ARIZONA STATE SENATE

45TH LEGISLATURE

FIRST REGULAR SESSION

 

MINUTES OF COMMITTEE ON

BANKING AND INSURANCE

 

DATE:

March 29, 2001

TIME:   1:30 a.m.

ROOM: SHR 2

 

 

CHAIRMAN:

Senator Cirillo

VICE CHAIRMAN:

Senator Nichols

 

 

 

ANALYST:

Todd Madeksza

COMMITTEE

SECRETARY: 

Nancy L. DeMichele

 

 

 

INTERNS:

Bradley Glenn

 

 

 

ATTENDANCE

BILLS

 

 

Committee Members
Pr
Ab
Ex
Bill Number
Disposition

Senator Gerard

X

 

 

HB 2090

  DPA

Senator Martin

X

 

 

HB 2116

  DISCUSSION/HELD

Senator Richardson

 

 

X

HB 2134

  DPA

Senator Valadez

X

 

 

HB 2266

DP

Senator Nichols, Vice Chair

X

 

 

HB 2337

  DPA

Senator Cirillo, Chair

X

 

 

HB 2393

  DPA

 

 

 

 

HB 2430

  DP

 

 

 

 

HB 2513

  DISCUSSION/HELD

 

 

 

 

HB 2589

  DP

 

________________________________________________________________________________

GOVERNOR’S APPOINTMENTS

________________________________________________________________________________

 

Name
Position
Recommendation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senator Cirillo called the meeting to order at 1:46 p.m., and attendance was noted.  For additional attendees, see Sign-In Sheet (Attachment A).

 

APPROVAL OF MINUTES

Senator Cirillo announced that, without objection, the minutes of the meeting of February 15, 2001, were approved as distributed.

 

CONSIDERATION OF BILLS

 

HB 2393 – workers’ compensation; occupational disease; firefighters – DO PASS AMENDED

 

Bradley Glenn, Research Intern, explained HB 2393.  He stated that firefighters experience increasing exposure to various toxic materials that burn at different temperatures and emit various fumes at each level of the heating process.  He indicated HB 2393 establishes the presumption of an occupational disease for firefighters whose disease, infirmity or impairment is caused by specific cancers that result in the disability or death.  He explained a Cirillo amendment is being offered, which strikes language concerning the oropharynx cancer or cancer of the mouth caused by chewing tobacco.  He said it is not one of the cancers listed as a presumption in the bill.

 

The Honorable Joan H. Shafer, Mayor, City of Surprise, testified in support of HB 2393.  She stated that this is the tenth year she has been to the Legislature regarding this legislation.  She referred to the major fire that occurred two weeks ago in which a firefighter lost his life.  She pointed out that in that fire asbestos and other carcitigins were burning.  She said many of those firefighters experienced loose masks while attempting to breathe, and may be affected in future years from the burning elements.  She emphasized she does not want to wait another ten years for this bill to pass.  She urged the Committee to pass the bill on behalf of all the firefighters and their families.

 

Mike Colletto, Executive Director, Professional Firefighters of Arizona, testified in support of HB 2393.  He stated that he has no problem with the amendment, and said he was available to answer questions.

 

Senator Cirillo announced John Gallagher, M.D., Medical Director, Emergency Medical Services, representing himself, was present in support of HB 2393.

 

Derrick Johnson, Director of Public Affairs, Professional Firefighters of Arizona, Local 493, testified in support of HB 2393.  He stated that the Mayor and Mr. Colletto spoke very eloquently on the bill, and he was available to answer questions.

 

Senator Gerard moved HB 2393 be returned with a DO PASS recommendation.

 

Senator Gerard moved the 4-line Cirillo amendment dated 03/28/01, 12:38 p.m., be ADOPTED (Attachment B).  The motion CARRIED by a voice vote.

 

Senator Nichols moved HB 2393 be returned with an AS AMENDED, DO PASS recommendation.  The motion CARRIED by a roll call vote of 5-0-1 (Attachment 1).

 

 

 

HB 2430 – fraud unit; peace officer status – DO PASS

 

Mr. Glenn explained HB 2430.  He stated that currently fraud unit investigators have the same administrative powers as personnel in the Department of Insurance (DOI) which investigates licensing offenses.  He commented that State law requires insurers to refer suspected cases of insurance fraud to DOI’s fraud unit for investigation.  When the fraud unit engages in an investigation, it requires police authority and fraud unit investigators to work in conjunction with the Department of Public Safety (DPS) to carry out those tasks.  He noted tasks that must be performed by DPS include making arrests, serving search warrants and seizing evidence.  He said HB 2430 grants police officer status to investigators, which will allow them to perform tasks usually carried out by DPS.

