MINUTES OF THE ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT Sixty-eighth Session May 9, 1995 The Committee on Labor and Management was called to order at 3:30 p.m., on Tuesday, May 9, 1995, Chairman Saundra Krenzer presiding in Room 321 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Ms. Saundra (Sandi) Krenzer, Chairman Mr. Dennis Nolan, Chairman Mr. David Goldwater, Vice Chairman Mr. Lynn Hettrick, Vice Chairman Mr. Bernie Anderson Mr. Douglas A. Bache Mr. John C. Carpenter Mr. Pete Ernaut Mr. Mark Manendo Mr. Brian Sandoval STAFF MEMBERS PRESENT: Mr. Vance Hughey, Senior Research Analyst Mr. Fred Welden, Principal Research Analyst OTHERS PRESENT: Bruno Menicucci, Menicucci Insurance Associates David J. Guinam, Nevada Insurance Guaranty Association Rose McKinney-James, Nevada Department of Business and Industry Billie Miller, Dare to Dream Allen Burchfield, Dare to Dream Doug P. Williams, Dare to Dream Barbara Costello, Dare to Dream Elizabeth Ayers, Clark County Risk Mark H. Abersack, Nevada State Insurance Association and Harrah's Las Vegas Martha Douglas, Catholic Community Services Lynn Grandlund, Employers of Nevada, Grandlund, Watson & Clark Helen Aberta, Department of Industrial Relations Trudy Williams, Tropicana Kevin Spilsbury, Employers of Nevada Lenore Jeffers, Nevada Administration The hearing was opened on Assembly Bill 552. ASSEMBLY BILL 552 - Makes various changes to provisions governing industrial insurance. Chairman Krenzer outlined the agenda for the meeting as noted on (Exhibit C). She encouraged committee members to suggest amendments and language changes as the discussion proceeded. Mr. Bruno Menicucci, Menicucci Insurance Associates and President, California- Nevada Professional Insurance Agents, testified in favor of A.B. 552. He recommended review of A.B. 552. Reminding the committee members they acted as the state, he remarked they also represent their constituents. Mr. Menicucci revealed he is often questioned why Nevada is one of only six monopolistic states, and why workers do not have a choice. Businessmen would like the opportunity to review all cost aspects of their businesses, including workman's compensation insurance. He discussed the potential inability, lack of ability, or serviceability of the State Industrial Insurance System (SIIS) transacting and servicing their clients. Mr. Menicucci commended the present SIIS administrators for their efforts in increased client services. He asked the committee to examine the area of claimants. Noting he has no qualms about legitimate claims, Mr. Menicucci discussed reclaims on reoccurring injuries which need to be assessed to former employers in other states. He suggested making SIIS a carrier if the measure was to be opened to three way insurance with private carriers on the basis it can be operated as a separate insurer. He also suggested removing "these people, or the operation, or the administration from the personnel act of the State of Nevada". To compete in the marketplace as an insurer, SIIS needs to operate under the same rules and regulations as other insurers. It was also suggested removing the Governor from "being the exacter". No one person, in an insurer basis, should be controlling a major area, such as expenditures. Mr. Menicucci discussed solvency and insolvency. Discussing the establishment of three way in 1999, Mr. Menicucci deemed the time frame procrastination. He suggested the committee consider enabling legislation for the system to begin in 1997 instead. Discussing assigned risk, Mr. Menicucci stated everyone in the state should have the opportunity to be covered under worker's compensation. In other states, similar to auto insurance, assigned risk is pooled on the basis everyone takes a percentage of the assigned risk. All insurance companies choosing to do business under the worker's compact participate. Assemblyman Goldwater asked Mr. Menicucci to elaborate on the implementation of three way insurance and how SIIS would become an insurer. He also wished to know how it would effect SIIS. Mr. Menicucci stated Nevada was historically very provincial and archaic in what has been done. Nevada was so small for so long it was much easier to do business than it was in other states. Even when state insurance was NIC (Nevada Insurance Commission), Mr. Menicucci felt they should have operated under the auspices of an insurer as an insurer, despite being monopolistic. Enabling legislation has to be provided on the basis of insurer creation so competition can ensue, with everyone operating under the same rules and regulations. Mr. Goldwater asked where in the bill Mr. Menicucci saw there was not a provision for three way before 1999. Mr. Menicucci could not be specific. He suggested, however, the enabling legislation to do so be very clear. Assemblyman Carpenter asked who would purchase policies from private companies if three way were implemented and where it would leave SIIS. Mr. Menicucci stated he felt it would leave SIIS where they have been for years. He felt in the first three years many people would convert to private carriers, at least for quotes. If SIIS is not competitive, there would be less participation in the program, especially in higher risk classifications. SIIS would need to be able to adjust rates as the marketplace rates shift. He discussed the establishment of a mechanism for SIIS to be as competitive as other companies in business. Mr. Carpenter asked if there was a need for SIIS if the state went to three way. Mr. Menicucci stated there was because there will always be a need for worker's compensation and for a particular segment of the buying public to have access to an additional carrier. He did not believe there would be a deluge of private carriers as the three way system was started. There has been a down scale over the last 2-3 years in loss experience in worker's compensation. In California rates have been lowered in excess of fifteen to twenty percent in some areas in many classifications. A system similar to SIIS exists in most other states. Assemblyman Bache asked if group self insured or private insurance would be the best as far as the consumer and financial viability are concerned. Mr. Menicucci said he felt the committee had taken some provisions for self insurance. Group self insurance or risk retention groups would gather a third party administrator. This will have a bearing on some premiums. He predicted private insurers would do the same but will classify or reclassify within groupings. Many like type industries band together in risk retention groups. Mr. Bache asked if a small businessman were making the decision to join a group for group self insured or taking private insurance, which would be the safest, best bet for the businessman. Mr. Menicucci said on a group basis he would choose the private carrier because there are always "strings" to a group. Other aspects might include possible assessments to cover losses if one group member goes out of business and losses must be covered. Assemblyman Anderson, referring to the unencumbered cost of medical treatment when someone leaves, or tail, asked if it should be a major concern. Problems have existed in the past where the insurance department has not set the tail at the rate where the reality of medical costs were going to be as groups have left. He wondered if three way would avoid this. Mr. Menicucci said he did not think so. He felt the tail was an important aspect. The manner in which self insurance was provided for was to enable the Department of Insurance to administer those areas. The original legislation did not provide for any recourse or tail coverage. He recommended having some type of tail in the future so the system does not inherit a high loss factor. This should be a basic requirement under the auspices of the self insurance or under the group plan. Anyone in the system needs to be involved in a plan to protect the system with a tail. Mr. Anderson discussed groups who wish to co-mingle whether of similar character or not. If a homogeneous rather than heterogeneous grouping is allowed, Mr. Anderson asked what sort of experiences might be expected in the two groupings. He also discussed groups who leave the system and then returned, wondering if a special mechanism was needed now to deal with the problem. Mr. Menicucci said if enabling legislation was provided in the bill of "house rules", the issue could be resolved by rules and regulations. He felt it should be provided for. Members of any group, whether heterogeneous or homogeneous, should know the rules up front so assessments, terms and conditions are understood. Risk is raised by mixing groups. Mr. Anderson noted a dramatic change in benefit services delivered in the structure of SIIS last session. He asked if insurance programs tended to follow the least favored programs, similar to state programs, or if they tended to become self