MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session May 9, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:30 a.m., on Tuesday, May 9, 1995, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Sue Lowden Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator John B. (Jack) Regan Senator Joseph M. Neal, Jr. STAFF MEMBERS PRESENT: Beverly Willis, Committee Secretary Scott Young, Senior Research Analyst OTHERS PRESENT: Cecilia Colling, Assistant General Manager, State Industrial Insurance System (SIIS) Harvey Whittemore, Lobbyist, Nevada Resort Association Doug Dirks, General Manager, State Industrial Insurance System (SIIS) Jan Myers, Northern District Manager, Division of Business and Industry (DIR) Bob Ostrovsky, Lobbyist, Nevada Resort Association Sam McMullen, Lobbyist, Nevada Self-Insured Association Ray Bacon, Lobbyist, Executive Director, Nevada Manufacturers Association Daryl Capurro, Lobbyist, Executive Director, Nevada Franchised Auto Dealers Association and Nevada Motor Transport Association Pam Miller, Lobbyist, Government Affairs Director, Nevada Chapter, Association of General Contractors Paul Aakervik, Senior Account Executive, W. R. Gibbens Company Scott Craigie, Lobbyist, Nevada Resort Association John Madole, Lobbyist, Executive Director, Nevada Chapter, Association of General Contractors David Howard, Lobbyist, Legislative Director, Reno/Sparks Chamber of Commerce Lenard Ormsby, General Counsel, State Industrial Insurance System (SIIS) The first order of business by Senator Townsend was to open the hearing on Senate Bill (S.B.) 458. SENATE BILL 458: Makes various changes to provisions relating to industrial insurance. Cecilia Colling, Assistant General Manager, State Industrial Insurance System (SIIS), presented Exhibit C and proceeded with her explanation. Harvey Whittemore, Lobbyist, Nevada Resort Association, and Doug Dirks, General Manager, State Industrial Insurance System (SIIS), assisted Ms. Colling. Senator Townsend, Senator Neal, Senator Shaffer and Mr. Dirks continued examining Exhibit C. Senator Neal and Ms. Colling then examined Exhibit D, with Ms. Colling presenting explanation to questions posed by Senator Neal. Senator Townsend verified that the Governor and SIIS are recommending language noted in Exhibit D. Jan Myers, Northern District Manager, Division of Business and Industry (DIR), came forward to testify, presenting Exhibit E. Ms. Myers preceded with an explanation of Exhibit E. According to Ms. Myers, Exhibit E shows the insurers what they should be paying based on the average monthly wage. At this time, Bob Ostrovsky, Lobbyist, Nevada Resort Association, advanced with his views. Mr. Ostrovsky voiced concerns pertaining to changes brought forth by Ms. Myers. However, he went on to note he is comfortable with the agreement of intent not to change benefits for anyone, only clarification of what appropriate numbers should be. Senator Townsend, then opened discussion on subsequent injury fund boards; establishing of boards for administration of subsequent injury funds for self-insured employers; subsequent injury fund and trust for the groups; American Medical Association (AMA) Guides; and the solvency surcharge. Senator Neal had questions concerning the subsequent injury fund. Ms. Myers stated: Currently, in the subsequent injury fund, the claimant receives all benefits and the employer, in the case of the self-insured, comes to DIR to try to be reimbursed the cost of the claim. Right now, as the statute stands, they appeal to the appeals officer. The claimant really is not a party to this. Sam McMullen, Lobbyist, Nevada Self-Insured Association, came forward to testify on the subsequent injury fund. Mr. McMullen gave his opinion regarding the appeals system. Once again, Mr. Ostrovsky came forward to testify, this time on AMA Guides. Mr. Ostrovsky expressed concerns over effective dates on this section. Next to testify, Ray Bacon, Lobbyist, Executive Director, Nevada Manufacturers Association, defined his concerns. Mr. Bacon noted his concerns pertaining to group self-insureds until such time as a formula on the solvency surcharge is developed, noting that only happens with the interim committee. Referring to Exhibit F, the solvency surcharge, Senator Townsend interpreted: It is encompassing anyone, whether they be self- insured, they remain in the system, they went out as a group, or they went out as a self-insured during that time frame. In answer to Mr. Bacon, Senator Townsend reiterated: Everyone is covered by the surcharge. Every single employer. Whether they stay in the system; they come back to the system; they were grouped out; they were individualed out; they were individualed out and came back and went back out as a group, because every single employer from July 1, 1981 until July 1, 1995, were people that were not charged the appropriate premium. Further dialogue took place between Mr. Bacon, Senator Townsend and Mr. Whittemore, with Mr. Whittemore stating: With respect to the class of employers covered by the surcharge, I'd like to put on the record our understanding, I think it's consistent with Chairman Townsend's........ It depends upon the formula this committee develops that picks out the appropriate starting point, or any ending point of when a solvency surcharge begins...... I want to make it clear on the record it's my understanding it's not the intent to exclude any self-insured employer from the potential of a surcharge being applied against them. Senator Townsend, with clarification for Senator Neal, stated: At no time is there any discussion about a tail. .....We do not have enough numbers within the system, or outside the system to tell you what anybodies tail is; either in the past or in the future. We are looking at the commissioner of insurance analysis that for 14 years we did not collect enough premium to cover our expenses. That total was $1.46 billion. At no time has there been a discussion on tails, because you can't define a tail based on the data we have. That's the problem we face. Senator Neal and Mr. Whittemore continued a review of the solvency surcharge and a formula, to determine the solvency surcharge. Senator Townsend noted: The committee will develop and approve any formula for use of the insurance commissioner, who will then use the solvency definition. At that point based on the solvency definition, if the insurance commissioner decides it should be triggered, gives the authority, at that point, to the general manager to make the assessment. Senator Neal again voiced concerns relating to the subject of the tail. Senator Townsend responded: The issue there is twofold. Number 1 being, we have to protect at all costs, any potential in the future to start selling the first dollar of assets. That's what the surcharge is about. The development of a formula is very simple. It must be in place so that can be triggered in case of emergency. The second issue has to do with the perception of a tail. I believe it's all the premium payers' perception, when they pay for their insurance, they are paying for their insurance, for that's all coverage. That's why there isn't a discussion of that. There is another reason not to address it. Because we don't have the numbers to be able to identify tails assigned to each individual company. Mr. Bacon, Mr. Dirks and Senator Neal proceeded with a discussion concerning what might activate the liquidation of assets. Mr. Dirks noted, "The concern being expressed, as I understand it, is any time the system (SIIS) sells an asset, we would trigger the solvency provisions of this bill." Senator Neal noted the key to implementing the solvency surcharge is when SIIS has to sell some of its assets. Mr. Dirks concurred with Senator Neal's reckoning that if SIIS anticipates insolvency and the insurance commissioner chooses to make that type of decision, the solvency surcharge could be activated. Mr. Dirks noted there will be a number of variables connected with this decision. Senator Neal voiced a number of concerns over the method of activation as it concerns the solvency surcharge. Daryl Capurro, Lobbyist, Executive Director, Nevada Franchised Auto Dealers Association and Nevada Motor Transport Association, reiterated and concurred with concerns expressed by Mr. Bacon. Mr. Capurro also voiced concerns over blockages to effective implementation allowing self-funding of associations as of July 1, 1995. Mr. Capurro continued with issues involved with the activation of a solvency surcharge. Pam Miller, Lobbyist, Government Affairs Director, Nevada Chapter, Association of General Contractors, testified next, noting she concurs with Mr. Bacon and Mr. Capurro and that bonding will be a particular hardship for contractors. Senator Lowden stated it is her understanding that self-insurers have a bond or some other type of financial backing in order to retain their status outside SIIS. Senator Lowden went on to note that group self-insureds will need that kind of bonding. She went on to clarify noting a separate bond will be needed for the surcharge, asking if it is felt this is an unfair situation. Mr. Bacon stated his organization did not think this bond is unfair, simply unnecessary as long as a companies maintain a viable business in Nevada. Senator Lowden, Senator Neal, Ms. Miller, Mr. Bacon and Mr. Capurro continued discussing this issue. Mr. Capurro, Mr. Bacon and Ms. Miller concurred in their opinion that they do not feel a bond is necessary. Senator Townsend joined the discussion. At this time Paul Aakervik, Senior Account Executive, W. R. Gibbens Company, came forward to testify, giving suggestions on how to resolve the "bond" situation. Mr. Whittemore came forward, once more, with his views on bonding. Senator Townsend and Mr. Whittemore continued with dialogue concerning the value of a bond for certain groups along with the severity of penalties for these groups if a solvency surcharge is not implemented. At this time, Scott Craigie, Lobbyist, Nevada Resort Association, joined the discussion, giving his views on a bond mechanism. Senator Townsend stated, "The system can go against the bond to recoup the solvency surcharge..... That's all I'm trying to get here, to see that somebody is going to be responsible for that surcharge and whether it's a fining mechanism and it's attached to each individual employer." Mr. Whittemore concurred, stating "The function of the bond is to insure payment." John Madole, Lobbyist, Executive Director, Nevada Chapter Association of General Contractors, stated he feels the bond is unnecessary, as self-insurers, if the solvency surcharge is not paid, will be not be allowed to self-insure. Senator Neal noted the surcharge will not be operational until a formula is approved by an interim committee. Senator Neal and Mr. Whittemore continued their deliberation and sharing their concerns on the formula for a solvency surcharge. Senator O'Connell, Ms. Colling and Mr. Madole pursued various items of concern brought forth by Mr. Madole. David Howard, Lobbyist, Legislative Director, Reno/Sparks Chamber of Commerce, addressed the committee next. Ms. Colling addressed concerns voiced by Mr. Howard over premium payments. Joining discussion between Ms. Colling and Mr. Ostrovsky, Lenard Ormsby, General Counsel, State Industrial Insurance System (SIIS), brought his perspective to the conversation. Addressing potential problems pertaining to a situation with regard to rate filing, Senator Neal, Ms. Colling, Senator O'Connell and Senator Townsend held a detailed discussion. Senator O'Connell asking for verification that any rate filings will be public was assured by Senator Townsend this is the case. There being no further business, the meeting was adjourned at 11:00 a.m. RESPECTFULLY SUBMITTED: Beverly Willis, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor May 9, 1995 Page