Bill Summary for Bill Number HB10-1356

Date: 04/06/2010

Final
BILL SUMMARY for HB10-1356

HOUSE COMMITTEE ON BUSINESS AFFAIRS AND LABOR

Votes: View-->	Action Taken:
Moved amendment L.004 (Attachment A). The motion Moved to postpone House Bill 10-1356 indefinitely. Moved to refer House Bill 10-1356, as amended, to	Pass Without Objection PASS FAIL

09:57 AM -- House Bill 10-1356

Representative Ryden, prime sponsor, presented House Bill 10-1356 concerning enactment of the "Workers' Compensation Policyholder Protection Act of 2010", and, in connection therewith, requiring the distribution of excess surplus funds held by Pinnacol assurance to Pinnacol assurance policyholders and limiting the insurance commissioner's discretion with respect to the prior approval of workers' compensation pure premium rates filed by a rating organization. Recommended by the Interim Committee to Study Issues Related to Pinnacol Assurance, HB10-1356 requires Pinnacol Assurance to distribute surplus holdings in excess of 800 percent of risk based capital (RBC) to policyholders. RBC is the amount of required capital that an insurance company must maintain based on the inherent risks in the insurer’s operations and is how the Commissioner of Insurance measures solvency. The bill also directs the commissioner to choose the lowest workers' compensation pure premium rate recommended either by a rating organization or by the independent actuary employed by the commissioner. The commissioner may choose a different rate, but must justify the decision in the final agency order. Prior to a public hearing on rates, the commissioner will post the recommendations and supporting materials on the Division of Insurance website.

10:00 AM

Representative Ryden talked about the interim committee discussions that took place over the summer and explained why the bill was necessary. She distributed Amendment L.004 (Attachment A). The amendment requires the insurance commissioner to conduct a rate review every year and allows Pinnacol to retain 1000 percent of RBC for its surplus. Representative Ryden also talked about Pinnacol's reserves.

10:04 AM -- Jeff Tetrick, Chief Financial Officer, Pinnacol Assurance, testified against the bill and distributed a handout (Attachment B). He talked about some of the terms used throughout the bill, including RBC and the issues he has with the bill. Mr. Tetrick talked about the percentage of RBC in the bill which is set at 800 percent and explained that there is no actuarial basis for the number and discussed how Pinnacol currently handles its surplus. He talked about the statutes that regulate Pinnacol. Mr. Tetrick talked about the dividends that have been returned to policyholders and the surplus Pinnacol holds.

10:15 AM

Representative Soper asked whether Amendment L.004 makes the bill more palatable. Mr. Tetrick said he is still concerned that as risks change, they would still be limited in what they can do in response. Representative Liston asked Mr. Tetrick to elaborate on the effects the recent economy has had on Pinnacol. Mr. Tetrick said currently they are concerned about medical inflation and the federal health care legislation and how it would effect Pinnacol. Representative Liston asked whether the bill could cause a downward spiral and cause them to lose market share. Mr. Tetrick responded. Representative Bradford explained the types of workers' compensation claims she sees in her business and her experience with them as a policyholder of Pinnacol and asked where the 800 percent RBC came from. Mr. Tetrick said he did not know. Representative Bradford asked whether he was involved in forming that number. Mr. Tetrcik said he was not. Representative Bradford asked how many policyholders have received dividend checks. Mr. Tetrick talked about the percentage of policyholders that have received dividends and the amount Pinnacol has returned in dividends. Representative Liston asked why the bill is not applicable to other workers' compensation companies. Mr. Tetrick said he did not know.

10:23 AM -- Toni Gagliardi, representing the National Federation of Independent Business, testified against the bill. He said he did meet with the bill sponsor to discuss how the 800 percent was arrived at and he found out the figure was arbitrary. Representative Liston asked whether businesses have asked for this bill and more dividends. Mr. Gagliardi responded. Representative Soper asked about Amendment L.004 and whether it makes the bill more palatable. Mr. Gagliardi responded explaining that insurance is complicated and talked about the negative effects the bill would have due to an arbitrary number being set. Representative Bradford asked whether other companies have been the target of similar legislation. Mr. Gagliardi said he is not aware of any or any other state that regulates insurance in this manner. Representative Liston asked about the dividend policy of Berkshire Hathaway.

10:30 AM -- Michael Gifford, representing the Associated General Contractors of Colorado, testified against the bill. He talked about commercial construction companies and the importance of predictability in rates to them, along with a Mod rate. He said if rates are set too low and expenses too high, you cannot bid on certain projects. Mr. Gifford said Pinnacol does a very good job setting the rates so the companies don't have changes in the Mod rate.