 

Senator Gerard referred to the portion that prohibits those personnel from automatically being part of the DPS retirement system, and asked if they would be allowed to participate in that system.  Mr. Glenn responded many investigators were previously in the system and in that case would be allowed to remain in the system.  He pointed out that Ms. Brown from DOI was present to clarify any issues.

 

Senator Cirillo announced the following individuals were present in support of HB 2430:  David Childers, Attorney, Farmers Insurance, National Association of Independent Insurers (NAII), Health Insurance Association of America (HIAA), Blue Cross Blue Shield (BCBS); Lanny Hair, Executive Vice President, Independent Insurance Agents and Brokers of Arizona; Mike Low, Lobbyist, Allstate, American Family; Wendy Briggs, Lobbyist, American Insurance Association; Greg Harris, Alliance of American Insurers, Progressive Insurance; Kerry L. Hayden, Government Affairs Representative-Arizona, Farmers Insurance; and Don Isaacson, Legislative Counsel, State Farm Insurance.

 

Vista Brown, Legislative Liaison, DOI, testified in support HB 2430.  She stated she is testifying in support because it is a DOI bill, and explained the reasons.  She indicated in 1994, DOI’s fraud unit was established and charged with responsibility to investigate a felony crime regarding insurance fraud and other related crimes.  She noted that because DOI’s investigators lack peace officer status, they cannot serve search warrants or court orders of identification, cannot serve arrest warrants or seize evidence in plain and open view.  She indicated they must work in cooperation with DPS in order to handles those issues.  She added DPS does an excellent job in assisting DOI, but there are practical difficulties in handling those types of operations, which are time sensitive.  She said DOI also cannot engage in any kind of dangerous undercover work.  She commented that often insurance fraud may be a basic inflated claim, however, sometimes it is sophisticated organized crime that could be very dangerous.  She said in those instances, DOI’s investigators would need protection and the status of peace officers to handle those types of situations.  She indicated DPS also supports the bill.  She said discussions have taken place with other law enforcement agencies, and they have no problem with the bill.  She said DOI’s officers would be limited with the status outlined in the bill only while acting in the course and scope of their employment.  She noted that they would not be eligible for participation in the Public Safety Personnel Retirement System (PSPRS) solely because they are peace officers at DOI. She said as pointed out, many of them are retired from other law enforcement careers, and are already retired from that system.

 

Senator Nichols moved HB 2430 be returned with a DO PASS recommendation.

The motion CARRIED by a roll call vote of 4-0-2 (Attachment 2).

 

HB 2513 – salary adjustments; state employees (now: medical savings accounts) – DISCUSSION/HELD

 

Mr. Glenn explained HB 2513.  He stated the bill requires the Department of Administration (DOA) to offer medical savings account programs as an optional benefit to employees of the State, political subdivisions, school districts and charter schools.  He noted that the Joint Legislative Budget Committee (JLBC) and DOA do not know the fiscal impact in implementing this program, but consider them as minimal administrative fees since the medical savings accounts already exist. 

 

Senator Nichols commented he believes a law exists that states DOA has to offer medical savings accounts.  Mr. Glenn responded there are existing medical savings accounts, but are not offered to those employees outlined in the bill.  Senator Nichols asked whether DOA has to offer it to State employees currently.  Mr. Glenn replied DOA does not currently have to provide that benefit.  Senator Nichols asked how many State employees would participate.  Mr. Glenn responded he discussed the issue with DOA, but the representative did not indicate a specific number of employees who would participate.  He indicated with this type of program, the participation is generally one-tenth of 1% of employees.  Senator Cirillo stated it is his understanding the number is approximately 75 employees.  Senator Nichols questioned if people are not signing up the way the program was constructed, then how would this legislation reconstruct the program.  Mr. Glenn replied the fact sheet describes the program.  He said he is not aware of any differences in the program, and the legislation merely implements the medical savings accounts as an option.  He said perhaps the sponsor of the bill could clarify that point.  Senator Nichols wanted to know the purpose of expanding the program, and asked the sponsor for an explanation. 

 

Representative Debra Brimhall, sponsor, explained there are some major changes in this legislation, and described how the medical savings account program operates.  She pointed out that employees who desire to be more responsible for long-term care in later years would appreciate the opportunity to have this program available.  Discussion took place regarding the restructuring and administration of the program.  Representative Brimhall stated she would provide additional information to Committee members.  She added if the legislation is not satisfactory, she would entertain an amendment to ensure it provides the intentions as a result of discussions at the interim committee meetings. 

 

Senator Cirillo stated that DOA participated in the interim committee discussions, and explained how the system works.  He said DOA is motivated to have people use the program. 