guided. For example, would a higher benefit program evolve from a three way program or would standards remain at minimum as required by the state. Mr. Menicucci said all companies would look at the "least cost" factor. Minimum requirements should be labeled as such within the system of benefits. Under the present system, self insureds must follow the minimums and the state benefits. A carrier will enhance their product to market it and should be encouraged to do so. He recommended review of any three way system in the next legislative session to see if any loopholes need to be plugged. Chairman Krenzer said if SIIS did not have a large, unfunded liability, three way would not be the question now. Given the liability and the possibility of SIIS losing twenty-five to thirty percent of its market, she asked if Mr. Menicucci would want to see three way in 1997 if he were administering SIIS. Mr. Menicucci said "yes and no". He would want the enabling legislation included now with areas of evaluation to protect the insureds if insolvency became an issue. Nothing would probably be done before 1997, but the enabling legislation would allow flexibility. He felt the interim committees did not have the authority, unless placed in the bill, to enact an item if needed. Chairman Krenzer stated 1999 was recommended because the unfunded liability will be better addressed by that time and SIIS will be better able to compete. Chairman Krenzer asked what percent of the market private carriers would take. Mr. Menicucci predicted carriers would be aggressive and the marketplace ample. Some carriers will also carry property and liability coverages which will open markets for new companies. Mr. David Guinam, Attorney, representing Nevada Insurance Guaranty Association, spoke on Sections 184 and 185. The sections seek to amend N.R.S. Chapter 687A, which is the section governing the Nevada Insurance Guaranty Association. As an overview, Mr. Guinam described the Nevada Insurance Guaranty Association. It is made up of all the solvent property and casualty insurance carriers doing business in the state and are required by statute to belong. The association has the duty of stepping in when a property and casualty insurance company insolvency occurs. The association "steps into the shoes" of the insolvent carrier and pays the claims of the insolvent carrier subject to policy provisions and subject to statutory limitations found in Chapter 687A. The association has no position on whether a three way bill should or should not pass. Section 184 seeks to amend N.R.S. Chapter 687A.020 and does so by including industrial insurance provided by SIIS as an additional exception to the guaranty association coverage. Mr. Guinam stated the section is unnecessary and causes confusion. Currently the insurance guaranty association does not cover SIIS claims because of the definition of covered claims found in N.R.S. 687A.033. A covered claim is a claim which arises out of and is within the coverage of a policy of insurance issued by an insolvent insurer. Insolvent insurer is defined in another section to mean an insurance company which has been issued a certificate of authority by the Insurance Commissioner and which has been found insolvent by a court of competent jurisdiction and ordered liquidated. Since SIIS is not an insurer which has been issued a certificate of authority by the insurance division, it does not come within the definition of covered claim. Therefore, the amendment to 687A.020 is unnecessary and potentially confusing. Chairman Krenzer asked if in other provisions of the bill the state or committee is allowed to declare the system insolvent, would Page 71, Line 8, be appropriate. Mr. Guinam did not believe it would because the insolvency of SIIS would have no effect on the guaranty association. It is not an insurer which has been issued a certificate of authority. Section 185 seeks to amend N.R.S. 687A.060. This is an important section in the guaranty association chapter. It is the section which delineates the duties of the guaranty association. Most of the amendments in Section 185 are Legislative Counsel Bureau style changes. Mr. Guinam stated he did not favor them because the guaranty association statute is the product of a model law promulgated by the National Association of Insurance Commissioners in the late 1960's. It is preferred to keep the law uniform without style changes. For over twenty years litigation has been conducted using the existing language of Chapter 687A.060 and it is preferred the language stay as it is. There are two possible amendments of Chapter 687A.060 which are not style changes. This is the language purporting to accept a claim filed pursuant to N.R.S. Chapter 617 from the obligations of payment of the guaranty association. Mr. Guinam stated he was unsure what the language is intended to do. If the intent is to exclude claims against SIIS, those claims are not covered anyway. If the intent is to exclude claims of self employed insurers, it is also unnecessary because they are not insurers who have been issued a certificate of authority. If the intent is to exclude claims of private insurers, and three way is implemented, in the event a private insurer issuing workers' compensation insurance, becomes insolvent, the state would want coverage by the guaranty association. Under model legislation and the laws of most states worker's compensation insurance is covered by the property and casualty guaranty associations. Excluding this in Nevada would result in dissatisfied consumers in the event of the failure of a private company. N.R.S. 687A.100, Subsection 2 sets up the priority of which guaranty association in which state will cover various claims. This section provides the association in the state where the worker's compensation claimant is residing is the primary carrier. Mr. Guinam reiterated Sections 184 and 185 are unnecessary and may cause problems. He recommended removing these sections from A.B. 552. Mr. Anderson asked for clarification of Mr. Guinam's concerns noting the bill violated a twenty year standing concept in part of the uniform code. Mr. Guinam answered affirmatively. He reported it is not entirely uniform across the United States but an attempt is made to keep it as stable as possible. Mr. Anderson noted as uniform codes are upgraded and renewed, Nevada codes are changed accordingly. He asked if the codes had been upgraded in this situation. Mr. Guinam reported a bill in the 1993 legislative session sought to adopt some uniform changes. Others have been promulgated in the interim. These will be addressed in the 1997 session. Mr. Anderson said it is his understanding three way is an accepted standard of handling SIIS problems uniformly nationwide with few exceptions, one of which is Nevada. He asked if this had created a disparity in the uniform code. Mr. Guinam stated to his knowledge, it had not. He said most states cover workman's compensation, and private carriers workman's compensation with Nevada being the exception. Mr. Anderson discussed bonding problems and asked if there would be a problem with individual bonding of subgroups if they moved out of the SIIS system. Mr. Guinam felt he could not answer the question. Ms. Lynn Grandlund, Employers of Nevada, commented on A.B. 552. Regarding SIIS board of directors, Ms. Grandlund recommended reinstating the board. As policyholders in the state, employers have found little information available as to what is happening with the insurance company. No information has been received, for example, on what is happening with their investment portfolio. As testified in the 1991 and 1993 sessions, Employers of Nevada feel the composition of the SIIS board of directors should have the majority of policyholders on the board. The insurance company exists for policyholders. Regarding three way, Employers of Nevada feels having options available for employers in the state is positive. Caution was advised because state fund solvency is important. If this type of competition is opened, it does not hurt those employers who remain in SIIS for whatever reasons. SIIS being exempt from certain administrative services is viewed as a positive. It was the position of Employers of Nevada to relieve restraints from SIIS so they could operate in a more competitive fashion. SIIS has been working on attractive measures to make SIIS more competitive in the marketplace. Without restraints being removed, however, their hands will be tied in becoming more an insurance company in the marketplace. Mr. Kevin Spilsberry, echoed Ms. Grandlund's comments. Chairman Krenzer notified the committee of a list of definitions which had been distributed (Exhibit D). She advised the committee some of the definitions were language changes in the text which change responsibilities around. The definitions were to be discussed by upcoming witnesses. She also discussed an index