Insurance & Commerce House and Senate
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Unknown speaker
0:00
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Speaker 8
6:30
Members, if you will move to your seat. seats. We will begin. We
Speaker 11
7:10
have a number of timely updates coming up, some of them of which I know
our members are going to be very excited about. But before we begin, we want to welcome our newest member to the committee representative denise emmett there she is it's her first insurance and commerce committee meeting welcome and before we get started i'll go ahead and turn it over to my co-chair to see if he has
Senator Jason Rapert
Unverified
7:48
any comments to start things off thank you thank you very much mr chairman well i appreciate everyone that's
here today and we've got several things on our agenda and first of all before you get going with this i'll just say that our my good friend barry goldwater jr is here very wave at him out there and yes those of you don't know him that is barry goldwater's son and he had a very distinguished career in congress as well and now travels the country on all things insurance and financial services with his partner and mr. Taplin I was here as well and so if
you don't know them get to know them but I think we've got really a good issue that's going to be coming up here this morning one that mr. chairman is you and I have talked a little bit about this both committees needs to pay particular attention to this issue as it relates to bulk transfers and so as we yield back to you just appreciate the time the committee's putting in on this and I'm sure we may have some more about this in the future before the 21 session as well so thank you very much thank you
Speaker 11
8:54
senator i will just mention at the outset and i'll mention it later
when we uh maybe have more members here but we do have a in coil meeting coming up in march that you can apply to attend if you would like legislative reimbursement for that attendance But that meeting is early March, and it is in Charlotte, North Carolina. So if you House members are interested in going to that meeting, if you will get with me, we'll work out with Ms. Stapleton getting all the letters drafted to get permission from the speaker for you to attend.
In the meantime, we'll move on to the next item, which is a motion to adopt the minutes. you have them in your agenda packet I believe and Senator Bledsoe has made a motion for us to accept is there a second see a second we have a motion second to adopt the amendments from the last meeting all those in favor signify by saying aye any opposed and of course there are none Item D will be our next item, and Senator Rapert has already mentioned this is the insurance
business transfer issue. We do have some presenters that will be coming forward, I don't know if the insurance department folks were going to introduce them or I'll just introduce them, or let them introduce themselves.
Speaker 13
10:28
that there's a PowerPoint to go with this presentation. Mr. Galbraith, I'll
Speaker 17
10:45
if you'll identify yourself, and then you can present the, identify our presenters for us.
Russ Galbraith
Unverified
10:54
Thank you, Mr. Chairman, members of the committee. My name is Russ Galbraith. I'm the Chief Deputy Insurance Commissioner for the state of Arkansas, and I am here to introduce Robert Redpath, who's the Senior Vice President and US Legal Director for Instar, and also James Mills, who's the Vice President and Legal Counsel for Instar. Just a little bit of background. The Arkansas Insurance Department took notice of a bill
that the Oklahoma Insurance Department passed about two years ago regarding insurance business transfer. The Insurance Business Transfer Act enables a book of insurance policies to be completely separated from one insurer and moved to another. For some purposes, such as economic transfer, traditional insurance will suffice, but if one wants to separate the policies permanently from the transfer, reinsurance will not accomplish the objective. Instead, a transfer in novation is effected by order of a court of general jurisdiction
after a thorough review and approval of the transaction by the insurance department, acting with the assistance of an independent expert. So the department took a look at that, was interested because there aren't a whole lot of states that have laws on the books that enable this type of transfer, and so we were interested in getting in a little early to try to bring businesses to the state to look at this. It looks like it would be a good economic development aspect from that standpoint.
So we took a look and decided that we want some more information, and that's why these gentlemen are here to talk to you about it. So
Speaker 17
12:32
I'll turn it over to them. Thank you, Mr. Galbraith. And Mr. Redpath and
Speaker 11
12:36
Mr. Mills, welcome to begin your presentation if you will identify yourself for the record, and then we look forward to hearing your
Robert Redpath
Unverified
12:43
presentation. Yes, thank you. So my name is Robert Redpath. I'm the U.S. Legal Director of NSTAR U.S., and, you
Speaker 26
12:49
know, we're glad to be here today to make this presentation.
We've split the presentation into just a couple of segments. We're going to give you just a little bit of an overview of what NSTAR is. We're not widely known in the industry, but maybe not so much from the regulatory consumer side. So with that, I will get started. So NSTAR, we are probably the largest or one of the largest acquirers of runoff, So inactive insurance, as the slide shows, we're pretty big worldwide.
We have 30 offices across 12 countries. We have 1,400 staff. We're about 600 staff in the U.S. We've got about, I think, about 11 offices in the U.S., so we're fairly well represented here. So just on terms of size, you know, our assets are $18 billion. market capitalization, 4.3 billion. We have done, we've now done 100 transactions worldwide. And when I mean transactions, buying insurance companies
or buying portfolios of business, which is really what we want to talk about today. So
Robert Redpath
Unverified
14:06
as you can see here, basically half the transaction we've done, we've bought companies. The other half we have done reinsurance
Speaker 26
14:13
portfolio transfers, effectively where we have reinsured blocks of business. business. What we really want to talk about and what's happening with Oklahoma is the actual transfer of those blocks. So the market, and again, this is non-life runoff, companies that are no longer writing
active business. This is a national survey. The belief is there's about $350 billion of runoff, so inactive insurance within the United States, excess of 700 billion worldwide. And maybe just to clarify, runoff, you know, every single company has runoff, unless they're a brand new startup. You know, so any company that's been writing insurance for a number of years, there will be blocks of business where they're not collecting premium,
Speaker 27
15:03
but there are still claims liabilities. That's really what we're talking about, of our
Speaker 26
15:08
old liabilities. So, you know, why do companies want to restructure? I mean, why is this of interest? So, you know, companies and, oh, sorry. Pull the microphone in a little bit tighter. So companies really are looking to deploy capital more efficiently. So, you know, if you look at big insurance companies, they're looking to, you know, all the time to restructure.
And so, you know, a big insurance group, they have inefficient capital parked with lines of business that they no longer write. So, you know, they're looking, obviously, to, you know, restructure, divest. And, you know, often they're looking, you know, obviously saving costs, but also, you know, looking to protect the financial seller, their financial solvency. So, you know, if you take a company that's writing, you know, maybe in the past it wrote asbestos liabilities as an example, no longer writes them, you know, they would be looking
to divest those to people who actually know how to manage those liabilities. And, you know, if they don't do that, there are companies, we've seen that over the years, that do suffer badly from mismanagement of that type of exposure. Other reasons, you know, people are looking to reorganize. That can obviously save management and other costs. But I think, you know, the key point is that a lot of these old runoffs within the big corporations in lines of business where the underwriters are no longer there or, you know, they're just so old, they don't do anything with them.
So companies like Enstar, we acquire these blocks of business, and we manage them properly. And we would say that we provide a better service to the policyholder because we are focused on these lines, whereas, again, the companies, the old companies that had them, you know, are just not interested in them. So, you know, we believe there's a strong policyholder benefit in being able to transfer these blocks of business. So, to date, in the U.S., there have been, you know, there are various ways to restructure.
The main way, obviously, is to sell the company. So an insurance company has got a company it doesn't want, it'll sell
Robert Redpath
Unverified
17:25
it. But it's not that easy. Generally, blocks of business are mixed up. Companies are looking, they have obviously their own companies, individual subsidiaries in different states, writing different lines of business. They've acquired them from other, from over time. And then all the business is mixed up. So really the second option is, to date, has been what we call the loss portfolio transfer,
which is really a reinsurance mechanism. So if somebody is looking to divest a block of business, but it's not all within one company, then the buyer will come along effectively and re-insure. So it's not really a full divestment. All it means is that the economics have moved, but that company's still got it. As I mentioned, a lot of non-core runoff business is embedded in the ongoing business. So at the moment, up until the Oklahoma, the IBT legislation,
you know, there hasn't really been an effective way to properly divest that business, so to get finality on those blocks of business. As I just mentioned, the standard route is reinsurance, the loss portfolio transfer, but ultimately, as I said, the ultimate liability will still remain with the selling company because ultimately those policies are still on their paper. There are mechanisms, novation mechanisms within the states, and I know Arkansas has their own mechanism,
But on a, let's say, a multi-state basis they are very impractical and quite frankly they don't work to effectively transfer a block from A to B. It would work, taking Arkansas as an example, within the state, but if a company has multi-state business they have to go around a 50-state process. Certain states have opt-out requirements and all kinds of different rules and regulations. And it's just very impractical to do a full novation of a multi-state block of business.
Okay. So this slide, we're just showing what, you know, the international perspective. So I think this really just summarizes what I've said. You know, most, obviously, all jurisdictions you can buy and sell insurance companies. All jurisdictions you can reinsure insurance companies and do the lost portfolio transfers. it's when we get to the last line direct claim transfer that's what we're really talking about in most in fact all jurisdictions not all jurisdictions but most jurisdictions Bermuda the UK Europe there are statutes which allow the
transfer of blocks of business and give the companies finality in the US at the moment there are
Speaker 27
20:09
only really two states and they're fairly untested that is that's Oklahoma and Rhode Island.