 

Senator Gerard stated she is unsure why the program has technically not worked in the past.  She said she is concerned that the bill may not do what the sponsor hoped it would.  She said there may be problems with the “gift clause.”  She referred to employees having control of the program themselves, but the bill indicated that DOA will enter contracts with the plans of which the employees participate.   She referred to the new language on page 5 of the bill and pointed out other issues of concern regarding trustees.  Representative Brimhall explained the debate and discussions that took place on those issues. 

 

Senator Cirillo stated that the Committee will meet the following week.  He said because of the concerns expressed, perhaps it would be advisable to discuss those concerns with DOA.  He said he would hold the bill for next week.

 

James McClernan, President, Wellness Institute International, testified in support of HB 2513.  He stated the Institute is a 501-C charitable trust organization, specifically set up for the purposes discussed by Representative Brimhall.  He indicated the primary goal is to encourage people to live a healthier lifestyle, and to do that through an alternative to managed care.  He said in this case State employees, as members, would own a trust to take care of catastrophic problems.  He explained the function of medical savings accounts and how it would benefit employees. 

 

Senator Cirillo stated the concept is acceptable, however, the concern relates to the wording of the legislation as to whether it is specific to ensure that the results expected are provided.  Mr. McClernan said he would be agreeable to working with Representative Brimhall to accommodate the Committee’s concerns.

 

Senator Cirillo said HB 2513 will be held for the Committee meeting next week.

 

HB 2589 – comprehensive health insurance; risk pool (now: comprehensive health insurance; pilot program) – DO PASS

 

Todd Madeksza, Research Analyst, explained HB 2589 appropriates $3.4 million in each of two years to help establish an insurance plan within DOI to guarantee access for individuals who cannot obtain health insurance in the private market, and for those individuals with catastrophic medical conditions.  He stated that individuals with pre-existing medical conditions are often uninsurable in private health insurance markets, and this bill establishes an insurance plan within DOI to provide insurance to individuals who would otherwise be uninsurable.  Those individuals have been refused health insurance for health reasons by at least two health insurers or for certain other medical conditions.  He commented that those individuals would be required to pay health insurance premiums close to market rates and maintain other requirements to keep their insurance.  He explained an amendment is being offered, which requires the establishment and payment of commissions to insurance producers who refer individuals to this plan. 

 

Senator Nichols asked how firm is the appropriation of $3.4 million, and wanted to know whether it is based on a fiscal note.  Mr. Madeksza responded it is not based on a fiscal note, but it is actually in the bill.  He added that a fiscal note had not been requested for this bill.  Senator Nichols asked how many other states have similar risk-pool programs.  Mr. Madeksza replied he is not able to provide a firm answer, but perhaps the sponsor could provide that information.

 

Representative Leff, sponsor, responded 39 states have risk pools.  She explained this risk pool is designed differently.  In response to Senator Nichols, she commented that a fiscal note was not included because she went directly to actuaries to assist in providing potential costs.  She explained the parameters and goals of the program.  She said the focus of the legislation is directed to individuals who cannot otherwise obtain health insurance.  She indicated this legislation is quite different than that of other states.

 

Senator Cirillo there are people with pre-existing conditions, who cannot afford to obtain insurance.   He said the purpose of this legislation is a first step for those individuals who are able to afford insurance, but have pre-existing conditions and are unable to obtain insurance.

 

Senator Nichols asked why should the State be subsidizing this program rather than have it supported by insurance companies.  He asked how it is handled in other states.  Representative Leff responded some are straight state subsidies, some do premium tax credits and others do assessments.  She said Mr. Childers would be able to provide that information.  She said all alternatives were considered in drafting this legislation. 

 

Senator Nichols asked whether she would support the concept of a surcharge on the insurance companies operating in the State.  Representative Leff replied she would have to research that to determine how many insurance companies would be exempt.  She said she would not like to answer that question without further research.  She said the cost would ultimately be passed on to the consumers.

 

Senator Cirillo announced the following individuals were present in support of HB 2589:  Tina Geiser, Golden Rule; Steve Barclay, Lobbyist, Cigna Health Care of Arizona, Inc.; Lanny Hair, Executive Vice President, Independent Insurance Agents and Brokers of Arizona (with amendment); Joe Abate, Attorney, Arizona Aids Policy Alliance, Arizona Osteopathic Medical Association; Raeann Brittain, Director, Administrative Services, Mercy Care Plan; Judy Bernas, Associate Director, Public Affairs, University of Arizona Health Science Center; Donald Vance, Designated Lobbyist, American Association of Retired Persons (AARP); David Landrith, Vice President, Arizona Medical Association; Brian McAnallen, Director of Government Relations, American Cancer Society; and Bette Mirgon, representing herself.  Vista Brown, Legislative Liaison, DOI, indicated a neutral position on HB 2589, and was available to answer questions.