10:33 AM

Representative Soper asked whether the Mod rate varies from company to company. Mr. Gifford explained that the Mod rate is based on money coming in and expenses going out.

10:34 AM -- John Berry, representing the Workers' Compensation Coalition, testified in support of the bill. He talked about the discussions between Pinnacol and the Governor about making the company private for $330 million. Mr. Berry said he believes the $330 million should be returned to the policyholders. Representative Soper asked a question.

10:42 AM -- John Postolowski, Scott Lloyd, and Patrick Knepler, representing the Colorado Division of Insurance, testified on the bill. Mr. Knepler talked about the surplus cap. Representative Stephens asked whether the division weighed in on the 800 percent. Mr. Lloyd said he is not aware where the number came from. Representative Liston asked why the bill only applies to Pinnacol. Mr. Postolowski responded. Representative Liston commented on the bill and asked again why the bill only applies to Pinnacol. Mr. Postolowski said Pinnacol is statutory and not the same as other companies. He talked about a not-for-profit health insurance provider where this happened before where the company had an excess surplus and the insurance commissioner made the company provide dividends. Representative Rice stated current law allows the insurance commissioner to adjust surplus on a case by case basis and questioned the need for a formula as proposed in the bill. Mr. Knepler responded. Representative Rice asked a follow-up question regarding the need for the legislation. Representative Soper asked whether the division supports Amendment L.004. Mr. Knepler said the division supports the bill with the amendments, including Amendment L.004.

10:53 AM -- Robert Ferm, representing the American Insurance Association, addressed Amendment L.004. He suggested some additional changes to the bill. Mr. Ferm said they support Amendment L.004.

10:57 AM

Representative Ryden gave some closing remarks on the bill. She talked about the 1000 percent of RBC and said the number is not arbitrary, rather, it is an average of other workers' compensation companies' RBC. She talked about the differences between Pinnacol and other worker's compensation companies. Representative Ryden stressed that Pinnacol should be reviewed on a yearly basis.


BILL:	HB10-1356
TIME:	11:01:36 AM
MOVED:	Gagliardi
MOTION:	Moved amendment L.004 (Attachment A). The motion passed without objection.
SECONDED:	Soper
		VOTE
	Balmer
	Bradford
	Casso
	Kerr A.
	Liston
	Middleton
	Priola
	Soper
	Stephens
	Gagliardi
	Rice

Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: Pass Without Objection

11:03 AM

Representative Priola commented on the bill and talked about the issues with under reserves in other industries. He said he does not want to push Pinnacol to insolvency if a catastrophic event should occur. Representative Liston commented on the bill and talked about the effects the bill would have on future dividends. He also talked about the fact that policyholders did not come and speak in favor of the bill. Representative Liston talked about Bershire Hathaway, Inc., which does not pay dividends and its success. Representative Soper said he struggles with the bill and talked about his experience sitting on the Pinnacol board and said with the amendment he is in support of the bill. Representative Bradford also commented on the bill and talked about current statute and the purpose of the statute. Representative Rice also commented on the bill and talked about the history of workers' compensation in Colorado and talked about Pinnacol's success and expressed his concerns placing a formula in statute and said he feels the division already has the authority to adequately regulate the company.


BILL:	HB10-1356
TIME:	11:09:48 AM
MOVED:	Gagliardi
MOTION:	Moved to refer House Bill 10-1356, as amended, to the Committee of the Whole. The motion failed 4-7.
SECONDED:	Soper
		VOTE
	Balmer	No
	Bradford	No
	Casso	No
	Kerr A.	Yes
	Liston	No
	Middleton	Yes
	Priola	No
	Soper	Yes
	Stephens	No
	Gagliardi	Yes
	Rice	No

Not Final YES: 4 NO: 7 EXC: 0 ABS: 0 FINAL ACTION: FAIL


BILL:	HB10-1356
TIME:	11:10:35 AM
MOVED:	Balmer
MOTION:	Moved to postpone House Bill 10-1356 indefinitely. The motion passed 8-3.
SECONDED:	Stephens
		VOTE
	Balmer	Yes
	Bradford	Yes
	Casso	Yes
	Kerr A.	No
	Liston	Yes
	Middleton	Yes
	Priola	Yes
	Soper	No
	Stephens	Yes
	Gagliardi	No
	Rice	Yes

Final YES: 8 NO: 3 EXC: 0 ABS: 0 FINAL ACTION: PASS