Robert Redpath
Unverified
20:23
So let me just, this slide really, and this is really what we're talking about today, insurance business transfer. In Europe, and really in the UK since about 2000,
there's been a mechanism which is called the UK part seven transfer. It was actually directed by European legislation, so obviously in Europe, that may change now with Brexit, Historically, you know, the European Union could not so much impose legislation, but impose what they call a directive, which requires member states to implement legislation. So in the UK, so the European Union directive on block transfers, the UK created
what is known as the part seven transfer. So what does it do? Really what it does is it allows for the transfer of a block of insurance business by way of statutory innovation. In addition, it transfers the reinsurance, so the seeded reinsurance asset automatically transfers with those policies as well as any other assets and
Speaker 26
21:27
liabilities that are required to go with the business. It needs the approval of the
Speaker 27
21:34
regulator, but more importantly, it requires the approval
of a court and an independent
Speaker 26
21:47
expert. So, switching back to the US, that slide's actually not showing up very well. Basically what we're showing here is what is currently available in the United States. Just starting right up at the top with Vermont, they were one of the first people to implement legislation on block
Robert Redpath
Unverified
22:06
transfers, but that was very watered down legislation in the sense
that it has opt-out provisions for policyholders and has never really been used. The darker states there are states that have statutes on their books now called division statutes, and that is where through a regulatory process a company can effectively divide into two. So what they would do is they would put, so let's say they had a block of business that they were looking to segregate. they could split up into two companies within that state.
It hasn't, with one maybe exception from many years ago in Pennsylvania, it's not really taken off. There are a number of question marks as to licensing and it is also basically a purely regulatory statute in the sense that it doesn't have sort of the court sanction with it. But this just outlines the states that do have various statutes, division laws. And then the two lighter blue states are obviously Oklahoma and Rhode Island, which have implemented insurance business
Speaker 26
23:14
transfer legislation. So before I hand over to James, let
Robert Redpath
Unverified
23:25
me just say, you know, this is really summarizing, you know, what insurance business transfer is, and, you know, what are we talking about. So really we're looking at the ability to transfer a block of insurance business from one insurance company to the other without the need for individual policyholder consent. As I mentioned, Rhode Island was the first jurisdiction to pass this type of legislation.
They did have certain and do have certain limitations that it's only PNC commercial runoff business and does not include workers' compensation. Oklahoma have gone a step further, and they implemented in 2018 IBT legislation, IBT legislation, which is almost not quite exactly the same as the UK Part 7 legislation, but it's extremely similar and applies to all lines of insurance business.
So it's not just limited to runoff. It could be live business. It could also be life business. So it's a very broad statute, but it's very similar to the
Speaker 26
24:32
UK legislation. Yeah, okay. Okay, so again, before I hand over to James, just to, this is obviously, you know, there are a lot of concerns about transferring policies without policyholder consent. And for that reason, there are a lot of regulatory safeguards,
checks and balances built in to the Oklahoma legislation, again, modeled on the UK. So, you know, what are they? So
Robert Redpath
Unverified
24:57
basically, you need the approval of the domestic regulator of the transferring company, That's not necessarily Oklahoma. So if a company were to transfer a block of business, and let's say they were domesticated in Arkansas, they would require the, initially they would require the approval of the Arkansas regulator or non-disapproval to use this process. Then Oklahoma would need to approve the transaction.
And the, obviously the, under the Oklahoma legislation, the assuming company's gotta be an Oklahoma domestic company. There is a independent expert that is appointed that does a very robust review of the transfer
Speaker 26
25:39
and is looking out for the policy holder in terms of whether there's any material adverse impact. And then once the independent expert has completed its
Robert Redpath
Unverified
25:52
review, the regulators have approved, it moves into a court process
where the court will ultimately approve or disapprove the transaction. So from an industry standpoint, we believe that the checks and balances in this type of procedure are significantly greater than the checks and balances if, for example, there was just a straight company sale through the Form A process because of the extra steps that are involved, independent expert and court approval. And then just to summarize that there have been, in addition to 250 insurance business
transfers in Europe and to date there have been no issues in fact that number is getting close now to 300 and there have been never to date been any issues with those transfers or you know what happened afterwards yeah I'll hand over to James for the next
Speaker 37
26:48
slide before we move to the second part of the presentation we do have question representative Lundstrom you'll
Speaker 40
26:57
You'll need to, you'll need to hang on, let me buzz you in here, there you are.
Representative Robin Lundstrum
Unverified
27:03
While we're on this transfer, is there some type of bonding or assurance, and just in case the company does go belly up?
Robert Redpath
Unverified
27:13
So really what happens is this is what the independent expert and the regulators do. This is a key issue, you know, the solvency of the company. So you know, there's a very robust review of the finances, the actuarial and all that. in a sense there's not a bond but of course you know they are it's a regulated entity within the state and the regulators in addition to the independent expert are obviously very focused that the solvency is there and
the solvency will be there so the independent expert reports can look at the actuarial projections of the business coming in also the existing business look at the financial solvency and these are key factors in the report you know is the money going to be there in the future to pay the claims so although there's no bonding as such you know there are a lot of you know there's a lot of review as there would be with any insurance company that the solvency is is is going to be there and when we at the end I'm just going to talk about a an IBT we are doing as ENSTAR and under that we have agreed for our Oklahoma
domestic that ENSTAR group the big group is effectively guaranteeing the solvency of that company a hundred percent guarantee yes
Representative Robin Lundstrum
Unverified
28:20
that would be a concerned that I wouldn't want
Robert Redpath
Unverified
28:24
the taxpayers to be the ones to know that's right that's right and that's obviously a question I think really the way we you know when we talk to people I mean obviously there is concern that people will use this mechanism to you know move into weakly capitalized companies you know we take a totally different approach you know the IBT we are doing is actually the solvency is actually higher in the assuming carrier and it's
a key factor it's definitely a key factor and it's something that the regulators are very focused on and so they should be and you know the industry as well because obviously it's not in the interests of the industry for any of these IBT's to fail you know like the concept
Representative Robin Lundstrum
Unverified
28:58
I just want to know what the backups
Speaker 48
29:05
are if I may also it's important to introduce yourself I'm James Mills vice president legal counsel
Speaker 50
29:09
with in star and let me also say I joined in star last year in April previously I was the chief deputy and chief of staff for the
Speaker 48
29:17
Oklahoma Insurance Department including during the period where this legislation was researched and passed by the legislature so I have kind of different perspective on it really although I a member of INSTAR my perspective is more regulatory because the process that he'll mention about the first transaction occurring in the US started while I was still at the department so I have that that style of view on it it's important to note though that any company that would be receiving business would be one that would be regulated already by your insurance commissioner and there's a broad
spectrum some companies have just enough money to take care of business and some have a lot of excess money and the commissioner regulates those differently in every state and every state has its own
Speaker 50
30:02
laws but the commissioner is in a strong position to understand that company's business has as the additional support of essentially an examination being performed on both companies participating in the transfer through the work of the independent expert. And then whatever criteria are necessary to gain the approval of your insurance commissioner can be put on at that point,
whether it's capitalization, bonds, whatever additional incentives there are so that this does not become an issue for a guarantee fund. And some of that will come down to the specifics of the lines of business being transferred, size of the transfer and I think insurance commissioners are in a very good position to understand the responsibility there to ensure that policyholders are protected at least that's the considerations that we had in Oklahoma as we considered this legislation we
Speaker 48
30:44
do have a couple of other questions in the queue but
Speaker 53
30:48
I'm going to ask if they could hold until the second part of the presentation so thank you so I'm going to pick up and we
Speaker 56
30:59
were continuing here a little bit and I may revisit a couple of
Speaker 50
31:03
the things that we talked about just briefly but the slide here talks about due process and notice provisions
Speaker 48
31:09
that's part of what brought us to where we ended up in Oklahoma as looking at this as something that in Oklahoma we have an elected insurance commissioner it's a statewide elected office and it's a position that feels like it holds a lot of responsibility for the consumers there not that the appointed commissioners feel it any less but you know constituents know your name
really well when you're out there campaigning on a statewide basis and if they don't like something you get a lot of calls about it so you know how that all works we felt like in Oklahoma as we looked at this that it was really important to put as many protections in place as possible so the commissioner understands the business and understands responsibility but we want to be sure that if a transfer is approved that it doesn't go bad after the fact after the Commissioners done with it and to that extent you know these transfers cover business that could be potentially national when we talk about an
Speaker 50
31:57
insurance business transfer if you consider legislation on that and those occur in
in Arkansas it could be business in Pennsylvania it could be business in Washington or in California or all over the country so you've got responsibility relating to a lot of different policyholders out there and that means a lot of working with your peers through the NAIC is a great example where commissioners have the opportunity to talk about what's going to impact each other's states when they take an action but beyond that the due process considerations and also the full faith and credit considerations when you perform something under your laws in your state that you think is perfectly legal, but it goes to a new state that may have never considered these questions before. You wanted
to be sure that you can create assurances if somebody raises an issue, and where are they going to raise their issue? They may talk to their insurance commissioner, and we have a mechanism to address that, but they're also potentially going to go to their courts. We want to put the right procedural process in place to make sure that every box has been checked, so that if a company says that I've transferred your business over here, they're going to pay your claims, and somebody doesn't like the way that that operated, that we've answered the questions beforehand, we've given an opportunity not only for the executive branch to get involved but also for the judiciary because you are creating a contractual amendment and in this case
without individual policyholder consent positive consent the consent comes through the court process where a court takes the opportunity to hear any objections by any impacted individuals and then provide a block consent for the full spectrum of policies being transferred in the transaction if they believe that that is appropriate so I'm I've got
Speaker 50
33:38
a lot of points on it but I'm going to spend a little extra time on it because I want to go back in time a little bit to when Oklahoma started looking at this because we've talked about the history that this has in Europe and other places in the world and I think that's important it was important to us because we knew that this was a mechanism that could work other places and that companies could use responsibly. And through that, we also learned that these Part 7 transfers, as a reference that have happened in other countries, impact our policyholders here in the U.S. also, because you may have surplus lines,
you may have reinsurance that covers risks here in the U.S. that have already transferred through Part 7 transfers, because we do have all these big international, global companies writing business that affects what we're doing here in the U.S. So for us to know that these had already been happening and we hadn't had any problems with it here, as well as what's going on in the rest of the world is good. But we have a unique system in the U.S., and this was during a period where there was a lot of questions going on around how the U.S. is going to work with other countries.