 

David Childers, Lobbyist, Health Insurance Association of America, testified in support of HB 2589.  He responded to the question regarding the assigned risk plan.  He said he conferred with an associate, who explained that issue.  He said when someone is accepted in the assigned risk plan, rates are provided and the insurers must charge those rates and accept the individual insured.   He responded to Senator Nichols, and indicated he believes there are 29 states that have risk pools.  He referred to funding options, and said he checked with a periodical published annually called “Communicating for Agriculture,” which is probably the nation’s most intense advocate for risk pools throughout the country.  He said the funding mechanism provision indicates that there are 20 states that fund by assessments to association members.  The balance is funded either from income tax, tobacco tax, general revenue, or other types of funding.  He explained the assessment approach was initially considered, which would be modeled after a guarantee fund.  He explained how that approach would work.  He said the periodical does not indicate which states have premium tax credits and which states do not. 

 

Brian McAnallen, Director of Government Relations, American Cancer Society, testified in support of HB 2589.  He stated his organization views this as a good first step to find a way to cover cancer patients with pre-existing conditions.  He said he would defer further testimony to Bette Mirgon, a cancer survivor, who is present today.

 

Senator Nichols asked his viewpoint on someone who never has insurance, then has cancer with an expectation of subsidizing a policy.  Mr. McAnallen responded that is a great question.  He said the Society would like to see everyone taken care of by this bill.   He indicated that it would be great to find a program to fund that situation, however, he said this bill is a first step to resolve the problem of those with pre-existing conditions.  He indicated he would be happy to work with Committee members or anyone towards a program that would address the universal problem. 

 

Senator Cirillo stated the work on Proposition 204 goes a long way to provide insurance for low-income people. 

 

Representative Leff referred to the comment about the person who never had insurance and then becomes ill and wishes to enter the risk pool.  She explained the pool has a six months’ waiting period for that particular condition, so anyone who is seriously ill would be paying out of pocket.  She said that although the person may have the policy, it would not provide coverage for the first six months of chronic or pre-existing illness. 

 

Bette Mirgon, representing herself, testified in support of HB 2589.  She stated she is a volunteer and on the board for a cancer support group.  She described her personal situation and the obstacles she encountered when diagnosed with cancer.  She said currently she is doing fine, but emphasized the importance of the passage of this bill.

 

TAPE 1, SIDE B

 

Senator Martin stated if this program is not in place, the State will be paying for it later.  He said the focus should be on ways to help people obtain coverage as opposed to preventing coverage. He commented the legislation is a step to have more people obtain coverage.

 

Senator Nichols moved HB 2589 be returned with a DO PASS recommendation.

 

Senator Martin moved the 8-line Martin amendment dated 03/28/01, 4:56 p.m., be ADOPTED (Attachment C).

 

Senator Nichols asked to have the amendment explained.  Mr. Madeksza reiterated the explanation provided earlier.  He stated he also had a recommended verbal amendment from the Rules Committee for consideration by this Committee.  He said otherwise the Rules Committee would ask for a technical amendment to this amendment on the floor.  He explained the verbal amendment clarifies the language by adding the words “of operation” after plan on line 6 of the amendment. 

 

Senator Martin moved the following verbal amendment to the Martin amendment as follows: 

 

On line 6 after the word “PLAN” insert the words “OF OPERATION” before the period.  The motion CARRIED by a voice vote.

 

            Senator Martin moved the 8-line Martin amendment, as amended, be ADOPTED. 

 

Senator Gerard asked whether there is an idea of the cost involved with the amendment.  Senator Martin responded that the ability to do commissions is already in the bill.  He explained the purpose.  Senator Gerard asked whether the commissions were taken into account when the numbers were run.  Senator Cirillo stated he would not like to see it degrade from the amount of money in the bill.  Senator Cirillo asked Representative Leff whether she supports the amendment.

 

Representative Leff stated it made sense originally, but if someone is turned down twice, the agent should refer that person to the program.  She said since the person already has an agent, she would rather see the money be allocated to those people who need it.  Senator Martin explained the reasoning behind the amendment.

 

                        The motion FAILED by a voice vote.

