Chairman Dini closed the hearing on the bill. Chairman Dini opened the hearing on S.B. 45.
Senate Bill 45: Provides remedy for dilution of marks. (BDR 52-256)
Mark Tratos, Attorney, Quirk & Tratos, stated marks like Harrah’s, Harvey’s, Mirage, MGM, etc., were famous marks and the owners of those marks spent millions of dollars every year promoting and advertising their marks. He stated S.B. 45 was designed to prevent the use of a trademark by others in noncompetitive areas. For example, a Harrah’s carwash would not directly compete with Harrah’s casino, but it clearly diluted the value of the trademark. Mr. Tratos stated the bill added a dilution provision to the Nevada Trademark Act, making it possible for owners of famous trademarks to ensure that their trademark would not be diluted, and further ensured the ability to bring an action to stop the dilution and stop use by non-infringing third parties in unrelated businesses.
Chairman Dini asked for clarification on the effect of the bill. Mr. Tratos stated the bill would prevent any non-infringing or noncompetitive use of a famous mark, and advised there were many times where a trademark owner could not stop a competitor from using his mark. He stated S.B. 45 was designed to protect the owner of the trademark from having the trademark diluted and made less valuable by noncompetitive use. Mr. Tratos observed the legislation would not permit a Harrah’s stable or a Harrah’s carwash because it would make the Harrah’s casino trademark less valuable.
Ms. Buckley asked whether there were any names that were so common that a small noncompetitive business could get hurt by S.B. 45 even when a reasonable person could not confuse the two different enterprises. Mr. Tratos responded by stating the bill protected marks that had essentially acquired a secondary meaning and had become associated in the minds of the public with a particular business. He stated marks that were geographically descriptive or purely descriptive, such as pizza or carwash, were not protected under the legislation because everyone in a particular geographic location should be allowed to use those words to describe the location and nature of their business. Mr. Tratos indicated the bill applied to words that were suggestive, arbitrary or fanciful for their particular product and specifically called to mind only one business.
Ms. Buckley offered an example for analysis and assumed there was a famous casino called the Silverado Casino. She inquired whether the Silverado Casino could sue smaller businesses, such as the Silverado Apartments or Silverado Mobile Home Park. Mr. Tratos noted the bill was not drafted with the intention of giving a trademark owner the ability to sue multiple users of the same mark. He stated the first criteria of the bill was that the mark was famous, and if there was not exclusive use by the Silverado Casino, the mark would probably never meet the minimum degree of fame that would be required to have rights under the bill. Mr. Tratos asserted that if there were 15 users of the same mark, no single user could assert that his rights were so great as to be diluted by the use of the mark by other parties. He noted the bill was aimed at instances wherein the Mirage Hotel and Casino became well established and thereafter a Mirage Computer Store opened up down the street trading on the fame that had been developed by the casino.
Ms. Buckley recalled a beauty salon that opened using the name Scissors Palace, which was sued by Caesar’s Palace. She asked how the bill would affect a play on words. Mr. Tratos noted the example given by Ms. Buckley was a straightforward trademark infringement case because Caesar’s Palace had a beauty salon inside of the casino and offered the very same services that were offered by Scissors Palace. He stated S.B. 45 would apply only when a famous mark was used in a wholly unrelated business.
Mr. Humke asked for clarification of the remedies under federal law versus the remedies available under S.B. 45. Mr. Tratos indicated there were two distinct categories of registration: the federal system, governed by the United States Patent and Trademark Office, and the state system, under the auspices of the Secretary of State. He stated many businesses chose not to seek federal trademark protection for various reasons, and in those instances the only relief currently available were state trademark provisions in state court. Mr. Tratos indicated businesses that sought federal registration had dual rights under state and federal law, and under those circumstances, most actions were brought in federal court. He informed the committee the Federal Trademark Act was amended a few years ago to provide for a dilution provision.
Mr. Nolan assumed the legislation applied to the words used, without any relationship to the type of font or logo used. Mr. Tratos indicated Mr. Nolan was correct and stated a new business often changed the font in order to attempt to escape the claim of infringement. Mr. Tratos asserted when words were spoken there was no ability to distinguish between logos which was precisely why trademarks were infringed when words looked, meant or sounded the same.