distributed to the committee (Exhibit E). Chairman Krenzer referred to Section 7 which directs composition of the board of directors. Assemblyman Goldwater explained the need was recognized during bill drafting of the need to remove control from the Governor and give it to an alternative body. A board of directors was chosen arbitrarily. It is a negotiable item and he recommended the committee discuss the issue and decide on the best alternative as to the board's composition. Mr. Anderson said he was not ready to believe the board of directors needed to come into existence. He stated he felt the Governor should stay in control for two more years. Mr. Douglas Dirks, SIIS, stated he would discuss the provisions reinstituting the board of directors for SIIS. The framework in place in A.B. 552 is to bring back the Board of Directors as it previously existed. In the last session the Board of Directors was abolished and the Governor took control of the system for four years. After four years the power vested in the Governor went to the general manager. The Governor's control was limited to the appointment of the general manager. In A.B. 552 the previous Board of Directors is reinstituted. Section 7 governs the composition of the Board of Directors. The composition consists of seven members, three representing labor, three representing management and a lay person. The three labor representatives are selected by the Governor from a list submitted by the AFL-CIO. The three management representatives are appointed by the Governor from lists submitted by employers organizations. The lay person is appointed by the Governor with no input from management or labor. Section 8 provides for compensation for the Board of Directors and Section 9 governs the election of the chairman and vice chairman of the Board of Directors. Sections 45- 52 also address the Board of Directors. These provisions primarily discuss the powers of the Board of Directors. On July 1, 1999, the word "manager" in current law would be replaced with "board". Section 45 provides the Board of Directors appoint the manager. Additional powers then residing with the Board would include budget approval, investment policies, investment counselors, bank selection, employment of independent actuaries and independent certified public accountants. It also provides for recommendations from the Board of Directors to the legislature. Section 45, Item 9, which currently exists, states the Board may review any matter related to the operation of the system at its own initiative or at the request of the manager. The Governor has similar power now but the language is removed in 1997 and, under this bill, would return in 1999. Section 46 provides there is no liability in the private capacity of the Board. Section 47 specifies the responsibilities or qualifications of the general manager which must be followed by the board. Section 48 provides the manager select assistant general managers who are confirmed by the Board of Directors. Section 49 provides the manager and assistant managers are unclassified and have their salaries fixed by the Board. Section 50, subject to limitations in budgets approved by the Board of Directors, the system is administered by the general manager, assistant managers and other staff appointed. Section 51 states all persons employed by the system in a sales or marketing function, after the system is in a three way environment, are in the unclassified service of the state. Section 52 deals with limitations on investments of the system in rehabilitation facilities and other facilities. Sections 98 and 99 govern the guidelines of investment practices of the system and the selection of investment counselors and managers. These practices must be followed in hiring consultants and advisors. Mr. Dirks then reviewed the framework of the bill explaining the Board of Directors was abolished during the last session and the Governor took over control for four years. On July 1, 1997, the general manager assumes all the responsibilities of the Governor for an additional two years and, under A.B. 552, the Board of Directors would return and assume the powers of the general manager on July 1, 1997. Chairman Nolan discussed the makeup of the board and how it was sometimes confrontational. Gridlocks were frequent. One of the reasons the Governor needed to assume control was he could not rely on the Board due to its past history to make the necessary innovative reforms needed. Now the idea of a Board is being redeveloped. He asked Mr. Dirks' opinion of the proposed makeup of the Board and if he felt the makeup was manageable or if a different arrangement would be better. Mr. Dirks said, due to the crisis the system has been in and is still in, it was critical to have the Governor in control. It enabled quick actions to be taken. When areas were identified and addressed it was not necessary to wait for the Board of Directors to address the issues; the Governor did so. During the critical stages, it was good to have the flexibility. Looking at other insurers nationwide, Mr. Dirks felt it was not unreasonable to expect there to be a Board of Directors under normal circumstances overseeing the operations of the insurer. Mr. Dirks stated there would be no opposition to bringing back a Board of Directors. Where massive reforms are being implemented over a short time period, Mr. Dirks felt the Governor's control was essential and successful. Mr. Nolan asked if Mr. Dirks felt SIIS was not "out of the woods" and if he felt the Governor needed to maintain control for a period of time. If so, he wanted to know what Mr. Dirks thought was an effective date for the board. Mr. Dirks said the current statute gives the Governor two more years of control of the system. If A.B. 552 is adopted and the Board returns in 1999, a two year period of time exists where there is no Board and no Governor control and all control is vested in the general manager. Mr. Dirks said it was a policy issue which should be decided by the committee. Three options exist. The general manager can have the control for two years, the Governor's control can be extended for two years or the Board of Directors can be brought back two years earlier. Mr. Nolan, readdressing the makeup of the Board, asked again what Mr. Dirks opinion was on the Board makeup. Mr. Dirks said there were many alternatives as to the Board's make up and SIIS was not committed to the proposed makeup. He requested suggestions from the committee. Assemblyman Goldwater noted a legislative committee was created by the bill. He asked if Mr. Dirks was concerned with the scope of directives and powers of the legislative commission being limited. Mr. Dirks said he had no objection to legislative oversight as it is part of the structure. A danger exists in getting too involved in the day to day operation of the system, however. Assemblyman Carpenter asked what areas were addressed immediately with the Governor's control. Mr. Dirks explained investment managers have been replaced in a very short time. The performance of the previous investment managers was discussed. Ninety two and one-half percent of the portfolio was moved in five months. Mr. Dirks felt this could not have been done under the previous Board of Directors. A claims reserving system was started. This was a critical move, accomplished in four months. A new general ledger and financial accounting package was started. This was an issue discussed by the previous board over an extended period of time. This was taken to bid, selected and brought on line in approximately eleven months. Mr. Dirks described these actions as "key decisions" pursued in a short time period. Chairman Krenzer asked what would happen if a Board of Directors was not established. Mr. Dirks explained under the current statute if the Board of Directors does not come back, the general manager has all of the powers of the former board and the current powers of the Governor. The Governor appoints the general manager, who is accountable to the Governor and the legislature. The powers include budget approvals, selection of Certified Public Accountants, selection of actuaries and selection of investment counselors. Mr. Jack Jeffrey, Southern Nevada Building and Construction Trades Council, Southern Nevada Central Labor Council, stated he wished to correct an apparent misconception. The previous Board of Directors was not controversial, according to Mr. Jeffrey. Those serving on the board and those doing business with them would agree the board made decisions collectively. Few split votes existed. In the NIC (Nevada Industrial Commission) days, more disagreements existed because it was also a hearing board. The board primarily handled the investment portfolio of SIIS. A sounding board for both workers and management was provided. Original formation of the board was due to both sides giving up something. Employers