 

Senator Nichols said he and Senator Gerard as well as others serve on a committee that will be reviewing all the issues over the next several months.  He said risk pool will be an important part of the process in obtaining insurance for the uninsured people in the State.  He said this precedes that process.  He said although the need is there, he is not sure whether the money will be available in the “box” for the program.  He asked Representative Leff whether she would support an amendment presented on the floor to require that the money to be taken from insurance companies doing business in the State.  Representative Leff responded she believes the legislation needs to move forward.  She referred to the limited number of insurance companies involved, and asked whether the Committee would be willing to look at charging the insurance companies, and then let them have the discounted money back over five years through a premium tax credit.  She said that was the original plan, but then moved to a general fund appropriation.  She said she wants the plan to work and to provide an opportunity for those who cannot obtain insurance to be able to get insurance.  She stated she has to take into account that rates have increased 30% to 50% during the past year, and the rates will be passed on to the consumers.   She said small businesses are having a difficult time currently.  She said she believes the money will stretch longer than expected providing there are not huge illnesses.  She indicated she believes there will be movement by the federal government to do something, but in the meantime people are in need of this type of program.  She said she would have to answer the question posed by Senator Nichols regarding a floor amendment with both a “yes” and a “no.” 

 

Senator Gerard wanted to know what is happening now with those uninsured people.  Representative Leff replied she has been receiving numerous calls on this issue.  Some people have been placed into premium sharing and other self-employed people would be placed into health care group.  She said those individuals do not qualify for many of the programs.  Senator Gerard stated she has never had an experience where an individual was not offered a program, however, the rates or quotes given were beyond the resources to pay for it.  Representative Leff replied that there are some insurance companies that will not even offer coverage to those individuals.

 

Senator Gerard explained her vote.  She said she has studied and researched this issue in the past.  She said she is voting “no” for three reasons:

 

1.    A revenue source for funding the program.  She believes the general fund or tobacco tax monies are not options at this point.

2.    An interim committee is being asked to address this issue, which has just received a $1 million federal grant to have actuaries figure the costs.

3.    The actual structure of the program is not good because it is in direct conflict with DOI, and DOI is being asked to run a health plan at the same time it is charged with regulating health plans.  Also, DOI is not equipped to handle this program.

 

Senator Nichols explained his vote.  He stated that Senator Gerard has made some very good points.  He said he believes the issue is very important with a great need, and he would not like to see the opportunity be lost.   He said he tends to agree with Senator Gerard’s comment regarding DOI, and believes it would be more appropriate to have it handled elsewhere versus at DOI.  However, for now he said he will vote “aye.”

 

Senator Cirillo explained his vote.  He said he chairs the committee referred by Senator Gerard.  He stated that there are so many people needing the service that he would like to see the program go forward.   He said at this point he will vote “aye.”

 

The motion CARRIED by a roll call vote of 4-1-1 (Attachment 3).

 

HB 2090 – industrial commission; procedures – DO PASS AMENDED

 

Mr. Glenn explained HB 2090.  He stated the Industrial Commission serves as a regulatory agency for workers’ compensation issues including claims processing for workers who are injured or killed on the job.  He said recently there have been instances of insurance companies marketing and selling workers’ compensation insurance that does not meet the requirements of the Industrial Commission.   He said this bill clarifies that workers’ compensation must comply with Industrial Commission standard requirements.  He noted the bill also clarifies provisions and makes technical and conforming changes to their procedures.  He explained an amendment is being offered.  He said originally two amendments were being offered, but one of them was not being offered today. 

 

Senator Martin stated the 8-line Martin amendment dated 3/16/01, 9:44 a.m., is being withdrawn (Attachment D).  

 

Mr. Glenn explained the 4-page Cirillo amendment has technical and conforming changes. 

 

Charles Huggins, Secretary/Treasurer, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), testified he is in support of HB 2090.

 

Mike Low, Lobbyist, Human Dynamics Corporation, testified in support of HB 2090.  He stated he discussed the issues relating to the Martin amendment, which is not being offered, with the Industrial Commission.  He commented those concerns were resolved by sending a letter to the Chairman of the Committee, which he would like to be made part of the permanent record of the Committee (Attachment E).

 

Senator Martin explained the letter clarifies the amendment that was withdrawn.

 

Scot Butler, Lobbyist, Industrial Commission of Arizona, testified in support of HB 2090.  He provided a handout on his letterhead of an explanation of the bill (Attachment F), as well as noted the previous handout that was made part of the record clarifying the interpretation of the bill. 

 

Senator Nichols moved HB 2090 be returned with an AS AMENDED, DO PASS recommendation.

 

Senator Nichols moved the 4-page Cirillo amendment dated 03/14/01, 4:30 p.m., be ADOPTED (Attachment G).  The motion CARRIED by a voice vote.

 

Senator Nichols moved HB 2090 be returned with an AS AMENDED, DO PASS recommendation.  The motion CARRIED by a roll call vote of 4-0-2 (Attachment 4).