The covered agreements is another good example where the federal government had got involved in negotiating how we were going to treat credit for reinsurance. And so there's a lot of skepticism as we're thinking about that, because you know Oklahoma. I think you know our reputation our political stances and I think we probably share a lot of protections for our consumers and independence of our state and the way that we want to do things and so we didn't want to be beholden to any system just because somewhere else in the world they thought it would be good for us to do it that way so we looked at this as an opportunity not to do what other people
were doing but to do something our own way to create a system that hadn't been created in the U.S. yet, but that there was a need for because as an insurance regulator, you think a lot about the solvency and the consumer protections of live writing businesses. You see the ads on TV all the time. They're always trying to get business. But there's a lot of insurance business out there where there's no longer any marketing going on. There's no longer an agent selling policies for that book of business. There's just a lot of liability tied up, and there's a lot of reserves and capital tied up relating to
this business and sometimes you see this in companies where maybe they shouldn't have gotten into a line of business insurance can often be very cyclical profits increase profits decrease profits go away completely sometimes a company will look to capitalize on a line of business that they don't have a lot of expertise in because they see their competitors doing well in it and they don't do well and they know they're not going to do well so they stop writing that business they stop making investments in the systems to support it they let the underwriters go they only have a few people in the claims team
team that can manage those types of claims anymore. And in my regulatory perspective in my previous life, that wasn't very good for those policy holders. It wasn't very good for the company because they had capital tied up that wasn't doing them good, but they didn't have enough capital tied up to take care of the policy holders well. They could pay the claims, but it usually became a longer process. Nobody wants to be slow played when they have a claim. And it became one where the company may not be paying the right amounts. they're paying too little and maybe they're paying too much and as an insurance regulator
neither of those is good because you want the company to have the remaining money for the other claims that they have. You don't want them to get into a solvency concern. So the idea of being able to create a structure that specifically looks really well at older business where you can't get in contact with the people necessarily, time has passed, you know, we don't have email addresses for everybody that bought policies in the 80s. So it's tough to find these people. Last known address, I can't remember my last address from ten years ago, much less trying to find them for other people. People move around a lot. So
this created a mechanism that addressed something that the lost portfolio transfers didn't, that Assumption Reinsurance didn't, that Novation didn't, because it was really tailored in a way, maybe to older business, although in Oklahoma we wrote it broadly because as an elected office we don't like to go to the legislature too often for big asks because We tried to just put it all in one package and figured if we can convince them of the value of all this down the road, maybe we should do this just all-encompassing bill that lets us do whatever we want, and then we'll add additional guardrails as the insurance commissioner. And that's what we did. So you heard about the Part 7 transfers and you heard about Rhode Island.
Rhode Island put some provisions on theirs when they passed that in 2015 that limited compared to what you've heard about with the Part 7. Specifically, it was limited to runoff of at least 60 months, and it was limited to no personal lines. in Oklahoma we did not place those limitations in we can have live business or we could have runoff business of any line and then the Commissioner decided that some topics that are very contentious right now long-term care being an issue that I'm sure you've heard of Oklahoma's has said they are not going to do long-term care transactions the bill authorizes it but
the Commissioner's discretion is that that's not an appropriate treatment of it right now and I think the authors of the bill understood that because they had an opportunity to work with the department so once we learned that it was something that would help us as regulators we wanted to look at what other value there might be Oklahoma is a smaller state in the scheme of insurance business but as far as an agency that brings benefit and value to the state including economic value we we are very important we make a
meaningful mark onto the state's economics every year and we see our role as one where we do try to develop business not through mandates and telling people they have to buy insurance but by creating a business and friendly environment for companies to operate that will help bring business there and I was at the department for over eight years during the time that we were there and implemented this from a previous administration we were able to increase annual revenues by 40% just by telling people that we wanted to be business friendly and look for new opportunities for companies to do their business the way
Speaker 48
39:32
they want to. So that was an important part of considering IBT legislation for us. Another is that the consumer protections are paramount.
Speaker 50
39:40
As we engage in creating our own legislation, we can do it in a way where we believe that our consumers are protected in the way that we feel they need to. Now for Oklahoma, we wanted to pass this. I think for other states, as we see these transactions beginning to occur, there's two ways to look at it. If you want to have the transactions occur in your state, that's a component of the legislation. But another component of considering legislation is to create a framework where you protect
your consumers when these transactions happen in other states, as we see legislation starting to pick up all around the country on these topics. Business growth and development was another reason why we wanted to have this, not only to make, you know, transactions beneficial to the state, but also to make Oklahoma recognized as a leader in the space of insurance and economic development and innovation. So getting into an area that had a good track record that we thought we could do in a way that would be positive for our state and for our insurance industry was valuable to us.
In addition, it was another tool in the toolbox, we like to say. We didn't have to get rid of any laws or change any laws to put this in place, but it gave another way for our companies in Oklahoma to do business. And as you think about just the progression of time, The companies will continue to change their books of business, to write new lines, to get out of lines. And the amount of runoff business is just going to continue to grow. And as a regulator, this would create another relief valve to help us manage the way that companies are regulated and manage their solvency and help them
to deploy their capital in an efficient
Speaker 48
41:19
way. Rhode Island's passage of the bill got some interest, but no companies really latched onto it
Speaker 50
41:24
because of some of the restrictions they put into place. It was really Oklahoma's development of this that helped drive some discussion at the national level. Very quickly, Oklahoma started researching this at the department back in 2016, and we reached out to the legislature
and introduced a bill that was more reflective role item than the part sevens, I believe, at that time. It passed the House overwhelmingly, But it was held over by the Senate for a study session that summer, and we had a lot of opportunity to learn from the industry, to hear
Speaker 48
42:00
what concerns they had with the way it was put together, to reach out to all the major trade associations and stakeholders. And some major revisions were made.
Speaker 50
42:09
Those changes were adopted in 2018, virtually unanimously, overwhelming passage through our legislature in Oklahoma.
And then we had the effective date of that was November of 2018. We were fortunate to have NCoil come and visit us in Oklahoma City for their national meeting, and at that
Speaker 48
42:26
meeting they began to talk about the Oklahoma IBT law and maybe looking at that as a model. Additionally, in 2019, the NAIC recognized
Speaker 50
42:34
that this was something that was picking up steam and there should be expectations of transactions that impact different states, and they put together a working group on it. The working group has made some progress.
They were supposed to develop a white paper. I think that work is still ongoing so the NAIC will put something out but right now in coils a bit ahead and looking at this as a model law so those are opportunities where many states have already come together and shared opinions and concerns on how this should work I know that you're interested in having people participate there and I hope you've had an opportunity to hear about this some from them also so apologies for rehashing any
Speaker 48
43:15
ground there The last thing that we really want to talk about is the transaction that INSTAR has filed
with Oklahoma, which is moving forward, and I want to pass that back to Robert before we do
Speaker 50
43:26
that. But I don't know if this is a good time for questions or if you'd like us to just kind of
Speaker 53
43:33
conclude. That's our last issue for the presentation. Okay. Well, let me go ahead. We do
Senator Mark Johnson
Unverified
43:42
have one question. Senator Mark Johnson. Thank you, Mr. Chair. I must admit that part of my concern on this issue has to do with
the fact that not long ago I saw the movie The Laundromat, and if anyone has seen that, then, of course, it kind of ends up as being a Merrill Street tirade, which, I mean, I shouldn't have been surprised about that.