were responsible for injuries on the job and employees gave up the right to sue. Both sides were represented by the board and made a contribution to the system. Mr. Jeffrey agreed mistakes were made. He insisted workers need to be represented on the board and felt a single injured worker representative was not sufficient. Mr. Jeffrey discussed the role of the AFL-CIO in the issue and the composition of the board. He expressed support for composition of the board as outlined in A.B. 552. Assemblyman Nolan asked for history of the performance of the investment package while under the Board of Directors. Mr. Dirks explained there were periods when interest rates were high and the system was performing adequately. The issue involved in examining the recent performance was some of the specific fund managers hired by the system performed terribly. Pieces of the investment portfolio would hold up the balance but particular elements performed poorly. Mr. Nolan wondered if the committee should consider including professional people with a background in investments if the continued responsibility of the board will be investment portfolios and insurance in general. He also agreed with Mr. Jeffrey's comments regarding injured worker representation. Mr. Dirks noted the Board of Directors manages hundreds of millions of dollars, making decisions on investment guidelines, investment counselors, bank selection, actuary selection and other items. These are weighty decisions. Mr. Jeffrey, discussing qualifying board members, stated those with the appropriate knowledge would be unable to do business with the system due to conflict of interest. In the past advisors were hired. Assemblyman Hettrick asked Mr. Jeffrey to address the issue of speed of getting decisions made. He noted if SIIS is to be competitive, it has to operate like a business and not like a government agency. Mr. Jeffrey stated he preferred to see the system remain as it is than to return to a Board of Directors. Both sides, workers and management, have the "Governor's ear". He noted individual decision making is much quicker than group decision making. Mr. Hettrick related how boards are thought of as people who make decisions and not take recommendations. He suggested a board with oversight, but without decision making responsibility, which is what the law says will happen in 1997 when the general manager takes over with oversight from the Governor. Mr. Hettrick suggested the general manager serve the Governor with an oversight or recommendation facility for investment management. Currently the system has flexibility not available previously and Mr. Hettrick disliked the idea of removing it. He recommended crafting the legislation carefully to leave the flexibility. Mr. Jeffrey agreed the system needed to be able to act in a reasonable time and manner. He recommended care in being sure both sides were represented equally. Assemblyman Anderson complimented Mr. Dirks for the accomplishments made in SIIS. Mr. Anderson discussed a group of advisors from the business community to give direction. This was agreed upon in the 1993 session. However, this did not take place; the group came together for a short time and then disappeared. Mr. Anderson asked why a future Board of Directors would generate a new level of confidence. Mr. Dirks stated there was not a statutory requirement for an advisory board. A group, comprised of regulators and others, came together and met once. Mr. Dirks was unsure why the meetings were not continued. Mr. Anderson said if a Board of Directors was placed and expected to have a level of interaction, care needs to be taken to be sure the board does what is intended. Mr. Dirks stated he has a commitment as general manager to be more open with all constituents. It is his intention to solicit input from the public and those interested as to how things should be changed. Mr. Anderson said in 1991, the Labor and Management Committee directed the system would develop and institute protocols to handle high risk claims in specific areas. The regulations have only recently been instituted. Mr. Anderson expressed concern in situations such as this being handled by a Board of Directors. He understands both policy holders and injured workers need an avenue to be confident in the system but is not sure the system is being responsive to the Board of Directors or anyone else. Mr. Dirks was unsure if the protocol institution was a requirement of the system. The responsibility may have rested with someone else. Chairman Krenzer reminded everyone that any board instituted was capable of making bad decisions. Tremendous progress has been made with the Governor in charge and the general manager reporting to the Governor. A general feeling of confidence exists in what has been happening recently. There is no desire to impede the process with a board. Mr. Bob Ostrovsky, Nevada Resort Association, responding to the advisory committee issue, noted the Governor had come to himself and others and asked them to serve in a capacity to assist the system. He was to chair the committee which developed the RFP's for managed care and evaluate them. Mr. Ostrovsky discussed other meetings he had participated in resolving other issues. He stated the group did not meet on an ongoing basis to examine general issues of the system. They were not requested to do so. Discussing the Board of Directors, Mr. Ostrovsky stated he would not engage in "revisionist history". The system went under while a board ran the system. The SIIS system will have to operate in a three way environment and will have to compete. It will also have to become a different type of state agency if it is going to survive in the competitive world. Mr. Ostrovsky was unsure if going back to the same kind of board was a wise choice. He urged the committee to closely examine all choices and make sure their choice is streamlined, effective and the SIIS management be the ones to make decisions. He discussed the usual procedures of corporate boards. The Nevada Resort Association is interested in solvency of the system and wish for policy decisions to lead to solvency. The taxpayers of the state suffer if the system fails. Mr. Hettrick asked if a solvency surcharge was required, who would have to participate. Mr. Ostrovsky said every employer in the state was a potential payor. Historically the premiums have been insufficient. Employers who participated in the system during the prior fourteen years need to address the inadequate premium. Those in the longest would have to pay the most. Also the payments would have to be made over a long period of time as a surcharge and not as a premium. He cautioned premiums may have to be increased anyway. Mr. Ostrovsky discussed self insured employers and the difficulty they have in determining whether or not to become self insured. Mr. Nolan noted the testimony heard indicated the current arrangement with the general manager being responsible for the operations and oversight of SIIS has been extremely successful in the turnaround of the organization. While having the opportunity for the success to continue, having a board to provide insight would be helpful. He suggested having a general manager to serve at the pleasure of a board with two representatives from management, two from labor and three from the public. Referring to the language in Section 7, Mr. Nolan stated one of the public members must be knowledgeable in insurance investments. He felt it critical for someone with insurance and investment background be on the board. The board would hold public hearings and make recommendations to the general manager. Mr. Goldwater supported Mr. Nolan's suggestions. Mr. Hettrick wished to clarify that the manager would serve at the pleasure of the board and the board would be oversight and the effective date of the board would be July 1, 1997. Chairman Krenzer added the manager would maintain control with the same authority as now and the qualifying of one of the lay members. She also suggested including an injured worker as one of the lay people. Assemblyman Bache stated he preferred to leave things as they are without a Board of Directors. Chairman Krenzer directed Mr. Hughey to draft two amendments, one as Mr. Hettrick stated and one as Mr. Bache stated. Assemblyman Carpenter stated a prior problem was the inability to make rapid decisions in order to meet changing needs. He was unsure how to avoid micro management by the board. Chairman Krenzer agreed with Mr. Carpenter. She suggested including language to say "review" and not "approve". The idea is to avoid having the board approve or disapprove what the manager is doing. It is open meeting, public accountability and a review. Mr. Dirks suggested considering if the system is going to be competitive and the Board of Directors is making decisions to go to the competitive environment of the system a problem may occur with