Mr. Nolan commented when damages were permitted by statute in a civil action there was some measure of damage, and he observed the presumption under S.B. 45 that dilution of a mark equaled damage. Mr. Nolan inquired how the issue of damages would be determined in lawsuits brought under S.B. 45. Mr. Tratos stated S.B. 45 emulated federal law and advised it was difficult to establish a monetary number for an award of damages. He indicated no damages were awarded in most cases brought under trademark law because the remedy that was typically sought and awarded, both in state and federal trademark infringement actions, was injunctive relief.
Mr. Hettrick asked about marks that used a common name such as “Smith.” Mr. Tratos responded under normal trademark law surnames were not protected. He noted an owner must establish that his mark was a famous mark and indicated there were several ways to do so. Ultimately, however, marks with common names were difficult to protect.
Mr. Hettrick was concerned that larger companies using a surname such as “Smith’s” could put smaller companies out of business simply by imposing the cost of a lawsuit on the smaller business and forcing the smaller business to protect its right to use the surname. Mr. Tratos reiterated that direct competition was already prohibited under Nevada trademark law and accordingly a small market would not be allowed to use the name “Smith’s.” Mr. Tratos noted a carwash or other noncompetitive business could use the name “Smith’s” if Smith’s groceries chose not or could not prove that its mark was famous. Mr. Tratos concluded by reminding the committee that S.B. 45 was designed to protect those companies that spent millions of dollars promoting their mark.
There were no others present to testify in support of or in opposition to S.B. 45. Chairman Dini closed the hearing on S.B. 45 and opened the hearing on S.B. 271.
Senate Bill 271: Provides for issuance of special volunteer medical license to retired physician to treat indigent persons. (BDR 54-884)
Senator Maggie Carlton, sponsor of S.B. 271, indicated she brought the bill forward on the recommendation of Dr. Joel Bower. Senator Carlton advised the bill authorized a special volunteer medical license, which would allow a retired physician to give of his time and expertise exclusively to indigent persons in Nevada. Physicians practicing under the special medical license would be subject to the disciplinary actions set forth for all other doctors in the state of Nevada and would be required to meet continuing education requirements.
Joel F. Bower, M.D., Vice President, Medical Affairs, St. Rose Dominican Hospital, told the committee S.B. 271 was proposed as a solution to the burden placed on the health care industry by indigent patients. He stated pursuant to S.B. 271 retired physicians would volunteer their time, without reimbursement, to provide care in underserved areas with nonprofit institutions for indigent patients. Dr. Bower noted Nevada required medical doctors to have three years of post-graduate education after completion of medical school and stated that S.B. 271 would not weaken the requirement in any way. Additionally, he stated physicians who had been subject to disciplinary actions in other states would not be eligible for the special license. Dr. Bower indicated the volunteers would practice in federally qualified health care clinics or similar clinics, and malpractice insurance would be provided by the clinics. He noted South Carolina, Ohio and Pennsylvania passed similar legislation.
Ms. Leslie asked how many physicians might participate in the program if the legislation were passed. Dr. Bower did not have any estimate on how many physicians would be available to participate in the program.
Ms. Leslie inquired where continuing education requirements were located in the bill. Senator Carlton observed that the continuing education requirements were found on page 2, at subsection 7, and provided that doctors comply with requirements adopted by the medical board. Senator Carlton noted the requirements would be the same as the requirements for any other practicing physician in the state, and she noted the bill allowed the facility to pay for the cost of the continuing education so the requirement would not be a financial burden on the volunteer doctor. Dr. Bower added that practicing physicians were required to obtain 40 hours of continuing education in order to renew their license every two years.
Mr. Nolan wondered how the volunteer physician would interact with the rest of the medical community when an indigent patient required extended care or specialty services. Dr. Bower responded the volunteer physicians would practice only in outpatient medicine in federally qualified health care centers, and noted no in-patient medicine would be performed by the volunteers. He noted volunteer practice would not be procedure-oriented and would typically be primary care medicine.
