Aiming to Improve Alaska

A small state like Alaska sometimes has trouble convincing the property/casualty insurance industry of creating opportunities in its state. So Alaska Director of Insurance Linda Hall relies on her experiences as a former high school English teacher to school others on the importance of a competitive market, albeit a small one.

At the recent National Association of Insurance Commissioners in Washington, D.C., Hall sat down with Insurance Journal Vice President of Editorial Content Andy Simpson to discuss her desire to attract new insurance opportunities to the area. Yet in doing so, Hall said she does not forget to balance the needs of insurance companies, brokers and consumers.

The experience Hall gained working as a former broker gave her a unique understanding of how issues affect the various stakeholder groups. So even when tackling such controversial topics as workers’ comp reform, credit scoring and producer licensing laws, industry insiders say Hall most often maintains the respect of all sides of the industry. The following is excerpted from the conversation Simpson had with Hall, and illustrates her diplomacy.

Insurance Journal: How did you get from being a high school English teacher to being Alaska insurance commissioner?
Linda Hall: I changed careers, obviously. I was looking for something new to do. My husband owned an insurance agency and convinced me to try that business. So I actually was a commercial broker for 18 years. I had industry background before I actually became a regulator.

IJ: Do you think that role as a broker helps your role as regulator?
Hall: Absolutely. I understand the industry. I understand how it works and that has made a tremendous difference in my ability to understand issues, how various issues impact the various stakeholders, whether it’s insurance companies, brokers, or consumers. I spent 18 years working with consumers, so I think I am very aware of how various issues impact each of those various groups.

IJ: You’ve had to be aware of how workers’ compensation costs and claims impact both workers and employers in your state in the past few years. What is the status of the Alaskan workers’ compensation system these days?
Hall: The last I heard, we still have the highest workers’ compensation rates of any state in the country, which is not any place I ever wanted to be, No. 1. We’ve had extensive loss experience. We’ve done some workers’ compensation reform and legislation passed in 2005. We probably need more reform. I don’t see that happening anytime soon.

I will say that my market is better. We have more carriers writing. We have achieved rate adequacy. And last year, we actually had a rate decrease. This year, the NCCI filing is for a second decrease.

[The National Council on Compensation Insurance Inc., based in Boca Raton, Fla., manages the nation’s largest database of workers’ compensation insurance information. NCCI analyzes industry trends, prepares workers’ compensation insurance rate recommendations, determines the cost of proposed legislation, and provides services and tools to maintain a healthy workers’ compensation system.]

But the cost driver for Alaska’s workers’ compensation is the cost of medical care. We are at a point where 70 percent of the system cost is in medical care. So that medical care is expensive in Alaska, and that’s our primary cost driver.

IJ: So even while workers’ comp costs might be going down in other states, that hasn’t been the experience in Alaska except for most recently?
Hall: Correct.

IJ: And you don’t have any control over the medical piece?
Hall: That’s correct also. We have a lot of discussion with various medical providers, with doctor’s groups, hospitals. It’s a problem, but there’s no easy solution to those types of problems.

IJ: How much of a role does fraud play in workers’ comp or other insurance systems in Alaska?
Hall: As with any state, we do have fraud. I think we may not have as much fraud as some of the larger states, but we do have fraud. We occasionally get a report of workers’ comp fraud that my investigators will look into.

In the 2005 legislative workers’ comp reform, there was a provision for the workers’ compensation division, for the first time, to actually have fraud investigators. So we work jointly together — the Division of Insurance and Division of Workers’ Compensation — to look at fraud. I think we’ve done a good job at monitoring that.

IJ: You’ve mentioned as a broker that you had to work with consumers. Within your department, what role do consumers have? What kind of consumer input or what role do consumer complaints play in developing a regulatory philosophy?
Hall: We have a dual mission. The first primary mission for me is financial oversight, solvency oversight. The second piece of that, and they’re certainly interrelated, is consumer protection. We have a consumer services section that works exclusively with consumers to listen to and investigate complaints. Some of those may be elevated to other mechanisms of investigation within the division.