 

HB 2116 – captive insurers – DISCUSSION/HELD

 

Mr. Madeksza explained HB 2116 establishes the captive insurers program in DOI and allows the Director of DOI to establish fees for those insurers and reinsurers.  He stated that captive insurance companies are established to serve specific needs within corporations.  A typical captive is owned or controlled by a single parent company or group of companies that are not primarily engaged in the business of insurance.  He said the bill establishes a captive insurance program for regulatory purposes, and places existing domestic credit life and disability insurance companies into the new program.  He said JLBC has provided an informal fiscal analysis of the bill, which is outlined on the fact sheet.  He explained an amendment is being offered, which contains technical changes, and clarifies that the captive insurers’ fees do not count towards the requirement that DOI recoup its fees between 95% and 100% of its appropriated budget.

 

Representative Carpenter, sponsor, stated this is the third year for captive insurance, and most people are familiar with the program.   He pointed out that captive insurance will bring millions of dollars of revenue into the State.  He stated that the State of Vermont generates over $1 billion per year as new money into the state.  He noted that Arizona would enjoy that also, as captive insurance grows over the years.  He explained 16 states currently have captive insurance, and it would be relatively easy to implement this program in Arizona.  He emphasized that captive insurance is clean, will bring new money to Arizona, and assist in bringing in new industry.

 

Senator Gerard asked why the fee schedule is different than other insurers.  Representative Carpenter responded possibly Ms. Brown, DOI, could answer that question.

 

Vista Brown, Legislative Liaison, DOI, testified in a neutral position on HB 2116.  She responded to the different fee schedule query, and said that is the way the bill was designed.  She explained there is an existing group of reinsurers in the State called “domestic credit life and disability reinsurers” that are captive-like insurers.  She indicated it is contemplated that a new captive program would be established, and that the existing reinsurers would be the platform from which the new captive insurance program grows and managed through that program.  She described the captive programs of other states.  She said there are no provisions in the bill to tax captive insurers.  She stated that the fee issues are very complicated.  She said the State of Vermont is a well-established captive domicile, and it collects fees and a portion of premium taxes.  Revenue is also derived through the economic development aspect.  Further dialogue took place between the Committee members and Ms. Brown regarding the captive insurance program and associated costs.

 

Marc LaPointe, President, Arizona Captive Insurance Association, testified in support of HB 2116.  He stated corporations that establish captive insurance programs are very large corporations with large deductibles.  He said captive insurance is a tool to finance risk and provide payment for claims.  He said there are tax advantages, reporting benefits, and a structured environment with captive insurance. He commented that another reason why corporations move towards captive insurance is due to market fluctuations.  He said a captive insurance company is an insurance company from a regulatory and reinsurance point of view, but it is also a risk management tool for a large corporation.  He described the Vermont program and the revenues gained as a result of captive insurance.  He said this legislation is designed to compete against the 19 states that already have captive insurance legislation.   He said although this legislation does not have premium taxes, a fee is charged that mirrors the minimum premium tax charged by other states.

 

Senator Nichols asked whether he favors a premium tax.   Mr. LaPointe responded Vermont has been very successful as a captive domicile, and it charges premium taxes.  He said he is not opposed to premium taxes, but he believes in order to gain access into the industry, Arizona needs to attract companies to form captives.  He said the fee structure keeps enough money in DOI to have revenues to support the administration and regulation of the industry, and also keeps Arizona competitive with the other states that are vying for the $28 billion industry. 

 

Senator Nichols said he is not so much concerned about the fees, as he is State revenues.  He asked whether Mr. LaPointe would still want the bill if it included a premium tax.  Mr. LaPointe replied he would. 

 

Charles Warner, Actuary, representing himself, testified in support of HB 2116.  He stated he works with a captive manager and actuarial consulting firm.  He indicated that the 2001 Captive Directory lists a significant number of captives, which was a net increase of 2.5% last year.  He said most captives were formed over the past 20 years, and the captive market comprises 40% of the commercial market in the country.  It is estimated that market share will approach 50% by 2003.  As of August, 2000, Vermont had 471 captives.  Vermont also provides jobs for 1,000 employees at above-average earnings, which is part of the $1 billion generated in that state.  He gave a presentation of the reasons why captive insurance would be beneficial to Arizona (Attachment H).

 

Lanny Hair, Executive Vice President, Independent Insurance Agents and Brokers of Arizona, testified in support of HB 2116.  He said he worked with Representative Carpenter in drafting the bill, however, he has one concern.  He commented the industry is currently experiencing a tightening of the market to where it is more difficult to obtain liability insurance for extremely high-risk type operations.   He described the growth of the captive insurance program, and believes it will become an increasingly attractive alternative for large corporations.  He stated his organization would like to see the assets and resources remain in Arizona.  He said the concern relates to funding, and the bill must be funded by assessments paid by the captives.  He emphasized it would be extremely unfair to ask a “mom and pop” agency to pay increased agent license fees so that the larger corporations could self insure.  He said it is a matter of simple equity, and the amendment being offered will address that issue assuming the funding follows the process described earlier.  He pointed out his organization is highly in favor of the bill, however, funding must follow or the smaller entities will be forced to subsidize the self-insurance of Fortune 500 companies.