open meeting of the Board of Directors. If product pricing decisions are made or particular product or market segment decisions are made, the competitors may be tipped off as to the actions of SIIS. The problem occurs because SIIS is a public entity and everything done is open to public inspection. Mr. Nolan said the intent would be to provide an open forum since SIIS will still be a state agency that will have contact with the public and concerned party. The policy decisions outlined by Mr. Dirks should remain the responsibility of the general manager. Mr. Goldwater, discussing the proposal, asked if the decisions discussed were considered oversight. Mr. Dirks said if the language was changed from "approve" to "review" it would be satisfactory. Other solutions included providing a mechanism for the board to meet in executive session on specific, competitive questions, or do a lag on board minutes. Everything done is open to public inspection, but in the specific, competitive areas, the minutes are not released for 30 to 60 days after action is taken. As a competitor, having others know what you are going to be doing puts the system at a disadvantage. Assemblyman Ernaut stated it was important to have a provision that no member of the board have any financial tie to any other insurance company. Chairman Krenzer referred Mr. Ernaut to Page 4, Line 7, which contains a provision for a board member to have knowledge of investments and organizational management. Mr. Hettrick stated the proposal was for the board to have oversight capacity with the ability to make recommendations to the manager. He stated he expected the manager to develop the rate structure and go to the board for approval. The board would be for public input, and oversight. The manager serves at the pleasure of the board. Both the board and the manager will be required to work together. Chairman Krenzer concurred. She discussed the input process. Ms. Elizabeth Ayers, Clark County Risk Management, suggested creating a legislative committee to study the solvency of SIIS. She stated the county is sensitive to the problems of SIIS because whatever effects SIIS eventually comes down the ladder to effect the self insured. The county is supportive of a study to look at the issues of assessment and the solvency of SIIS. They do not agree with moving forward too quickly and levying assessments. Ms. Ayers volunteered to work with the committee on the issue of possible future assessments. Mr. Dave Owen, Clark County School District, expressed concern over the process which will occur regarding solvency. As a large public entity, Clark County School District hopes to avoid or minimize an assessment. Speaking as a private person, Mr. Owen noted the environment for worker's compensation was going to change over the next few years. The interim committee will need to look closely at the insurance industry. The insurance industry has had some proven techniques in other jurisdictions. He recommended maximizing flexibility and creativity. Mr. Owen described an unprecedented stance on flexibility taken by the legislature many years ago. Referring to the days of the Atomic Energy Commission, Mr. Owen noted no self insurance existed, other than NIC. The legislature allowed the Atomic Energy Commission and the subsequent Department of Energy to have an "X-medical program". This was unheard of at the time. Mr. Owen encouraged the legislature and the post legislative commission to be creative in their actions so the surcharge could be avoided or minimized. Instead of going total three way Mr. Owen suggested letting the private insurance industry take an experimental look at different ideas under supervision of the post legislative commission. He also suggested SIIS experiment flexible and creative techniques used in the insurance industry, such as retrospective rating. It may provide a beneficial tradeoff of revenue versus claims experience for SIIS. DINNER BREAK Ms. Rose McKinney-James, Director, Nevada Department of Business and Industry, discussed the responsibilities of her department. Two to three of the agency departments stand to be significantly impacted by A.B. 552. These include the Division of Industrial Relations, the Division of Insurance and the Insurance Commissioner. Each will be required to substantially expand their operations relating to industrial insurance regulations. Much of the authority currently vested with the manager of SIIS will shift to the administrator of the Division of Industrial Relations and the Insurance Commissioner will take on additional responsibility. The possibility exists that the Nevada attorney for injured workers may be required to adjust the provisions of services which the agency provides to its clients. Ms. McKinney-James admitted she was not an expert on the technical issues. She felt obligated to recognize the measure will require careful analysis and examination as it relates to the overall operations and potential fiscal impacts on these agencies. Ms. McKinney-James explained a comprehensive review of the bill's provisions had been conducted. If adopted the bill will substantially change the manner in which industrial insurance is regulated in the state. Because the proposal represents a fairly major departure from the existing regulatory scheme, the Department of Business and Industry was anxious to hear the views of the committee on a variety of substantive and procedural matters. Ms. McKinney-James encouraged the committee to ask direct and candid questions regarding the issue. As regulators they are charged with the responsibility for the implementation and oversight of the provisions. A.B. 552 affords the department its first real opportunity to offer testimony related to the issue. Ms. McKinney-James briefly explained presentations to be made. She asked the committee to provide the insurance administrators with a substantive and meaningful opportunity to participate in the process. She felt the administrators' role was critical to the success of the effort and asked the committee to work with them and the department. Ms. Alice Molasky, Commissioner of Insurance, distributed a handout outlining her presentation to the committee (Exhibit F). She noted the commissioner's responsibilities, per A.B. 552, were shown on page 2 of the document. It was noted this expands areas which are very familiar. Currently SIIS rates are reviewed, solvency of SIIS is investigated, and solvency of self insured employers is investigated. Also rates and solvency of casualty insurers are investigated. A.B. 552 expands these duties into the area of worker's compensation. Referring to the page numbers in the upper right hand corners of (Exhibit F), Ms. Molasky discussed Page 3, Rate Review, noting it contained two-thirds of three way. The first portion is the SIIS system. With the addition of casualty insurers, A.B. 552 offers a full array of choices to employers for insuring their worker's compensation. Currently the Insurance Division is responsible for self insured employers and if the associations are effective on July 1, 1995, they will be responsible for the regulation and certification of the associations of self insured employers. Third- party administrators play an integral part in worker's compensation insurance. Frequently third-party administrators are those who adjust claims for self insurers and private insurers in other states. Private carriers are certified by the Insurance Division with approximately 800 casualty insurers currently licensed in the state. Casualty insurance is a line within which worker's compensation is a kind. The bill opens the door to existing casualty insurers to market and take on the risks of worker's compensation. Private carriers are already licensed under Chapter 68A of N.R.S. Worker's compensation is defined under Chapter 681A as a kind of casualty insurance. With the implementation of worker's compensation availability for private carriers to market, the division will examine each insurer to see if they can bear the risks. This is to be sure an insurer does not take on more risk than they are financially capable of handling. The certification exists but the ability for the insurers to market worker's compensation will be preconditioned on their filing rates or filing a plan adhering to the advisory organization which is created in the bill. Referring to Page 4, Certification of Insurers, the commissioner is responsible for decertification of insurers. This ability currently exists for private carriers under prevailing law. A.B. 552 allows the Commission to suspend certification for private carriers. Two or more fines of $5,000 are imposed by the Department of Industrial Relations (DIR). Suspensions can be made for violations of N.R.S. 616, 647 under Section 109.6 of the bill, where there is a failure of any insurer to appropriately handle claims or pay the DIR assessment. The commissioner