Larry Lessly, Executive Director, Special Counsel, Board of Medical Examiners, State of Nevada, indicated the board whole-heartedly supported S.B. 271 and felt the program would not diminish the quality of the care provided in the state.
Chairman Dini asked whether Mr. Lessly had any estimate as to how many doctors would be available to participate in the program. Mr. Lessly guessed there might be 50 doctors available to participate in the program based on the fact that there were currently 50 retired physicians who maintained a retired license in Nevada.
Janice Pine, Legislative Representative, Saint Mary’s Health Network, indicated her support for S.B. 271. Ms. Pine clarified that the bill would allow volunteer physicians to practice in facilities that saw indigent or uninsured patients.
Mr. Nolan asked whether volunteer physicians would be available to alleviate the overcrowding of emergency rooms. Ms. Pine indicated Saint Mary’s had various clinics and vans that could utilize the assistance of the volunteer physician; however, she indicated her understanding of the bill was that volunteer physicians would not be put in emergency care situations.
A statement was submitted for the record without comment by Dana Bennett, which outlined the Nevada State Medical Association’s support for S.B. 271 (Exhibit C).
Chairman Dini closed the hearing on S.B. 271.
ASSEMBLYWOMAN BUCKLEY MOVED DO PASS S.B. 271.
ASSEMBLYMAN NOLAN SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY BY THOSE PRESENT.
Chairman Dini opened the hearing on S.B. 50.
Senate Bill 50: Revises provisions governing trade secrets. (BDR 52-257)
Mark Tratos, Attorney, Quirk & Tratos, introduced S.B. 50 to the committee, stating the bill was designed to address a unique problem created by the Internet. Mr. Tratos explained know-how, customer lists, supplier lists and other valuable information which was protected under Nevada’s trade secret laws could be lost through posting on the Internet by competitors or disgruntled employees. Mr. Tratos advised that once this information was posted on the Internet the law treated the information as part of the public domain and it was lost to the owner forever. He stated S.B. 50 would provide that an owner or employer of a trade secret, who acted reasonably and sought judicial intervention in an effort to withdraw the material from the Internet, would not lose forever the trade secret rights to the information.
Ms. Buckley asked Mr. Tratos to provide an example of a common posting of trade secrets on the Internet. Mr. Tratos stated the formula for Coca-Cola was a trade secret susceptible to posting on the Internet, and suggested that the formula was probably the most value asset owned by Coca-Cola. He stated the loss of trade secret rights currently occurred when customer lists, supplier lists and similar information were suddenly disseminated on the Internet in a fashion so that competitors could locate the information.
Mr. Goldwater asked whether the definition of a trade secret could include digital products. Mr. Tratos indicated digital products could be included in the definition of a trade secret, together with music and films, under a very broad definition. However, Mr. Tratos noted the bill would not apply to any item that was federally pre-empted by copyright laws, such as films and music. Mr. Tratos noted the intention of the bill was not to create a new digital right, but was intended to take items traditionally defined as trade secrets and protect them.
Mr. Goldwater asked whether the bill criminalized the dissemination of trade secrets on the Internet. Mr. Tratos indicated the bill enjoined the activity of posting trade secrets; it did not criminalize the activity.
Mr. Nolan asked Mr. Tratos whether he was representing himself or clients with specific interests. Mr. Tratos responded he was representing his law firm, which took on the issue as its responsibility in order to provide a better, more business-friendly environment in the state of Nevada.
Chairman Dini noted the bill came out of the S.C.R. 19 of the Seventieth Session study, which was conducted to encourage businesses to organize and conduct business in Nevada.
Chairman Dini closed the hearing on S.B. 50 and opened the hearing on S.B. 4.
Senate Bill 4: Makes various changes regarding insurance. (BDR 57-734)
Alice Molasky-Arman, Commissioner of Insurance, Insurance Division, Department of Business and Industry, State of Nevada, told the committee she and her staff would make a presentation as a companion to S.B. 4. She noted the presentation summarized the current state of automobile insurance in the state of Nevada, and addressed consumer complaints, cost of insurance, financial responsibility limits and what could be done (Exhibit D). Ms. Molasky-Arman introduced Cliff King, Janice Moskowitz and Elena Williams.