 

Senator Nichols asked whether it would also be unfair to allow the mega corporations to develop captive insurers and not pay premium taxes, whereas other insurers have to pay those premium taxes.  Mr. Hair responded he believes other states have eliminated the premium tax, such as Hawaii.   He said the issue is for captives to pay their fair share, whether through fees or premium taxes.  He said if there is a premium tax and it causes the loss of business to another state, then the objective is defeated.  He said he would like Arizona to attract the captives to remain in this State.

 

Thomas Haney, Attorney, representing himself, testified in support of HB 2116 with the amendment.  He stated he represents a number of licensed disability reinsurers that have been licensed in Arizona for a number of years. He stated he would like to offer some insight, and questions whether or not domestic life and disability reinsurers should be mentioned in the bill along with captive insurers for the fees to be set by DOI.  He said although he may not like the fact that fees are increasing, he is more comfortable with having the Legislature set a fee certain range than to allow DOI to set a fee and meet its own expenses and possible deficit by setting a different fee and running the life and disability reinsurers out of business.  He pointed out that the life and disability reinsurers have nothing to do with captive companies, except the Director of DOI indicated he wanted to put them both in the same section where they could be organized together along with the appropriation that was in the bill in the House of Representatives, and use that appropriation to fund employees to manage those programs.  He noted that appropriation has now been excluded from the bill, and there is no basis for domestic life and reinsurers to be included in the bill.  He explained it amounts to the reinsurers funding and financing the captives until they are established.  He said a company only pays $162.50 in the first year for the issuance of a Certificate of Authority, and it is not until the renewal date after the first year that the current $4,000 fee is paid.   Therefore, the reinsurers would be supporting the captive section.  He said as long as there is no appropriation in the bill, the reinsurers should be excluded.  He noted the reinsurers are elsewhere in the insurance code, and do not belong in this bill.  He stated he is asking that life and disability reinsurers be deleted from pages 3 and 10 in the bill.  He said having life and disability reinsurers is inconsistent from two points of view.  A previous bill was passed out of the Senate and now in the House of Representatives, which changes the fees.  Secondly, the bill is inconsistent with the amendment.

 

Senator Cirillo announced David Childers, Lobbyist, Arizona Captive Insurance Association, was present in support of HB 2116.

 

Senator Cirillo thanked everyone for the testimony regarding captive insurance.  He stated HB 2116 will be held for work on the amendments, and it will be heard at the meeting next week.

 

HB 2337 – state credit card use; definitions – DO PASS AMENDED

 

Mr. Glenn explained HB 2337.  He stated that a bill was passed by Congress during the 44th Second Regular Session that allowed any state agency to accept credit cards for payment due the agency or the State.  He commented that bill contained several unclear definitions referring to credit card transaction fees levied by state agencies.  He indicated that HB 2337 clarifies definitions for agency credit card transaction fees, and authorizes agencies to charge convenience fees.  It also requires the agencies to submit cost benefit reports to JLBC.  He said there is a JLBC fiscal impact note on the bill.  JLBC indicated there is a disagreement regarding the legal interpretation of this bill, as to whether it clarifies current practice or adds a new type of fee.  According to JLBC, a court of the Attorney General (AG) would need to determine which interpretation is correct.  If the bill only clarifies current law, there would be no fiscal impact.  If a new fee is added, the fiscal impact is equal to the amount of the fee, which would be deducted from the general fund or other revenue fund.  He explained an amendment is being offered, which exempts the Department of Revenue (DOR) for tax payments from deducting discount fees before the monies are placed into the proper account.  He said these changes are technical and conforming to the bill. 

 

Senator Cirillo asked whether there is a similar bill relating to this subject.

 

Jeff Kros, Legislative Liaison, DOR, testified in a neutral position on HB 2337.  He explained Senator Solomon has a similar bill.  He said DOR did not bring it forward, and he is not sure which entity is responsible for the bill.  He said SB 1240 prohibits DOR from doing anything but passing the fees and discount rate on to the taxpayer, if taxpayers use a credit card to pay tax bills.  He said basically the taxpayers would be paying the full amount due to the State.  He said the same procedure would apply in HB 2337, and the portion relating to use of credit cards with DOR would not have any fiscal impact because the taxpayers would pay the fees. 

 

Senator Cirillo announced the following individuals were present indicating a neutral position on HB 2337, but would be available to answer any questions:  Susan Patrick, Communications Manager, Government Information Technology Agency; and Henri Gauthier, Legislative Liaison, Arizona State Treasurer’s Office.