We have a Web site, and we have an electronic consumer complaint system, so a consumer can go to our Web site and file a complaint electronically. That plays a huge role in what we do. As we look at potential legislation and propose regulations, that is certainly the focus of many of our efforts.

IJ: What is the status of the use of credit scoring in Alaska?
Hall: We actually don’t get a lot of consumer complaints about credit scoring. In 2003, we passed legislation that dealt with credit scoring. Credit scoring is allowed in our state, but it’s only allowed for new business, not at renewal. So we have a fairly restrictive credit scoring law.

The law was challenged through litigation. Recently it went through the Superior Court, and last month we received a decision on credit scoring upholding the division’s interpretation of the use of credit scoring at renewal.

IJ: Few states have as much coastal exposure as Alaska, yet I don’t believe that Alaska faces the same coastal property insurance concerns as some of the other states. Why is that?
Hall: Alaska has, as I understand, more miles of coastline than any other state. However, those miles of coastline are very sparsely populated. The entire population of Alaska is about 750,000, so we don’t have the segregation of properties on our coastlines.

We certainly have all of the catastrophic exposures that other states have, including earthquakes, active volcanoes, wind, water — all of the things that contribute to the catastrophes that have occurred in the Southeast. But we don’t have the population that would create a huge catastrophe exposure.

IJ: Given that Alaska does face exposure, what do you think about a national catastrophe plan?
Hall: I’m very interested in a national catastrophe plan. We’re watching that carefully because as a small state, we can’t absorb the spikes that catastrophes cause in insurance rates. We have a very small premium base, and a catastrophe could truly destroy our insurance market.

IJ: I understand states are taking a fresh look at some of their producer licensing laws and some of the ways to streamline that process. Is Alaska involved in that area of uniformity of producer licensing?
Hall: Alaska’s very involved in that. I chair the National Insurance Producer Registry Board, and I’ve been very active. I was a former agent, and so producer licensing is something that’s very important to me. Uniformity in producer licensing is critical. As insurance business becomes much more cross-border, the ability to become appropriately licensed is important.

The NIPR system is the electronic place where producers can go and apply one time and get licenses in a variety of states. So it’s made things that much easier, and it allows compliance. It allows compliance with the requirements in the various states. I think it’s very important that those become uniform, so that we have consistency throughout the states in how we regulate producers.

IJ: Do you think there’s progress being made there?
Hall: Yes. For the first time in a long time, I can say that I’m seeing major efforts by the states to try to become uniform, to get rid of some of the archaic things that have been referenced as desk drawer rules, and to truly make this a uniform process.

IJ: What is the budget of the Alaska Insurance Department?
Hall: It’s about $6 million.

IJ: Is that sufficient to do what you need to do?
Hall: I doubt that any of us ever think our budgets are sufficient, but yes, it is. I’ve been very fortunate in having the ability to get the resources I need to do the job. Yesterday, in fact, we were awarded our five-year accreditation. So I have an excellent financial examination staff. We had an excellent review. So although we’re a small state, we have the resources we need to do an adequate job of protecting our consumers.

IJ: If you were given some more money, where would you spend it?
Hall: I unfortunately find myself using legal resources. We have an increasingly complex industry to regulate, with increasingly complex issues, and I think those frequently require legal resources. That’s where I have seen probably the biggest increase in expenses, through the legal analysis that many of the issues require, whether they are enforcement issues or merely regulatory, legislative types of issues. We spend a lot of time with our attorneys.

IJ: Do you see part of your job as encouraging growth in the Alaska insurance industry, in terms of employment and opportunities?
Hall: That’s important. It’s difficult for us to even attract insurance companies to come to our state because, again, the population base is very small. I will say I’m really delighted that we have a new personal lines market that just started writing homeowners and auto in July. So, yes, I have tried to encourage new companies to come in, and that does mean more employment. We do have domestic insurance companies, and it’s an important segment of our economy.

Topics Catastrophe Fraud Agencies Legislation Workers' Compensation Market Alaska