is responsible for approving each group or organization before it may be issued a policy in A.B. 552. This affords group insurance which is fully insured by a private carrier or SIIS. Referring to Page 5 of (Exhibit F), Advisory Organization, Ms. Molasky explained the bill creates an advisory organization which is defined under Section 3 and is the statistical agent of the insurer. Now approximately eleven licensed rate service organizations are used and the bill authorizes the insurance commissioner to select one of those to act as the single and sole advisory organization. It must be designated and licensed by the commissioner. Their duties are primarily provided in Section 153. They provide reliable statistics, collect and tabulate information, formulate a manual of rules for recording and reporting of data according to a uniform system of classification and develop an assigned risk plan which must be approved by the commissioner. Other rate functions may be performed. Chairman Krenzer asked about the number of advisory organizations. Ms. Molasky reiterated there are eleven such organizations. Chairman Krenzer asked who selects the organization and how the selection process is determined. Ms. Molasky informed the committee the bill states the commissioner shall designate the advisory organization. Chairman Krenzer asked if that works. Ms. Molasky thought it would probably entail RFP's. The process has not been examined. She explained Sections 154 to 167 which amend Chapter 686B of N.R.S. This chapter applies to rates of casualty insurers. Two mechanisms exist in the bill based primarily on competition. Under the bill competition is presumed to exist in the marketplace and the presumption will exist the day the bill becomes effective. In that case the procedure for rate review by the division would be for the insurer to use the rates and file them. This would apply to both SIIS and private carriers. Chairman Krenzer asked if the advisory organization would set rates for SIIS and if SIIS would be able to compete. Ms. Molasky stated SIIS would be able to compete in the market. The rates established by the advisory organization would be used by SIIS or an insurer could file their own rates. Mr. Hettrick, referring to Section 153, Page 61, Lines 17-20, of A.B. 552, regarding the advisory organization, expressed concern over the language "reasonably related", stating it seemed vague. Mr. Charles Knaus, Senior Actuary, Division of Insurance, explained the intent of the section was to enable the actuary to have accurate, high quality data, so confidence could be maintained in rate studies. He believed the wording to be purposely "loose" so flexibility in dealing with the advisory organization was allowed. Also input into data recording and the statistical plan will be allowed. A statistical plan is a set of rule for gathering data, report dates, mistake correction procedures, and other items. He felt the term "reasonably related" was acceptable because changes in the statistical plan can be implemented if the original plan needs to be altered. Mr. Hettrick appreciated Mr. Knaus' comments. He asked the same question on Lines 31-33, Lines 46-47, Page 62, Lines 20-24, and Page 63, Lines 21-23. Ms. Molasky stated at the end of a year the responsibility of the commissioner would be to examine the rates to determine by hearing if competition exists. Mr. Hettrick asked why the determination of the rates being competitive was being made. He asked why the market wasn't setting the rate, and why they could not produce the rate they want to produce. The insurers will be checked out from the insurance industry side, verifying assets, verifying abilities, and other things. He asked if this was done currently for auto carriers. Ms. Molasky answered yes. Mr. Hettrick asked if we set all their rates. Ms. Molasky answered yes. Requests for rates or rate changes are submitted and the commissioner either approves or disapproves them. Mr. Knaus stated the rates stay in effect until the company chooses to amend them. Chairman Krenzer asked why it would expire in a year. Mr. Hettrick stated the information expired in a year. Ms. Molasky explained the determination of competition in the market expires in a year. She noted there are several amendments for Chapter 686B. Mr. Knaus reviewed them and found them to be well done. She requested the deputy attorney general, who has worked with hearing and rate processes, to determine if there is no adverse legal effect regarding regulation of other types of insurance. Mr. Anderson observed in Section 157 the bill required insurers to come to the commissioner if changes are required. Ms. Molasky stated this was so even when competition is presumed in the marketplace. Even with a use and file provision, it means changes would be reviewed by the agency and could be disapproved. Mr. Anderson asked if any insurance carrier could change the conditions of their rate holders without having department review. Ms. Molasky said Mr. Anderson was correct. Mr. Anderson asked if what was being asked was out of the ordinary relative to a normal insurance carrier. Ms. Molasky said the mechanism here is different. All auto rate requests are reviewed for prior approval before use. Chairman Krenzer asked if it was easier if this went through the advisory organization than through the insurance commissioner. Ms. Molasky explained the advisory organization rates must also be approved by the commissioner. Mr. Hettrick asked if the advisory organization would forward filings to the insurance commissioner. Also he asked if life and casualty insurance had an advisory organization. Ms. Molasky said there were rate service organizations, but not a single one. Mr. Hettrick asked if the advisory organization would collect information from carriers and forward it to the insurance commissioner. Ms. Molasky explained the advisory organization collected nationwide statistical data. Mr. Hettrick, discussing Section 157, asked if all required documents listed had to be obtained from carriers. Mr. Knaus stated Mr. Hettrick was correct. The rate service organizations are oriented toward property and casualty currently. He was unaware of any organization dealing with life insurance. All licensed rate service organizations have members and subscribers who file their rules, rates and forms on behalf of those members and subscribers. By law every private carrier wishing to do worker's compensation will be effected to some extent by the advisory organization in A.B. 552. Referring to Sections 154 and 157, Mr. Knaus explained licensed rate service organizations have evolved over the years. In the past exact rates the members used were filed. Recently rate service organizations have filed advisory rates with the companies adding their own expenses to them. Section 154, Paragraph 3 addresses this issue. In Section 157 the advisory organization may be filing rates including expenses. He noted it is possible to read the two sections as being in conflict. Mr. Hettrick asked if casualty carriers can currently choose the rating organization of their choice. If changes are desired, it is filed through the organization which sends it to the insurance commissioner. Mr. Knaus said they could also file it on their own with the insurance commissioner. They do not have to belong to a rate service organization. Mr. Hettrick noted what is being established now is to have one particular rate service organization. Mr. Knaus stated this was the starting point for all worker's compensation rates in Nevada. Mr. Hettrick said a monopoly would be set. Mr. Knaus explained there are later sections in the law allowing the insurance companies to deviate from rates recommended by the advisory organization. Mr. Hettrick asked if filing would still have to be done. Mr. Knaus agreed Mr. Hettrick was on the right track when saying the organization would contact every private carrier and SIIS and will tell every private carrier and SIIS what information is needed. The information will be consistent with the statistical plan. He agreed the advisory organization will be a monopoly under this law. Mr. Knaus felt it would be efficient in this case. Mr. Glen Shippey, actuary, Division of Insurance, referred the committee to Section 162, Page 63, Lines 34-36, "an insurer may adopt by reference with or without a deviation the rates or supplementary rate information filed by any other insurer". This allows an insurer, private carrier or SIIS, to file their own rates which can deviate or not from the advisory organization or another private carrier's rates on file. Mr. Anderson, referring to Section 162 on Page 63, Lines 35-36, asked if the intent was to clarify that a single third party insurer was not to be the sole monopoly in the system. He explained he was asking if the insurance commissioner would have a high level of concern if this turned into a monopolistic