 

Representative Marsh, sponsor, thanked the Treasurer’s Office for work on this bill.  He said this bill is critical to the web portal and furthering e-government online for the State.

 

Senator Nichols moved HB 2337 be returned with a DO PASS recommendation.

 

Senator Nichols moved the 4-line Cirillo amendment dated 03/28/01, 8:32 a.m., be ADOPTED (Attachment I).  The motion CARRIED by a voice vote.

 

Senator Nichols moved HB 2337 be returned with an AS AMENDED, DO PASS recommendation.  The motion CARRIED by a roll call vote of 4-0-2 (Attachment 5).

 

HB 2134 – credit card transactions; receipts; fraud – DO PASS AMENDED

 

Mr. Glenn explained HB 2134 limits credit card receipts to five digits of the credit card number, and prohibits the printing of the expiration date.  He stated the bill was held from the last meeting.  He explained an amendment is being offered, which requires the merchants entering into the contract to process credit cards as part of the business transactions to purchase the equipment necessary to accomplish business transactions and requirements outlined in the bill.  He noted the amendment has been worked out with the sponsor.

 

Senator Cirillo announced the following individuals were present in support of HB 2134:  Debra Margraf, Executive Director, Arizona Automotive Trade Organization (with amendment); Ellen Poole, Executive Vice President, Arizona Bankers Association (with amendment); and Wendy Briggs, Lobbyist, Arizona Bankers Association (with amendment).

 

Charles Stevens, Lobbyist, Arizona Credit Union League, testified in support of HB 2134.  He said the League supports the bill.  He indicated he also represents Western States Petroleum Association, and that firm is monitoring the bill.  Therefore, he believes the Association supports the bill as well. 

 

Senator Nichols moved HB 2134 be returned with a DO PASS recommendation.

 

Senator Nichols moved the 15-line Cirillo amendment dated 03/28/01, 11:45 a.m., be ADOPTED (Attachment J).  The motion CARRIED by a voice vote.

 

Senator Nichols moved HB 2134 be returned with an AS AMENDED, DO PASS recommendation. 

 

Senator Gerard explained her vote.  She said she has reviewed credit card receipts, and is shocked how many of them show the entire number, along with the expiration date and signature.  She said she believes that people do not realize how revealing that information can be, and she said she will vote “aye.”

 

The motion CARRIED by a roll call vote of 4-0-2 (Attachment 6).

 

HB 2266 – money laundering; applicability; financial institution (now: racketeering; civil liability; financial institution – DO PASS

 

Mr. Madeksza explained HB 2266 clarifies that banks, savings and loans and credit unions are not subject to civil racketeering liability unless the specified financial institutions have knowledge and are complacent regarding unlawful activities.  He said currently those institutions operate and are subject to a variety of civil and criminal codes, among them the Racketeer Influenced and Corrupt Organization (RICO) Act.  Until recently RICO statutes have not been used as a basis for civil liability cases.  Instead, it was assumed that the civil code outlined in the Uniform Commercial Code (UCC) applied to civil liability issues. He indicated that recent court cases have cast doubt on those assumptions, and HB 2266 prescribes that specified financial institutions are exempt from civil racketeering liability for damages or other relief unless it is learned that an institution knew the funds were proceeds of an offense, and that a director or high managerial agent tolerated the illegal conduct.  According to JLBC there is no general fund impact associated with the bill.  He said he has not heard of any objections to the bill.

 

Ellen Poole, Executive Vice President, Arizona Bankers Association, testified in support of HB 2266.  She stated that this bill is the response of a lawsuit against a bank.  She explained some of the details behind the statute in this case.  She said this bill does not remove liability from banks for any inappropriate or bad acts.  She indicated if those entities are responsible, a statute will enforce payment.  She said the concern was that a statute was applied inappropriately and would make them pay much more significantly than the nature of the act would require.  She commented civil RICO statutes were never meant to apply to basically what could be termed operational mistakes.  RICO was originally created to deal with other issues. 

 

Senator Cirillo announced the following individuals were present in support of HB 2266:  Wendy Briggs, Attorney, Arizona Bankers Association; Michael Haener, Director of Legislative Affairs, Attorney General’s Office; N. Warner Lee, Phoenix; representing himself; and Christopher Coury, Phoenix, representing himself.

 

Senator Nichols moved HB 2266 be returned with a DO PASS recommendation.

The motion CARRIED by a roll call vote of 4-0-2 (Attachment 7).

 

There being no further business, the meeting adjourned at 4:17 p.m.

 

Respectfully submitted,

 

 

 

Nancy L. DeMichele

Committee Secretary

 

(Tapes and attachments on file in the Secretary of the Senate’s Office/Resource Center, Room 115.)

 

 

 

 

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                        Committee on Banking and Insurance

            4          March 29, 2001

 

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