But it brings the issue forward of how do we structure anything in this general area related to protecting the consumer? And, you know, the further things that get away from Arkansas, the less we have our fingers on the pulse, so to speak. I want you to comment on that from, I mean, obviously you're coming to us saying, we think you should do this, but, you know, you need to tightly regulate it,
and I'd like to get just a slight framework of how you see that. The second thing is, do you think that if we adopted IBT regulations, how would that affect the possibility of creating new state domicile companies here in Arkansas? You take the first, I'll take the second. Well,
Speaker 64
44:56
as far as a regulatory framework for this, we're
Speaker 48
45:01
moving a part of a business into another business so if we think about
what exists already there's the form a process which is the acquisition process that commissioners already oversee so if we instead of moving a
Speaker 50
45:12
part of the business if you take the whole business buy it do what you like with it we've got a certain framework for that we have a certain checklists of requirements that every state does virtually identically and so we have a benchmark there so it was important for us to meet the benchmark of the form a acquisition process when we created this in Oklahoma so that there were no lesser protections on someone who was having part
of a business move than there were all of a business move and it was our belief that we exceeded those benchmarks in addition we have the form R process which is for redomestications that insurance commissioners look at as well that's another benchmark that we built in we didn't want to leave anything out we wanted to have you know not everything has to be equal but we want to make sure that the same level of protections are there for if a company was just moving from one place to another to a different regulator and so in the development of this it was
important to us to to meet the kind of the status quo and then go beyond because this was new we wanted to take a conservative approach to it we wanted to make sure that all the guardrails were there that were needed to be there so So that was sort of the component of it, is that it mirrors the part sevens because those showed success. And they showed success by having a very rigorous, essentially an exam, which companies get periodically through their insurance departments already, but a very focused one that looked at both these companies before and after in a way that they wouldn't have been looked at otherwise.
So it's good for the policyholders because we're examining business that's oftentimes going to be old, we expect, in a way that ensures that not only if the transaction doesn't happen, we know about it, and if the transaction does happen, and we know that they're going to be just as good off. So there was value
Speaker 73
47:00
there for that. As far as talking about transferring business, they've got a great example. Yeah, I mean, my
Speaker 26
47:06
belief is in 5 to 10 years' time, this legislation will be the norm in the U.S., just
Robert Redpath
Unverified
47:11
as it is in Europe, you know, 20 years on. It's just normal.
So it's that time frame. There is an opportunity now, just as Oklahoma has taken it, for states to get in. The states that get in early will, I definitely believe, will pick up business. We moved a company into Oklahoma, and other entities are doing that, other industry participants are doing that, to make use of that IBT legislation. There is an opening for other states now, if they implement such legislation to pick up that, you know, business people coming in, you know, that window will probably shut,
Speaker 27
47:46
I would say, in the next, you know, in five to ten years, because it will be the norm. So, you know, to answer the question, I think now, you know, if you're going to do it now is the time. Five years' time, you know, ten years' time probably is not going
Speaker 48
48:02
to bring much business, but now there is a window of opportunity, I would say. And back to that, what INSTAR did, they acquired one of their acquisitions. There was
Speaker 50
48:09
an insurance reason to the acquisition also. But they acquired a company that was domiciled in Indiana. And then they re-domesticated that company to Oklahoma.
Speaker 48
48:17
So because Oklahoma had it, they got a new company. Because Indiana didn't have it, they lost a company. So that's
Speaker 27
48:25
what the early days may look like. Right. Otherwise, we would not have thought
Senator Mark Johnson
Unverified
48:31
about going to Oklahoma but for the legislation. well I appreciate that and I could see how it could I'm again not against it per se I'm just very skeptical if we move into this area and I might ask our co-chair Senator Rayford he is of course the immediate past president of
NCOIL and I through his leadership I've learned that NCOIL is a resource that we very heavily need to lean on and I'm wondering if and I guess I direct this question to the chair do we have any direction I know that doesn't appear to be a model legislation yet on this subject but do you know if that's in the works Senator
Senator Jason Rapert
Unverified
49:13
Rayford thank you senator yes it is in the works and it's still pending in process and I've already reached out to CEO of the organization
which is a former insurance commissioner Tom Considine of New Jersey about the status of that. And if you don't mind, Mr. Chair, I'll make a couple comments since I'm responding on this. Obviously, I actually have been refreshing my information about the company as you've testified. Of course, I remember when you brought this to Incoil. What I would say is that you have an impeccable record. The market likes you as well as the industry seems to like it because you're
actually making money in what you're doing and so if that is part of the test of your solvency if you just take a look at how you run the company and your impact and the assets that you manage now that's a very good sign I was looking through some of your previous transactions which members can go out to their website and actually pull up previous transactions over the years when you're dealing with reinsurance and dealing with Allianz and Zurich and several of these major major companies and you've taken on those liabilities to manage those it's pretty impressive I think I guess the bullet down to make
sure that that we're getting the essence of this because you can get lost in a lot of the detail and a lot of the nuances of what's going on especially when you talk about the EU and the international insurance markets it begins to get pretty fuzzy the bottom line is is that you're simply looking for a new regulatory opportunity to achieve these transactions then what lies there in a barrier now it really has nothing to do with trying to shed or to shortchange consumer protections whatsoever you still have all the
regulatory framework in place that is to protect consumers just like you had before it's just a matter of achieving the opportunity for instar to be able to take on that risk is that a nice simple statement I think that's
Robert Redpath
Unverified
51:15
fair yes and I would go a stage further and say actually the regulatory protections are stronger than you know the other mechanisms out there yeah
Senator Jason Rapert
Unverified
51:24
well and that and that is probably on point as well but for so senator to answer your question from all that I've seen that we've dealt with an incoil and
reiterated here it's a matter of being able to allow these companies that are in this market and have an appetite to assume this risk in this space when many companies are simply just nursing it there and they have made it their business to ensure that these companies do remain solvent do hold up for their the promises in that underlying insurance and please correct me if i'm wrong on any of this and so it's a matter of our regulatory framework beginning to allow it to happen uh i don't know if you can answer this
james you probably can answer this but i don't know if the commissioner or the department would want to say i would like to turn this to what is the upside for arkansas being at the forefront of making some of these changes you know there's many different areas since commissioner kerr has been here where we have absolutely become a stronger player and made arkansas more attractive for some companies to do business here what i see in this opportunity is that if we would
cautiously make some of these changes it looks to me like that we could make arkansas attractive for some of this activity to occur so what would be the positive or the upside for arkansas if we were to adopt the legislation it looks like the commissioner might want to say something as chairman so and
Speaker 48
53:00
while he walks up i will say that for oklahoma the concerns people raise are often the failure
Speaker 50
53:06
of a company small companies for us seeing that this was happening globally we saw this as an opportunity to attract global companies the big names that you've mentioned some of that
would not otherwise be interested in oklahoma and to get on their radar these are conservative companies you should not ex we did not expect to see them come and do the first transactions because they want it to be tested and they want to have confidence in
Speaker 84
53:29
it but we see this as a way to get in front of them and we've had much more interest than
Speaker 52
53:35
we ever had before in oklahoma after passing this bill. Commissioner Kerr, thank you for joining them at the table.
Speaker 86
53:41
If you will, just for the record, identify yourself. Yes, sir. I'm Alan Kerr, the Insurance Commissioner for State of Arkansas. The gentlemen here just are right. You know, Arkansas is a small state, three million
people and climbing, but that doesn't mean we got a lot of premium to be had here like other states do even Oklahoma. Let's take a little state like Vermont. Vermont started the practice of writing captives years ago, decades ago, and today they are the number one place where captives are domiciled. So they get the advantage of all that because they were first. Now, you know, was that a risk? Yes, I'm sure it was, but nowadays we're all trying to catch up. The other states are
trying to play catch up and getting our captive laws up to compete with Vermont, which Arkansas has, and we have been able to bring a few captives here because of that to domicile here. Because of that situation, we want to be attractive because we don't have a lot of premium volume here.
Speaker 88
54:46
We want to be attractive to companies to come and domicile in Arkansas. And when a company like a large company domiciles in Arkansas, that brings a tremendous amount of revenue, tremendous amount of tax base, tremendous amount of jobs, and it's all positive.
Speaker 86
55:02
How many of you have mortgages on your houses? How many of you have the same mortgage? She got her paid off. How many of you have the same mortgage that you had when you took it out? Very few of you because that mortgage was sold with another block of mortgages as another block of business to another company. When a bank is in trouble, anywhere it is, quite often a
Speaker 88
55:29
smaller bank is sold to a larger bank. Well, that bank goes through a series of regulatory stair steps and hoops that it has to jump through before that's done.
This is no different from that. We will create a situation or a framework where we will do all the due diligence on them, on the selling company as well as the buying company to make sure that they've got the wherewithal to do this. We do this now with any company buying another one. We had a sale announced to us on a Form A just this past week, and our guys are doing that diligence in the finance division of our company to make sure that that's going to be a positive move for that insurance company
in protecting the insureds. He mentioned that movie. I saw that movie myself. But, you know, a lot of people had to be asleep at the wheel for that to actually happen. And those things happen regardless of whether there's a business transfer or not. The bottom line, folks, is that this is a very positive thing for Arkansas. We don't want to be the last one in anymore because we're too cautious.
We want to be on the forefront of some of these things and get this business here before it has a chance to go someplace else, because it will. Someone else will make it easier to do business in their state. And all the things that I've been trying to do for the last five years in Arkansas is make insurance easy to do business in the state of Arkansas. And we've done that. We've had a huge impact there. Our revenue is way up. We've attracted over 100 new companies to Arkansas. because of our reputation now, easy to do business with
and a friendly regulatory atmosphere. Not giving anything away, you understand, but doing the work, doing the due diligence and doing those things ahead of time and in a timely manner so that businesses can come in and do business right away. Well, thank you for that.