system. Mr. Knaus said if one company had a disproportionate market share it could be a problem. Mr. Anderson asked what a disproportionate market share would be considered. Mr. Knaus stated there is nothing in law on the issue. If they had a disproportionate market share and did not have the financial and other business ability to service the business properly a problem would exist. Mr. Anderson asked if the determination would be made by the insurance commissioner. He asked if the language was included so documentation would be provided to the insurance commissioner so the commissioner could make such a determination. Mr. Knaus said he thought it was working toward that. Ms. Molasky said market share was tracked with auto insurers and data was maintained. Referring to (Exhibit F), Page 7, Competition, Ms. Molasky noted the finding of "no competition" requires a hearing and order by the commissioner. This is contained under Section 161 of the bill. New to Nevada is the assigned risk plan, Page 8 of (Exhibit F). Provisions in Section 158 of A.B. 552, the intent is to make certain worker's compensation insurance is available to all employers. Section 158 states an insurer is not required to insure any particular employer. The advisory organization's responsibility is to submit a plan for assigned risk to the insurance commissioner for approval. These risks would be apportioned to insurers and uniformed rates would be established for all assigned risks in the same class. Under Sections 168 and 169, the commissioner may conduct examinations on the apportionment of those risks assigned under the plan. Mr. Ernaut said one of the problems is it has been delineated how assigned risk would be dealt with for private insurers but not how it will be handled within the actual system. He asked if private insurers are assigned a proportion of the high risks. Ms. Molasky said the risks which would be apportioned would be determined under the plan prepared by the advisory organization. Mr. Ernaut said the language in the bill does not deal with the system itself, only with private insurers. Mr. Knaus noted the word "insurers" was defined previously to include the system in Section 41, Subsection 5 and Section 149. Mr. Ernaut asked if the intent was for SIIS to be able to refuse companies. Ms. Molasky replied affirmatively. This is stated in Section 158. Chairman Krenzer asked for an explanation of lines 31-33 regarding equitable apportionment. Mr. Knaus explained it in terms of the way the current automobile assigned risk plan works for private passenger auto insurance. There is an office in San Francisco called the Western Association of Automobile Insurance Plans. They collect information from all the licensed insurance companies in Nevada and other states. If a certain company insures twenty percent of the market, according to reports, that company would get twenty percent of the insureds who do not qualify for voluntary insurance through an insurer. A rotating list exists as to how the assignments are made. If the insurer is small and covers only a few cars in a given state, an assignment may be received every three or four years. For a long time the automobile assigned risk plan in Nevada was not large, approximately twelve assignments per month. It is possible this assigned risk plan will not be big either. This is currently an unknown. It is based on the volume of business done over a certain time period. Mr. Hettrick, referring to Section 169, Line 34, suggested removing the word "reasonable". Mr. Knaus said insurers and advisory organizations are examined and sometimes they dispute the bills. Ms. Molasky stated there was a standard rate set by the National Association of Insurance Commissioners. Examinations are conducted primarily by independent contractors. Chairman Krenzer asked if there was a definition of "reasonable". Ms. Molasky, referring to Section 169, states in lieu of any examination the commissioner may accept the report of examination by the insurance department of another state. This is because the majority of the insurers, if not all, are insurers who are not domiciled in the state of Nevada. Discussing (Exhibit F), Page 9, Examination and Investigation of Insurers, Ms. Molasky noted the solvency requirement and the duty of the commissioner to examine and investigate solvency as set forth in Section 53.2. It also appears throughout the various provisions of Chapter 616 with respect to the self insured employers. Also examination responsibilities also exist under Title 57 of N.R.S. The records of prospective self insured employers are examined. In Section 169 the same provision allows the commissioner to examine any insurer, the advisory organization itself or the assigned risk plan when necessary. Chairman Krenzer asked if Section 53 would allow for the division to determine and declare SIIS insolvent. Ms. Molasky explained SIIS would be investigated but it had nothing to do with a declaration. She explained the authority already existed. Chairman Krenzer asked if the authority was used. Ms. Molasky recounted how a financial examination of SIIS had occurred in February, which was submitted to the legislature. Ms. Molasky, referring to Pages 10 and 11 of (Exhibit F), explained the various types of hearings undertaken before the commissioner under A.B. 552, including hearings regarding private carriers. She explained the bill's fiscal impact was being examined. It is projected ten new positions would be required. However, the positions would not be required immediately. They are projected from 1995 to 2000. Mr. Hettrick, referring to Sections 179 and 180, Page 68, Line 36, asked why the language "except for rates for industrial insurance...". He did not understand why there was an exception for industrial insurance, when the clause seemed reasonable for all groups. He also inquired about Page 69, Line 6. Ms. Molasky stated this area was one she wished to have the deputy attorney general examine. Mr. Nolan, referred to Section 180, Page 69, Section 4, Line 11, which discusses how the rates may contain an allowance permitting profit and indicates the rate of profit may be determined by the commissioner. He asked why the profit which can be made is being determined. Also he felt it was discriminatory to set the rate of profit for one agency at one rate and for another insurer at another level. He wondered if it should not be the same for all involved. Mr. Knaus explained there are two ongoing rate cases which have a bearing on the interpretation of permitting a profit which is not unreasonable in relation to the riskiness of the class of business. One insurance company writes at a ratio of premiums to surplus, which is one way of measuring the amount of risk of business of 2:1. The company, in their rate formula, decided 8% to 9% was a reasonable profit. Another company writes at a ratio of 3:1 which is much more risky in terms of something going wrong on a larger book of business. The Division of Insurance has determined they would allow that company a higher profit margin than the company writing at 2:1. Some of the issue is how one company's profit might relate to another. The way the division interprets it, all companies would not be required to operate at the profit margin. The law allows the division to examine some of the operating characteristics of the companies and allow some companies a higher profit margin than others. Mr. Nolan asked what a 3:1 or 2:1 insuring ratio meant. Mr. Knaus explained companies have a certain amount of net worth on an accounting basis, assets minus liabilities equals net worth. In insurance jargon the word "surplus" is used interchangeably with net worth. The amount of business written by an insurance company can be measured by written premium and the ratio of written premium to surplus is one way of measuring the relative riskiness a business assumes in its operations. Having every insurance company not have the same profit margin is correct. Mr. Hettrick asked if the word "minimum" could be inserted between "insurers" and "profit" on Line 14. He understood the concern of the division regarding minimum profit. The idea is to be sure companies are generating enough income to be solvent. What the bill says, however, is the division can determine their total profit. Mr. Knaus stated he felt the idea was reasonable. Ms. Molasky explained there was a decision made by the Ninth Circuit court stating insurers are entitled to a reasonable return on equity. Mr. Shippey said the specific language for industrial insurance is an attempt to define "reasonable". Ms. Molasky said the commissioner already has a mechanism to determine and trigger insolvency of private carriers. It has been outlined for foreign insurerers, which are those not domiciled in the state, in N.R.S. 680A.190, Subsection 2, which mandates the insurance commissioner to revoke or suspend the