Cliff King, Chief Insurance Examiner, Property and Casualty Section, Division of Insurance, Department of Business and Industry, State of Nevada, delivered the portion of the presentation on consumer complaints, the percentage of formal auto complaints received, and the nature of complaints received (Exhibit D, pages 4-6).
Janice Moskowitz, Lead Actuary, Property and Casualty Section, Division of Insurance, Department of Business and Industry, State of Nevada, delivered the portion of the presentation dealing with the cost of insurance and the following related topics:
· Average annual auto expenditures and premiums, both in Nevada and nationwide (Exhibit D, page 7).
· Bodily injury experience (Exhibit D, page 8).
· Factors impacting cost (Exhibit D, pages 9-11).
As to factors impacting the cost of insurance, Chairman Dini asked whether the statistics provided on the percentage of drivers with suspensions and revocations were related to alcohol or drugs. Ms. Moskowitz indicated she did not know.
Mr. Goldwater asked whether the information provided was based on the pure number of incidents or based on the number of incidents for Nevada residents. Ms. Moskowitz indicated the information was based on absolute numbers and confirmed that the information did include tourists who were involved in a traffic accident in Nevada. Mr. Goldwater asked whether the rankings for Nevada provided in the presentation were based on the absolute number or the absolute number relative to Nevada’s population. Ms. Moskowitz indicated the ranking was relative to Nevada’s population. Mr. Goldwater pointed out the information was “skewed” because of the number of tourists in Nevada. Ms. Moskowitz advised the information on overall cost per capita was based on individual resident insureds and the accident statistics were based on anyone driving in the state of Nevada.
Ms. Moskowitz continued her presentation on factors impacting the cost of insurance, and cited the growth of the non-standard auto market was due in part to the use of credit scoring in standard automobile underwriting.
Mr. Goldwater asked why the standard underwriters were excluding people and causing the growth of the non-standard market. Ms. Moskowitz indicated many companies used loss scoring, which looked at the credit history of the applicant, in determining whether to write a policy of insurance. Mr. Goldwater was surprised to learn that such a practice was not prohibited in the state of Nevada, and noted that a person with a perfect driving record could be paying a higher auto insurance premium because of late payments contained in his credit history.
Ms. Molasky-Arman stated the credit history of an applicant was not allowed as the sole criterion in determining whether to write a policy, and she noted there were other criteria in underwriting loss experience. Ms. Moskowitz agreed.
Mr. Goldwater asked whether sex, gender and age were criteria and Ms. Moskowitz indicated they were criteria in underwriting.
Mr. King noted many actuaries believed there was a correlation between how an individual managed his finances and the rate of claims that were made. He reiterated that credit was only one factor and the principal factor generally was the driving record of the individual.
Mr. Goldwater indicated he found comfort in the fact that the Insurance Commissioner reviewed rates and rate increases, and that the whole process was thoroughly reviewed by the state and was not discriminatory. He indicated the components of insurance rates should be sound and not speculative or debatable, and he expressed concern that credit history was considered in the ratemaking process. Mr. King noted that by statute, rates could not be unfairly discriminatory, excessive or inadequate, and he indicated those were the standards used by the division.
Ms. Giunchigliani asked how many other states considered credit history as a factor for determining rates. Ms. Moskowitz indicated it was her understanding that only the state of Washington prohibited the consideration of an applicant’s credit history in determining rates, and noted the practice was widespread. Ms. Giunchigliani asked Ms. Moskowitz to confirm her understanding and report back to the committee. Ms. Giunchigliani did not want to cause individuals to go without insurance because insurance was too expensive due to a poor credit rating. Mr. King noted anyone with a legal license could get insurance through the assigned risk plan at a surcharge.
Mrs. Gibbons inquired as to the average increase in premiums each year. Mr. King referred Mrs. Gibbons to Exhibit D, page 7.
Ms. Moskowitz continued with the presentation by reviewing the recent rate activity for the top 20 insurers and a rate survey of large insurers.