Senator Jason Rapert
Unverified
57:36
And so that is a net positive for us, I think, in all regards. I will say as a matter of Senator Johnson, I've already gotten a response from Tom Considine from NCOOL
and that we expect to possibly even vote on this model in March is what I'm being told. So there's a good possibility that actually NCOOL would do that. If that's the case, then we're about to cover another topic here on the agenda, but I know when we passed the national PBM model, which was based off of really we started with the Arkansas model, The last update I had is that since we passed that in December of 18, there have been 241 bills filed in over 40 states in the country based on the PBM model that I was able to take and pass there.
And so, obviously, if you get the model passed in the March meeting, that means that many state legislatures will be taking up the issue and hopefully be following suit with that. But that information is important for us to know as it relates to what we do. So it looks like what I would say, Senator Johnson, is that by 21, you very well could have a model bill in place, and then each state could then make subtle changes
Speaker 94
58:53
that may be needed. Senator Johnson, you're recognized for your follow-up.
Senator Mark Johnson
Unverified
58:57
Thank you very much to both chairs. uh senator raper i assume that there's something we could do to allow commissioner kerr to move in that direction uh until such time as we can make statutory changes is that correct say that again well can we is there so since we're not going to be in regular session in 2020 is there something we can do to help the commissioner move this in the right direction prior to
Senator Jason Rapert
Unverified
59:25
that time well i think this is part of it because we we took this was touched lightly in
the last session there was a lot of misunderstanding and this is really why that i felt it would was good for the committee to begin to hear this because you have a chance to slow down just a little bit to really get your arms around this because frankly um i think i well i will just state this from what i've been able to see instar is the largest in the in the world and what they do and the leader is that correct yeah that's basically correct yes and so it's it's a it's a massive company and you to look at it and see what they do it takes a little bit of time to
understand that and so i think this is senator johnson really is what we're attempting to do now is to begin to build some understanding for all of us get our questions answered make sure people get to know more about who's involved here and what that means to the industry and so i i will say that i'm open to again before we as we move through the year having another opportunity to be able to take a look at this if needed and it may be that people get comfortable enough they can move forward i would encourage people to take advantage of representative lowry's invitation in
the house to attend the incool meeting not only will you be able to hear in depth what's going on with the model there but you will cover a myriad of issues that touch every aspect of what we deal with and insurance in our state and so again you know i'm pretty encouraged about what i see with this and i know it's a new topic but anything that allows arkansas to stay competitive and in some cases even be more competitive than others i think is a good thing for the state and a good thing for
Senator Mark Johnson
Unverified
1:01:11
the business community thank you for that answer senator rayford and commissioner gentlemen thank you. Thank you both chairs. You'll back. Thank you, Senator. We'll try
Speaker 98
1:01:24
and turn it back to you for any wrap-up. Yeah we have we have a couple more
Robert Redpath
Unverified
1:01:31
slides but that we can these just really say what we're doing now. I don't think I'll go through them. I think you know this is a
Speaker 30
1:01:38
good sort of wrap-up point and you know obviously questions we're here to answer any questions that are out there.
Speaker 48
1:01:46
The point we want to make here is that Oklahoma passed
Speaker 50
1:01:50
this in November of, well, they passed it, and it went into effect in November of 2018. By December, we had a contract and a process moving forward where a company had come in and wanted to take advantage of the law, and it's a lengthy process because the amount of review and consideration, particularly being the first, but the company has announced that this is occurring, and you may want to give you a little bit of the details because it's unique because it's an opportunity to test out the law and learn more about how
Robert Redpath
Unverified
1:02:18
it operates. Yes, so basically what we are doing with two of our entities, we have a Rhode Island entity, that was just actually a chance and obviously an Oklahoma entity, so we're transferring all the business out of Rhode Island into Oklahoma, really more to test the legislation. So we have an independent expert report, we have the approvals of both states. We actually started sending out notifications to 60,000 policyholders on Friday. I must say I'm glad I'm in Arkansas today because we're getting a lot of phone calls at the moment, which are being dealt with from policyholders because we're dealing with very old business.
You know, we're sending out notices going back to 1958 to last known addresses. So it's a fairly intense process. We had a notice in the Wall Street Journal yesterday and we have a court hearing, a final hearing in May on this. Policyholders have 60 days now to raise objections, not just policyholders, state regulators, anybody else who's affected can now file any objections,
give notice to the court. And to the extent there are any significant ones, we will have a full hearing in May to iron that out. And then hopefully by late May, we'll have an order of the court, which we hope we'll be able to enforce in all jurisdictions.
Speaker 11
1:03:42
So that's just the process and where we are. OK. Thank you. Members, any questions before we move on to our next presenters? Looks like the rest of your presentation cleared out our queue.
So thank you very much for your presentation. We look forward to finding out more about this issue.
Speaker 48
1:04:02
Well, thank you for your interest. And before we close, I do want to say that we
Speaker 50
1:04:06
have no ask of Arkansas or of all of you. We are here because of the value that we see in the state that we've learned about and has been presented through your commissioner, Commissioner Kerr, and his great staff. So that's our real reason and value for being here, is we see this as a company much like we tried to be in Oklahoma as a place that's trying to develop new ideas, create business,
and be a leader in the space of the insurance markets. And so we want to
Speaker 84
1:04:32
give our kudos to them for just introducing us here and giving us the
Speaker 107
1:04:38
opportunity to get in front of you all today. Absolutely. Thank
Speaker 11
1:04:42
you very much, gentlemen. Thanks. Well, speaking of being on the forefront, we are going to have an update now on something that I know is very dear to a lot of you, and especially my co-chair. We're going to have an update on the PBM issue. there's been some news recently and so at this time Cory Cox from the AG's
office and Commissioner Kerr and I think I believe Shawn Johnson is actually also going to join Cory at the table mr. co-chair would you mind
Senator Jason Rapert
Unverified
1:05:15
if I'm while they're taking their seat I wanted to share some news with the with the committee that I think is important to know and that is that Commissioner Kerr has actually been reappointed at the National Association of Insurance Commissioners to lead what is called the Market Regulation and Consumer Affairs Committee,
which I think is short-term is the MOG, right? It's a very, very important committee to the nation, frankly, because it has to do with policies in every single jurisdiction across the country, and it's very, I think it's very honorable that you were chosen for that, and we thank you and congratulate you on that important position thank you sir I appreciate that well I
Speaker 52
1:05:59
don't know which order we're going to take but whichever whoever starts it off if you
Speaker 11
1:06:04
will start by introducing yourself for the record and then we can go through
Corey Cox
Unverified
1:06:08
good morning mr. chair members Cory Cox I'm chief of staff for the attorney general I have with me Shawn Johnson who's one of our attorneys in our Consumer Protection Division and has been the lead on much of this PBM litigation. January the 10th, we learned that the Arkansas Supreme Court, or the Arkansas, U.S.
Supreme Court, sorry, I'm so used to dealing with Arkansas Supreme Court. Pull the microphone in
a little bit tighter, Mr. Knox. The U.S. Supreme Court on January 10th has told
us that they were going to hear
or appeal on the Act 900 of 2015, which you guys probably know is some of the controls that you passed for the state to be able to regulate PBMs. It was challenged by a PBM group that didn't like the fact that the state was trying to regulate what they were paying in reimbursements to pharmacies.
And we thought y'all did a pretty good job of passing a pretty good law. My boss, the attorney general, has all along thought that there needed to be some oversight and that the state needed to be able to ensure that small town pharmacists could stay in business and they wouldn't be run out so when miss stapleton called and asked if we'd show up i said heck yeah we're going to show up and brag
a little bit because you guys passed a good law we we have done everything we can to defend it including fighting all the way to the u.s supreme court that is unique in our research in modern times, the state of Arkansas has never been granted cert to appear before the U.S. Supreme Court to defend the statute. Now, we've gone before the Supreme Court quite a bit, as you know, especially like death penalty cases or even legislation when somebody's challenging and
they will file cert and take it up there, but we can't find another instance in which sitting where the Attorney General has fought all the way to the U.S. Supreme Court by filing a writ of cert and actually being granted cert right now we're looking at April April the the 20th will be the week that we will hear will be heard in front of the the U.S. Supreme Court we're not sure of the date yet they will let us know as we get closer we have a general knowledge
of when when it is so that we can start writing our our briefs as you know with with the court a lot of the work is done in in what we file with the court so we've already started that process we will we will be working hard we will be mooting everybody involved that will stand up and appear in front of the the court and we will do our dead level best to protect the act that you you passed
For those that don't know, the question is whether or not the state can regulate it under ERISA. We obviously think that you can. When this was passed back in 2015, the sponsors, some of which represent Vaught and others, are here. Y'all did work with us. You worked with Sean. We think that y'all did a good job of reaching out and talking and letting us work alongside of you, and now we've got something that we think we can defend, and we are going to defend.