certificate of authority of an insurer which has been declared insolvent in his own state of domicile. That declaration by a foreign jurisdiction requires the decision of a court of competent jurisdiction. Regarding a domestic insurer, the operative provisions are in N.R.S. 696B, which enable the commissioner to take a domestic company under receivership and to proceed with rehabilitation or liquidation. Liquidation would be under the order of district court. When the order is issued by the court or the commissioner revokes the certificate of authority of a foreign insurer, the Nevada Insurance Guaranty Association enters the picture. She asked the committee to reserve suggested amendments until discussions could be held with the deputy attorney general. Referring to Page 13 of (Exhibit F), Ms. Molasky discussed regulations to be adopted by the commissioner. The commissioner is also required to make two reports. One is under Section 157, Subsection 2 and the other is under Section 196 requiring monthly reports to the Legislative Counsel Bureau. The provisions for regulations are not orders. The starting time for implementation of the bill's provisions is mandated. Section 195 requires the commissioner to adopt a regulation to establish a schedule for licensing of the advisory organization, the review of initial filings by SIIS and private carriers and for rate filings by private carriers and SIIS. Under Section 15 the commissioner must prescribe the basic contract of insurance which would be used by private carriers. Under Section 76 the commissioner would be responsible for regulations on the premiums for sole proprietorships. General regulations could be adopted under Chapters 616 and 617, pursuant to Section 138 of the bill. Regulations for the assigned risk plan are enabled by Section 158. The qualifications for groups insured by SIIS and private carriers is under Section 24. These are the groups which would be insured by a private carrier or SIIS. Mr. Anderson, discussing Section 196, expressed concern because of the potential for raising the political questions involved, which all have been trying to avoid if rate setting comes before the legislature. He asked if a report was issued or a preemptory challenge as to whether the rates are fairly or unfairly set. The question is getting SIIS out of the political arena. Ms. Molasky said it would be extremely burdensome for the commissioner. Section 195, with the requirement to adopt a regulation within two months under Chapter 233B, requires a thirty day notice. Thirty days would be all the time available to establish a regulation. She stated she was troubled over monthly reports. Mr. Carpenter suggested an amendment requiring a five member board of directors with one labor representative, one management representative, one insurance qualified representative, and two public representatives. Mr. Nolan commented when there was one member representing any one particular party, three people would be required for a quorum. Sometimes that particular number is problematic. Chairman Krenzer suggested the same size board as in three way only as an oversight board and not an advisory board. Mr. Ernaut felt the lay members of the board should be policy holders. Mr. Ron Swirczek, Administrator, Division of Industrial Relations (DIR), introduced three people in Las Vegas. There were Helen Aberle, Assistant Administrator, Las Vegas office, Karlin Dunlop, Chief Administrative Officer, Industrial Insurance Regulation Section, and Bill Overle, District Manager, Industrial Insurance Regulation Section in southern Nevada. He also introduced Jan Meyers, District Manager, Industrial Insurance Regulation section in northern and central Nevada. Mr. Swirczek distributed two handouts, a functional overview (Exhibit G) and Additional Duties Under A.B. 552 (Exhibit H). He explained the functions of the Division of Industrial Relations which include promoting and regulating workplace safety, and the timely and accurate delivery of benefits to injured workers. Page two of (Exhibit G) contains a functional overview of all current duties of the division to insure the timely and accurate delivery of benefits. Mr. Swirczek discussed what A.B. 552 would do in terms of additional regulatory responsibilities. The division broke it down on the effects or impacts on injured employees and what additional responsibilities the division would have, additional responsibilities in insurer oversight, employer oversight, hearings and regulations. The average employed workforce in Nevada is 750,000 employees. There are approximately 38,000 employers being monitored. There are approximately 200 self insured employers, plus SIIS. By way of comparison, in the 1993 legislative session, there were 96 self insured employers plus SIIS. The self insured employers cover approximately 40% of the employed workforce. Mr. Swirczek discussed the responsibilities of DIR for injured employees. Section 13 contains a provision stating if unreasonable delay or denial of benefits to an injured worker within thirty days after the accident has been reported to the insurer the administrator may order a three times penalty to be delivered to a claimant. Mr. Swirczek said he had been notified approximately fifty private carriers will be coming into the state. The benefit penalty would ensure everyone understood the rules. Regarding insurer oversight, Section 10, Mr. Swirczek noted the addition of private carriers meant additional audit responsibilities for the division. N.R.S. 616.187 requires a compliance audit on every insurer at least once every three years. With the addition of fifty additional insurers in different locations and having different procedures, it is very time consuming to accomplish. Also, notification from private carriers on changes in coverage, Section 10, any changes or cancellations by employers require notification to DIR. Discussing certification of private carriers, Mr. Swirczek noted DIR is now given the authority to certify along with the insurance commissioner. He discussed the process to accomplish certification. Section 17, notification from insurers or employers on cancellation of insurance, requires DIR to be a repository or data base for all employer activity. Section 21 would involve DIR in resolution of disputes between insurers. Section 22 involves suspension of certificates of private carriers and orders prohibiting issuance of new policies. This is a new function for DIR. Section 53 requires DIR to certify insurers and suspend their certificates. Section 58 requires DIR to determine if insurers provide adequate facilities for claim administration and file retention. Section 81 requires DIR to be a repository for reports by all insurers of accidental injuries, occupational diseases, disposition of claims, reserves and payments made. An annual report would be issued giving all the information. Section 96 requires DIR to consider fifty more insurers to consider within the subsequent injury fund process. Mr. Swirczek discussed the employer oversight changes of (Exhibit H), noting some sections would require new monitoring and tracking systems. Mr. Swirczek discussed the new hearing responsibilities of DIR. He then discussed regulations and the new responsibilities of DIR involving them. Mr. Anderson, regarding employer oversight, asked if the duties outlined were currently being done by someone else. Mr. Swirczek answered affirmatively. Mr. Anderson asked about protocols noting they were the responsibility of DIR. Mr. Swirczek stated copies of the protocols would be delivered to the committee. They are the standards of care adopted by the division. They were adopted in 1992 and 1993. The fiscal note will be brought to the committee regarding responsibility shifts from SIIS. The cost will involve shifting employees from SIIS to DIR. Mr. Hettrick discussed possible budget adjustments for DIR to pay for the costs of added work with private carriers. Mr. Swirczek noted most of the things would not occur until 1999. It would be justified to be realistic. Mr. Hettrick, referred to Page 43, Section 107, Lines 27 and 32, discussing penalty increases, indicated he wished to discuss the tenfold increase in the penalty. Mr. Nolan brought a bill draft request before the committee for introduction. BILL DRAFT REQUEST - 53-2006 Revises provisions regarding workers' compensation fraud. ASSEMBLYMAN ANDERSON MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. 53-2006. ASSEMBLYMAN NOLAN SECONDED THE MOTION. THE MOTION PASSED UNANIMOUSLY. There being no further business to come before the committee, the meeting was adjourned at 9:07 p.m. RESPECTFULLY SUBMITTED __________________________ Barbara Prudic Committee Secretary APPROVED: _______________________________ Saundra Krenzer, Chairman ______________________________ Dennis Nolan, Chairman Assembly Committee on Labor and Management May 9, 1995 Page