Mrs. Gibbons asked how the Insurance Commissioner determined that the market in Nevada was not competitive. Ms. Molasky-Arman indicated she looked not only at the number of insurers offering insurance but also at the cost, and the affordability and availability of insurance to the general public. Ms. Moskowitz noted several carriers recently entered the Nevada market and there were widely differing rates within the state.
Chairman Dini asked whether many insurance companies had left the state over the last few years. Mr. King indicated insurance companies had not left the state over the last few years, although there were some companies that had slowed down in their writings.
Ms. Giunchigliani asked whether rates were still determined by zip code. Ms. Moskowitz noted zip codes were still used to determine rates, although the process was not supposed to be income-dependent. She noted there were some problems with using zip codes, but stated the method was correlated and verifiable and was the best method actuaries had been able to establish. Ms. Giunchigliani commented it was bothersome to her that zip codes were still used to determine rates.
Ms. Moskowitz continued her presentation on the following topics:
Ms. Buckley indicated her belief that the auto insurance market was already competitive and the bill attempted to remove the Insurance Division’s oversight of auto insurance rates. She believed oversight by the Insurance Division ensured that rate increases were not unnecessary, discriminatory, or unfair to the consumer, and asked why that assurance should be eliminated. Ms. Molasky-Arman indicated proponents would testify later as to the merits of the bill and stated the form of the bill was a compromise. She stated the bill did not remove the authority of the Commissioner to determine whether any rate was discriminatory, inadequate or excessive, and noted the bill changed the timing of the review for a certain group of filings. Ms. Molasky-Arman wanted to make certain that the bill did not remove the ability of the Commissioner to approve or disapprove of rates, and noted it was the timing factor that was affected by the bill.
Ms. Buckley asked whether Ms. Molasky-Arman felt the current system was broken. Ms. Molasky-Arman did not believe the current system was broken and stated it was the insurance industry who believed the methodology applied by the Division of Insurance inhibited them from making frequent rate changes to respond to the marketplace. She stated there was some reluctance by the industry to file a decrease in rates because it would take too long to correct a decrease with a future increase. Ms. Molasky-Arman felt Nevada had a good response time and noted the division was currently required by law to approve or deny a rate filing within 60 days. She stated S.B. 4 would not diminish her review of rates, and she stated she intended to issue a bulletin notifying all insurers of what information should be provided with a rate filing.
Ms. Buckley noted her feeling the bill took the approach that the Commissioner must declare whether the market was competitive or not, and she noted the language sounded like deregulation language. She asked whether the approach taken by the bill and going forward with deregulation was common throughout the United States in the auto insurance industry. Ms. Molasky-Arman noted competition was looked at in any form of insurance, and did not have any information on what was occurring nationwide.
Mrs. Gibbons asked how often a decrease in premiums occurred. Ms. Molasky-Arman referred Mrs. Gibbons to Exhibit D, page 20, which was a chart reflecting recent rate activity for the top 20 insurers.
Ms. Molasky-Arman concluded the presentation by the Division of Insurance by reviewing the current state of automobile insurance and providing the committee with “food for thought” (Exhibit D, pages 18-20).
Chairman Dini thanked the panel for the presentation and called the proponents of the bill to testify.
Sam Sorich, Legislative Representative, National Association of Independent Insurers (NAII), provided his written testimony in support of S.B. 4 for the record (Exhibit E). Mr. Sorich noted NAII members accounted for approximately 36 percent of the property/casualty insurance premiums written in Nevada, and supported S.B. 4 because the bill encouraged greater price competition among insurers while at the same time preserving the Insurance Commissioner’s existing authority over insurance rates. He noted the bill allowed an insurer to decrease or increase its rates within a band of 7 percent below and above an insurer’s existing rates, without having to get the Insurance Commissioner’s prior approval.
Mr. Sorich stated S.B. 4 improved the current rate regulation system for the following reasons:
Mr. Sorich continued by addressing the following areas of opposition to S.B 4, and stated the arguments in opposition to the bill did not stand up to scrutiny and were not supported by the facts:
Mr. Goldwater asked whether it would be possible for a group of insurance companies to collectively decide, without engaging in anti-competitive behavior, to increase their rates 6 percent every year because 6 percent was within the “flex-band.” Mr. Sorich indicated two or more companies that even talked about rates were subject to anti-trust prosecution and it simply would not happen. However, Mr. Sorich noted a single company could decide on its own that its losses and expenses merited a 6 percent rate increase and, under S.B. 4, the company would be able to increase their rates.