We feel good about our prospects, and, of course, if I could read the tea leaves and know exactly what was going to happen, I wouldn't be sitting here. I'd be down at Oaklawn or something, but, you know, we feel good, and we're going to work hard. We appreciate what y'all have done as a legislature, and my boss is totally committed to defending this because she knows what it means to small towns. Personally, it's important to me. I live in Perryville.
My dad just had a heart attack, and I've been in the hospital dealing with him and the hospital for the last few weeks. If it wasn't for that small-town pharmacy there in Perryville, he would be in trouble. So I know also from a personal level what that means. So, anyway, Sean, I don't know if you've – you very well covered it. Thank you. It's my honor to be
a part of it. Thank you, gentlemen. Thanks for the work you're doing.
Speaker 106
1:11:01
Commissioner Kerr, do you have anything that you want to add on this
Speaker 86
1:11:08
issue? Well, I mean, as far as the litigation, I'm going to leave that to these guys here who are the experts on it. I'm here to talk about what the results of this awesome law that we've passed
Speaker 88
1:11:19
has done for us so far. And, Ryan, do you want to go ahead and jump in
Speaker 37
1:11:26
on those details? Thank you, Commissioner. Before we start on that, I see Senator Irvin. Is that right?
Speaker 11
1:11:32
Sure. I think. Let's see if we've got the right light up here because it's actually identifying you as someone else. Did you light up green? Yes.
Senator Missy Irvin
Unverified
1:11:42
Okay. Thank you. Thank you, Mr. Chair. just a
quick question um who uh so i know the process you write the briefs and then um are y'all working with just in-house attorneys or i know in certain cases sometimes you do um hire different consultant attorneys to to help or to assist so are y'all doing that in this case
yes or no and then who's going to be you know there before the supreme court
Speaker 124
1:12:11
well uh to your second question we're we're we're considering that
Corey Cox
Unverified
1:12:14
right now uh we're we're we're there's numerous attorneys involved uh so i'm not ready to say who will be sitting in front of the supreme court i promise you i will be there but i will not be arguing so you don't have to worry about me ruining it i have
Senator Missy Irvin
Unverified
1:12:31
wonderful confidence in your office don't get me wrong i'm just trying to understand because i know in the in previous we've we've we've hired out as additional assistants
Corey Cox
Unverified
1:12:41
This will all be done in-house, except for some of the preparation. We will work with other attorney general's offices and other groups. We'll go up to Georgetown University. When you do these big trials, these big hearings, any legal proceeding that is really, really fact-intensive that requires us to be able to go in and make succinct presentations, we will go and moot.
and even even the small smaller cases like if we're just appearing here in in in state we have internal moots that we do where we will sit down and actually run the trial I don't know that's probably a luxury a lot of attorneys don't have but we having the number of folks we have on staff are able to actually go in and moot so we will work with outside with other attorney general's offices uh and others to moot and get ready but all of the arguing all of the writing everything
will be done in-house we will ask uh for assistance in the form of amicus briefs from outside entities okay now whether or not they do that will be up to them but that will that doesn't cost us anything that's them doing that of their own volition um we we do that quite often um so Do
Senator Missy Irvin
Unverified
1:14:10
you anticipate that other states that may or may not have
Corey Cox
Unverified
1:14:14
passed this, would it join that? We're hoping. Yes, ma'am. Yeah, there will be a call that will go out through the National Attorney General's Association asking for anybody that wants to help.
That's one of the weird things about the attorney generals is that we really do. I know it's the same with NAIC from having been at the insurance department, too. we work together with the other attorney generals quite a bit um you know sometimes there's a division based on ideology sometimes there's not this is a pretty bipartisan um issue and so i would suspect there will be a lot of people from across the country that are looking for us to help
us okay um but but all the arguing will be in house uh i will leave that up to the attorney general to say who will do what um but but uh we're not gonna be relying on a dc law firm to do this it will be arkansas attorneys that paid for by our office that are there day in and day out that will be arguing all right thank you yes ma'am thank you thank you senator senator rapert has a follow up as well yes and on
Senator Jason Rapert
Unverified
1:15:30
that and of course i want to thank you mr johnson for reaching out
uh and this this may segue a little bit with senator urban's comments incoil is considering uh filing an amicus brief we haven't got a final on that obviously we have to make a decision you know are we going to be able to get that done but incoil is doing that as well and i think as i'll discuss with you mr johnson i think you'll find many organizations across the entire medical and health care spectrum that wants to weigh in on this and i will just say to you it's uh critical
and important this case actually has implications beyond pbms the ability of states to regulate and and they're using erisa as a whipping boy basically it's uh it's really become problematic and it's so problematic that that the discussions that i've seen had about it you have a large portion of the legal community that is scared to even mention the word ERISA one way or another in legislation because it immediately would strike it down then you have another class over here that says no it shouldn't be a
problem so I'm happy that the Supreme Court is taking the issue up and if I'm not mistaken is it not true that there are 32 states is that the number or is it a different number that have actually joined with you
Speaker 131
1:16:53
already on this that's That's right, Mr. Chairman. There were 32 states plus the District of Columbia. We anticipate at this stage, because that was rather rushed, getting the petition together and getting all of those states to join, we'll have more, presumably up as high as 40 or more.
I'm also delighted to say that the head of the Arkansas Pharmacists Association, John Vinson, is here. They, too, with the National Community Pharmacists Association, we'll be submitting an amicus brief in support of the state as well. It's going to be a very important and diverse effort. Yeah, well,
Speaker 11
1:17:29
thank you very much. Senator Irvin has a follow-up. You are recognized. Thank
Senator Missy Irvin
Unverified
1:17:36
you, Mr. Chair. To Senator Rayford's point, he's absolutely right.
This does have large implications for all types of health care organizations. So I absolutely think there needs to be some sort of outreach maybe in that manner because, I mean, absolutely. I've dealt with this in legislation so many times when it comes to the ERISA plan. So, I mean, I think that's definitely a worthy avenue to go down because of the implications it has on regulating.
And that makes a big difference for all types of folks in the health care sphere. so I just would
encourage that to continue beyond just your pharmacy association I do appreciate the pharmacy association doing that thank you
Ryan James
Unverified
1:18:26
mr. Benson thank you senator and Commissioner Kerr now tell us what great legislation this is it's being defended and identify yourself Ryan yes sir
Speaker 137
1:18:36
mr. chairman my name is Ryan James I am public information and government
Ryan James
Unverified
1:18:40
relations person for the Arkansas Insurance Department first want to be clear what we will be reporting on is our enforcement of the PBM licensure act which was of course passed in 2018 it is different than the law that mr. Cox and mr. Johnson discussed but what they discussed is nonetheless very important to the PBM licensure act as the 2018 law incorporated the 2015 MAC law into into the act and also gave us concurrent jurisdiction on it so we
definitely wish the Attorney General and her staff best of luck on this very very important hearing as you know in 2018 the legislature passed the PBM licensure act in 2019 effective January 1st we went to full implementation of it so what we'd like to report to you is what we've done for calendar year 2019 we received 171 complaints from pharmacists for various issues within
the PBM LA of those 112 have been closed for the following reasons 70 of them we had to close immediately because they involved ERISA plans thus harkening back to what we've previously been discussed we have no jurisdiction currently on these plans, so when a complaint came in over a prescription filed under an ERISA benefit plan, we had no ability to assist the pharmacist in that manner.
Speaker 140
1:20:18
Six of those were closed due to a Medicare Part D
Ryan James
Unverified
1:20:23
prescription drug benefit. Again, we have no jurisdiction over. 36 of these 112 cases were closed due to lack of further action by the complainant. How it works at the insurance department is a pharmacist needs to actually file a complaint with us. We are not the Spanish Inquisition. We do not go looking for things. We have to have an actual complaint. When we ask for further information from the complainant,
either they've decided not to proceed with it or no further information was forthcoming, leading us to having to close the case. Of the 171, 57 complaint files were in fact closed by the insurance department where we recovered a total of $202,928 on behalf of pharmacists who complain. These were mainly dealing with either reimbursement requirements under the maximum allowable cost law,
which is the 2015 law that we spoke of earlier, or the requirement for the National Average Drug Acquisition Cost, or NADAC, which was put into the PBMLA in the 2019 session with, I believe, that was Senator Hammer's bill. Additionally, in calendar 2019, we did issue a fine against one company where we received a $50,000 fine payment. That was for violation of the NADAC requirement
that, again, was added in the middle of 2019. We currently have 17 PBMs licensed in the state of Arkansas. All 17 of those companies are in the renewal process because the license is a year to year. And we've also had two additional companies file with us to try to receive licensure under the PBM LA, which would move us to 19. In addition to the regulation, the department has been actively engaged at the NAIC level on PBMs.
We have been working with a subgroup of the NAIC to help the NAIC decide to move forward with its own model act on PBM licensure. One of the bits of feedback we got from our fellow states is some of them didn't necessarily want to license a PBM for various reasons, and some of it was investment of staff, some of it was they didn't necessarily see the correlation between a PBM and insurance. The one thing that we've been able to convince
our colleagues leading to the decision to move forward with a Model Act is whatever a state's public policy motivation is, whether they want it to lower the cost of prescriptions at the counter, whether or not they wanted to attack the rebates, whether or not they wanted to prevent gag clauses or spread pricing or whatever, whatever the motivation that a state may have had to play in this space, they could only accomplish their policy goal unless you had a license to implement. registration was just not going to cut it,
and we used the example that happened in Arkansas during the early part of 2018, when the controversy first erupted. Gotta keep in mind, PBMs at the time were just simply registrations with us, and we had virtually no regulatory authority over them whatsoever. That being said, the staff at the insurance department is working with the PBM model law group at the NAIC level. One thing that we've been able to establish
is the fact is that the Arkansas law as written will serve as the foundation for whatever NAIC model ends up being put forth. The idea would be to make it as close to the NCOIL model as we can, not guaranteeing that per se, but keep in mind that the NCOIL model also used the Arkansas law as a foundation. And that would include our report and be happy to answer any questions that the members may have.
Senator Jason Rapert
Unverified
1:24:33
Senator Raper does have a question or a comment. Thank you very much. I think it's very
important to settle in on the fact that you said 17 PBMs and you've got two new ones. Have you had any PBM leave the state of Arkansas and stop doing business here with any of their clients
Ryan James
Unverified
1:24:57
citing our legislation? To my knowledge, Senator, no. I will say that I believe there might have been one PBM
that did file for licensure with us that we ultimately did not approve for, I don't know the exact reason, but it was early on in the process. But the 17 that we entered 2019 with are still
Speaker 137
1:25:20
there. In fact, they're filing for renewal and then we've
Speaker 88
1:25:25
added two more. You know, and that's to let the committee know that is some of that regulation and regulatory authority in action. We don't approve everybody.
That's right. It's a privilege to
Senator Jason Rapert
Unverified
1:25:39
do business here. Yeah. Well, I wanted to make that statement because, you know, legislative battles become faint memories. But I recall that the sky was going to fall and the world was going to end and that they could never, ever do business. and we were going to just absolutely destroy this market in Arkansas, and it's obvious that we have not. It's obvious that many states and jurisdictions are beginning to follow suit, and I'm sorry, but I just had to point that out.
Ryan James
Unverified
1:26:07
Thank you very much. Well, Senator, I believe it goes also to a saying that the commissioner actually used several times during the debate. Companies tend to do what's inspected rather than what's expected. and now that we have a list of things that are going to be inspected that's actually kind of solidified this space i believe i do have several in
the queue um i believe senator urban is
Senator Missy Irvin
Unverified
1:26:38
back up again thank you um two questions quickly number one when you do the when you receive
the five fifty thousand dollar fine payment um for the violation remind me where that money goes
Ryan James
Unverified
1:26:51
Do you mind? All fines that are collected by the Insurance Department eventually make it
Senator Missy Irvin
Unverified
1:26:56
into general revenue. Okay. Thank you. And then the second thing is when you cite
that it's lack of jurisdiction with the ERISA law and the Medicare Part D, is that because of the lawsuit? No?
Ryan James
Unverified
1:27:11
No. Quite simply, the Insurance Department has no regulatory authority over any ERISA-type
plan. And if we tried to enforce our laws on it, we would end up back in
Representative Robin Lundstrum
Unverified
1:27:28
court. Yep, okay, thank you. Thank you, Senator. Vice Chair Lundstrom. Just one
Ryan James
Unverified
1:27:36
question. Where did that 50, what company was that $50,000 fine on? Madam Chair, Express Scripts. Okay. And it was a NADAC issue that came up after the nadac requirement became law in july of last year we identified it they they fixed it
very quickly once we identified it but they also acknowledged that they were in fact in the wrong okay thank you and they signed a consent order i believe
Speaker 86
1:28:01
in november to that effect that's probably one of the quickest fines i've ever received
Senator Linda Chesterfield
Unverified
1:28:12
they paid it pretty fast thank you thank you Senator Chesterfield thank you Mr. Chair and good morning
thank you for all of your work my family pharmacies are really kind of basking in the glow it isn't perfect but they feel so
much better about it but I did notice that two of the pharmacies one in my district and one of budding my district have subsequently closed down do you think that that's a result of this or just too many pharmacies around the town well
Speaker 144
1:28:44
of course uh competition is going to have
Speaker 88
1:28:47
a huge impact um and of course the number of of customers they have in the area um there's a lot of things that go into a business closing i i haven't had any reports from them or anyone around them that
that this particular issue was one of the reasons they closed. But I'm sure that things go forward that in every business, including pharmacies, that business is getting harder and harder to do. And some companies, some people just can't keep up with technology and all the things that go with it.
Senator Linda Chesterfield
Unverified
1:29:20
Well, these are larger. We're talking about a Walgreens and a CVS closing down in a couple of months of each other. so I'm just wondering if this had anything to do with their being PBM managers.
I think CVS was a PBM manager for a while, if the new rules had anything to do
Speaker 88
1:29:40
with any of that. If anything, they should have had a better time of it. More than likely, they thought that there were too many of their branches in that area. Well, thank
Speaker 53
1:29:51
you. Thank you, Senator. Just had another one come in the queue. Let's see who that is.
Speaker 52
1:30:03
No, I think Senator Chesterfield slipped back up again.
You're through? Okay, all right. Okay, back to you. There's no one in the queue, so any
Speaker 140
1:30:17
wrap-up that you have? The only thing I would have
Ryan James
Unverified
1:30:22
via wrap-up is actually more for consumption by those who may be watching this and also you as representatives of constituents. This law only works if complaints are filed, okay? We, the goal is to be in a situation
where there are, in fact, no complaints filed because everybody's following the rules. But until we get to that point, the only way we know if there's an issue with an independent pharmacist or anybody else dealing with NADAC or MAC reimbursement violations, you have to tell us, you have to be able to follow up when we ask more questions. That's the only way we're allowed to fully implement this law as written. Right. Okay. Thank you.
Corey Cox
Unverified
1:31:16
Chair, just thank you for having us out. We are proud and happy to defend this. My boss, again, the Attorney General, she believes in what you did, and she is completely dedicated. We are going to do our dead-level best to win at the U.S. Supreme Court and protect the good statute that you passed. Well, thank you very much,
Speaker 11
1:31:39
and I understand that April in D.C. is a beautiful time to be there.
Ryan James
Unverified
1:31:45
You're all welcome to come up. Actually, that would be a lot of fun to hear some
Corey Cox
Unverified
1:31:51
of the oral arguments. so you're all welcome to come as long as the supreme court has space you can sit there and watch yeah and as sean pointed out we'll we should probably have a decision in june so you're looking at a pretty quick turnaround so anyway okay well thank
Speaker 53
1:32:07
you very much for this update thank you thank
Speaker 119
1:32:10
you mr chair uh we have um and we're done with the pbms we have two other
Speaker 173
1:32:15
quick items on the agenda g and h if you would like us to go ahead
Speaker 161
1:32:22
and present those while we're here sure let's go ahead i don't think we have to suspend the rules to
Speaker 86
1:32:30
change up the order so okay uh the other one is very quickly uh committee is um uh just an update on uh the marketplace enrollment um as of january 1st department reports an effectuated enrollment of 63 460 in the Arkansas marketplace to start planning year 2020.
By way of comparison, there were 62,610 Arkansas enrolled at the start of 2019, reflecting an increase of year-to-year enrollment of 850. So for those who were
Speaker 88
1:33:01
concerned about AHIM being moved to the Arkansas Insurance Department, diminishing or hurting the marketplace in any way, we were able to not only keep status quo but increase 850 enrollees with a fraction of the
Speaker 174
1:33:19
budget and that's all I've got on that well that that's
Speaker 86
1:33:32
that with us you also I think you you've got passed out the county to county enrollment that figures that we've got for you there, so that should be in your packet. Lastly is our obligatory report on workers' compensation that we give the legislature each year. The only thing that I've got in this very large report
that I think Carol has gotten to you electronically, everything is fantastic in the state of Arkansas as far as workers' comp goes, as far as the voluntary market as well as the assigned risk market. Last year we had a decrease in workers' comp premium again. We've had decreases in workers' comp premium over the last decade, actually last two decades,
and it consistently goes down because of all the great work that the employers are doing in managing their risk on employees and workers' compensation. We had a 15% decrease this past year, which is double the decrease we had the year before. Again, this
Speaker 88
1:34:40
is probably one of the strongest insurance markets we have in the state of Arkansas, and we are at the top of the scale of anybody in the country. This is one of the best states in the country
for workers comp and for a state that's got a uh when you're trying to draw in business trying to do economic development bring business into arkansas and and they bring up the fact that well but you you've got a state income tax yeah well let's look at the bottom line and that's what businesses always want to look at the bottom line the bottom line
Speaker 86
1:35:16
is you're going to save you may pay a little bit of state income tax but you're going to save a whole lot more on your your uh employees working workers compensation cost so that will offset that so that's a good tool for
Speaker 88
1:35:28
our our economic development people to use and to draw business into arkansas and we want
Speaker 94
1:35:37
to try to keep it that way thank you very much members any questions about either of these reports if not uh thank you very much and thank you mr chairman thank you committee we appreciate
Speaker 52
1:35:50
all the the good news. Thank you, sir. We are going to now have an update on the
Speaker 11
1:35:56
PANS advisory council. I believe Representative Cloud is going to make
that presentation. How about the hot seat, Representative Cloud? Why don't you come down front here? We want to have you front and center. Members, there should be, I believe, that there is a report at your desk on the talking points of the Advisory Council. Representative, you will identify yourself for the record. You are free to present.
Representative Joe Cloud
Unverified
1:36:31
Thank you, Mr. Chair. State Rep. Joe Cloud, District 71. It's my privilege to give you a little update on what the PANDAS Advisory Council has done so far. As the chairman alluded to, Ms. Stapleton has a handout for you, so if you didn't get one of those, that'll give you the basis, and she'll be glad to get that if you'll waver down. I'm privileged to be a part of this Advisory Council. This is a very poorly understood disease in the state of Arkansas and nationwide,
And it does have a tremendous effect on some Arkansas families that are or have been afflicted by this malady. So you can see on your handout, PANDAS, Pediatric Autoimmune Neuropsychiatric Disorder Associated with Streptococcal Infections. So you can read it and pronounce it now. I don't know if you can spell it all, but it's there. This is a little bit of a misnomer because this implies it just affects the pediatric population.
That is incorrect. Adults can get this too. We call that an autoimmune encephalopathy. So just be aware of that. We had our initial organizational meeting on January the 2nd. And, again, the reason that this council was developed was because this is a very underdiagnosed condition. All of a sudden, the person takes a 180-degree change in their mentation.
Their personalities change, their behaviors change, and, again, the problem is it's misdiagnosed, and it's also not only slowly diagnosed, but then it's not treated properly, and different insurance companies will affect this diagnosis differently, and so we're trying to deal with that. We did hear at our organizational meeting from Dr. Vera Pandian, goes by Dr. Panda, which is very appropriate, I would think,
Dr. Rainey and Dr. Smith these are what I would consider our state experts on this condition both from UAMS and from Arkansas Children's Hospital. We are currently dividing up into two subcommittees to help educate health care providers and develop standard practice guidelines. The one great resource that we have that has come in to partner with us is this Arizona
couple Paul and Patricia Ryan not only did they develop early standards because their grandson was afflicted with this was misdiagnosed and mistreated so they have already laid some of the groundwork there's no reason to reinvent the wheel they are a tremendous resource for us and and they are going to personally be involved in this and be here and when that meeting can take place we are going to have a joint meeting with Senate and House Public Health Welfare and Labor
Committees so we're looking forward to that as far as just to give you a little bit more information we talked about being on the forefront of things as far as arkansans we can be very proud i think that we are taking this initiative early and there is a multi-disciplinary clinic that's already open at arkansas children's hospital it's not formally been opened yet but it's already seeing patients and having an outcome so the the the main thing
right now is to get that information out to all health care providers to parents that perhaps have seen this in their families to other folks and other families and that's where we're started thank
Ryan James
Unverified
1:40:41
you representative cloud we do have a question for you i believe from senator chesterfield
Senator Linda Chesterfield
Unverified
1:40:47
yes ma'am yes thank you mr chair and thank you for your work i'm increasingly concerned about these disorders or syndromes that nobody's heard of before, and our children
are suffering from them. My goddaughter was affected by GBS, and I'm wondering what are we doing to deal with not just pay-ins, which is so very, very challenging for the medical profession, but things like GBS. Are you involved in that at all, in that study, or do we need to just set up something to deal with that as well? Because I understand when we were at SAU there were several young people who had been infected with
the syndrome, and it's very, very trying when your child's eyes, you're not able to control them when they can't control the mucus in their bodies, but she has subsequently come back around and it's gonna be okay but she started walking and would just fall down so I'm just wondering what are we doing about these other autoimmune system areas or that are so different from anything we
Representative Joe Cloud
Unverified
1:42:05
heard about thank you senator for that question I I can tell you I'm not directly involved in any gps gps type studies or things like that autoimmune diseases by definition are difficult and one of the best things we can do as a legislative body in my humble opinion is to get the word out and the more the health care providers whether it be the physicians or mid-level
providers or school nurses uh and even to families and parents the more they know about this and then it's on the forefront and they they think about it and then the quicker the diagnosis obviously the sooner the treatment and the better the outcome thank you thank
Speaker 11
1:42:55
you mr chair thank you senator and i just want to say how privileged we are uh i know we refer to you Representative Cloud, but we're so privileged to have Dr. Cloud before us to be able to answer these questions that I'm sure,
I don't know if anyone didn't know, but it's like, I'm sure they were like, uh-oh, is a regular representative going to be ready to answer a question off this topic? And
Speaker 174
1:43:20
we appreciate your wealth of information that you
Speaker 11
1:43:23
share with us. Thank you. Members, any additional questions? If not, thank you very much, Representative Cloud, for that update. At this point, I think we have made it through our agenda. Is there anything else to be brought before us?
I do want to renew the information that, bring it up to you again. I brought it up at the beginning. We do have, and I just want you to know each, both the Senate and the House Insurance Committees do have a travel budget that can be used for you to attend meetings like NAIC or in coil and there is a meeting coming up believe it is March 6th through the 8th in Charlotte for in coil if you I know we've reported this in the House
Insurance Committee before that I believe if it is the first time that you've been to attended an incoil meeting incoil will waive your registration fee pardon okay would you okay you senator urban says she'd like to go so we will have you get with miss Stapleton but anyway at least I know on the house side we have to go through the process of me drafting a letter on your
behalf and sending it to the speaker for approval and and i don't know the senate's process but if you will ask miss stapleton miss our very able assistant here keeps us on top of making sure we have all that documentation but we do want you to be involved i know um senator rapert has been urging me you know each time one of these incoil meetings comes around and i am definitely going to make the one in March so if there's not anything else I will entertain a
motion to adjourn we have a question yes senator has absolutely nothing to do with
Senator Linda Chesterfield
Unverified
1:45:28
in coil or anything do you know when budget hearings start staff can tell me March what does anybody on staff know the exact date when we're starting I have not heard anyone I
would appreciate if someone would get back with me with the exact date because I keep hearing March but I don't know March what mr. Leideman says
Speaker 52
1:45:57
March 3rd March 3rd beginning of budget here I'm
Speaker 18
1:45:59
gonna hold him to that hold him to that okay it is on the record and let's see thank you so much showing me
Speaker 52
1:46:20
something just gonna put a little dent on my okay
Speaker 13
1:46:25
looks like the pre fiscal session budget hearings start on march 4th
Speaker 11
1:46:29
okay well that you're just wanting to be early so you know get us get us here on march 3rd okay
Speaker 146
1:46:37
thank you members and we are now adjourned
Agenda
A. Call to Order
B. Chairmen Remarks
C. Consideration to Adopt Meeting Minutes
D. Insurance Business Transfer
E. Update on Pharmacy Benefit Managers (PBM) News and Legislation [EXHIBIT E]
F. PANS/PANDAS Advisory Council Update
G. “Starting Effectuated Enrollment” for the Arkansas Marketplace for Plan Year 2020 [EXHIBIT G] --Mr. Allen Kerr, Commissioner, Arkansas Insurance Department
H. Report Received --2019 Workers Compensation Insurance Market in Arkansas (available electronically) [EXHIBIT H]
I. Other Business
J. Adjournment
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — INSURANCE & COMMERCE - SENATE, Jan 16, 2020 | Agenda | 2 | Official source ↗ |
| EXHIBIT E AID LTR re PBM info | Exhibit | 2 needs OCR | Official source ↗ |
| EXHIBIT G AID re Marketplace | Exhibit | 8 needs OCR | Official source ↗ |
| Exhibit C-1 Draft Minutes 8-1-19 | Exhibit | 6 | Official source ↗ |
| Exhibit C-2 Draft Minutes for 11-6-19 | Exhibit | 3 | Official source ↗ |
| Exhibit-H 2019 Workers Comp Ins Market in AR | Exhibit | 196 | Official source ↗ |
| HANDOUT 1 PANSPANDAS INFO | Exhibit | 2 needs OCR | Official source ↗ |
| Minutes Approved for 1-16-2020 | Exhibit | 4 | Official source ↗ |
| PrPt 1 Enstar Ins Bus Transfer 1 16 20 | Exhibit | 17 | Official source ↗ |
Speakers
Speaker 8
Speaker 11
Senator Jason Rapert
Unverified
Speaker 13
Speaker 17
Russ Galbraith
Unverified
Robert Redpath
Unverified
Speaker 26
Speaker 27
Speaker 37
Speaker 40
Representative Robin Lundstrum
Unverified
Speaker 48
Speaker 50
Speaker 53
Speaker 56
Senator Mark Johnson
Unverified
Speaker 64
Speaker 73
Speaker 84
Speaker 52
Speaker 86
Speaker 88
Speaker 94
Speaker 98
Speaker 30
Speaker 107
Corey Cox
Unverified
Speaker 106
Senator Missy Irvin
Unverified
Speaker 124
Speaker 131
Ryan James
Unverified
Speaker 137
Speaker 140
Senator Linda Chesterfield
Unverified
Speaker 144
Speaker 119
Speaker 173
Speaker 161
Speaker 174
Speaker 91
Representative Joe Cloud
Unverified
Speaker 18
Speaker 146