Mr. Goldwater wondered whether other companies would be motivated to increase their rates because another company increased its rates. Mr. Sorich stated he did not believe there was anything in the bill that allowed companies to conspire or adopt a strategy where they were acting in concert to modify rates, and he observed that any company that did such a thing should be prosecuted. He reiterated the bill simply created a band and allowed a rate increase or decrease within that band. Mr. Sorich stated there was nothing in the bill that invited conspiracy.
Mr. Sorich concluded his testimony by stating that the goal of wise insurance legislation was to make insurance available and affordable and S.B. 4 was consistent with that goal.
Robert Feldman, Legislative Representative, Nevada General Insurance Company, began his testimony by responding to Mr. Goldwater’s earlier comments. Mr. Feldman noted that prior to 1989 prior approval was not required for insurance rates, and never during that time did companies get together and increase rates indiscriminately. He stated that S.B. 4 allowed insurance companies the flexibility to take small, normal, inflationary increases without the expense of filing a rate increase. Mr. Feldman advised that New York enacted legislation similar to S.B. 4 with a 10 percent flex-band, as did Texas and South Carolina, and he understood the program was working out very well. He felt S.B. 4 was a modernization of the current plan and would allow the Insurance Commissioner to use resources for more important things.
Mr. Goldwater commented that he did not think insurance companies engaged in anti-trust activities, but he felt that when one company raised its rates and other companies saw that the market could tolerate a rate increase, other companies would raise their rates. Mr. Goldwater stated generally an insurance agent had a nice book of business that renewed every six months or so, and he stated his concern was that an insurance agent might raise his rates as a matter of course every year, knowing that he might lose a few customers, but hoping that most customers would not bother to shop around. Mr. Feldman responded that insurance companies based rates on costs and expenses, and noted that even in states where there were no prior approval laws, there had never been a situation such as the one offered by Mr. Goldwater. It was Mr. Feldman’s opinion that small inflationary increases over time were better than a single large inflationary increase. Mr. Sorich responded that he did not believe it was possible for a company to adopt the strategy of increasing rates every year because S.B. 4 did not allow a company to arbitrarily increase its rates and the Insurance Commissioner was still required to review rate increases. He noted his belief that in competitive markets consumers were more willing to change companies to obtain lower insurance rates.
Scott Craigie, Legislative Representative, Farmers Insurance Group, observed the bill set forth in Section 1 the information that currently needed to be filed under the existing program, and he noted Section 2 required the Insurance Commissioner to examine the market to determine whether the market was competitive. Mr. Craigie stated page 2, line 12, subsection 4, required the Commissioner to review all of the filings and financial information to ensure that rates were properly justified. He noted the bill changed the timing of the review process, but it did not change the data that was filed or the oversight and responsibility of the commissioner to conduct a review and adjust rates. Mr. Craigie commented that the purpose of the legislation was to provide a system in which small rate changes could be filed and put into place and allow the insurance commissioner to look at the issues she felt needed to be reviewed to ensure changes in rates were fair, appropriate and justified. He noted the bill was primarily an issue of timing and did not lessen the oversight role of the insurance commissioner.
Mr. Feldman provided the committee with a booklet published by the insurance commissioner entitled Consumer’s Guide to Auto Insurance and explained that the publication was an auto insurance rate guide (Exhibit F). He noted his belief that, due to the variation of rates in the industry, the flex-band rating program proposed by S.B. 4 would not have anything but a positive effect on the consumer.
Chairman Dini called for others who wished to testify on S.B. 4 and there were none. Accordingly, Chairman Dini closed the hearing on S.B. 4.
There being no further business to come before the committee, Chairman Dini adjourned the meeting at 6:04 p.m.
RESPECTFULLY SUBMITTED:
Rebekah Langhoff
Committee Secretary
APPROVED BY:
Assemblyman Joseph Dini, Jr., Chairman
DATE: