Insurance & Commerce - Senate

something. But not yet. So. Senate Insurance Commerce come to order. We're gonna begin with special order on the Senate Bill 179. Just come up, come up here. It's too far. Oh. Yeah, you can come up here You have not got you, you hadn't got to come up here unless you want to testify on the bill, right. Just, uh, everyone introduce theirselves at the beginning that way we don't have to do it as you speak and you're welcome to proceed. Thank you, Mr. Chair. I appreciate the opportunity to present this bill. Senator Justin Boyd from Fort Smith. Good morning. I'm Brian Powell with the NASC. It's the National Association of Insurance Commissioners. Laurie Trogden, president and CEO of the Arkansas Bankers Association. And with your permission I'll, I'll get started, Mr. Chair. Go ahead. And again, I reiterate your, uh, accommodation today. I don't know what kind of confusion there was between the legislative branch and the executive branch, but apparently there was some, and I do appreciate you accommodating our out of state guests to be able to at least hear this bill. So in getting started, storms during 2022 and 2023 have led one of the worst underwriting. situations in the nation here in Arkansas. Arkansas is now the only state located 100% within Tornado Alley. That's right. Tornado Alley has shifted east, and we are the only state that's 100% inside Tornado Alley. 2024 was a record year of severe weather events. Go ask the people in Northwest Arkansas who had two tornadoes that came through, um, but Um, many of these events were outside Arkansas, but we had our, our own challenges. There were 52 tornadoes which yielded 5 fatalities in 22 and 20 injuries. There were significant hailstorms. There were significant thunderstorms with straight line winds. Property and casualty insurance premiums continue to rise significantly. These rights affect all of us, whether we pay them directly or indirectly. It's not a tax, but it's like a tax, and that we're all affected by it. Also unstable property and casualty rates play significant risks on the mortgage and home ownership markets. We cannot change the weather, so what can we as your state government do? Well, we can begin by looking to see what other states have done to keep healthy competition and insurance markets and stabilize premium rates. Other states, including many around us, have implemented implemented substantially similar legislation to the strength in Arkansas Homes Act. We can implement this and be a leader, or we can kick the can down the road and risk healthy property and casualty and risk. Losing healthy property and casualty insurance markets. This is an important first step for creating a culture of resilience and weather mitigating building in Arkansas, and with that turn it over to Mr. Pal for some comments. Thank you, sir. So, The work that I do with the NAIC is to work with states around the country, you bend that thing down for him, Justin, so there it is. Is that better? So the work that I do with the NAIC is I work directly with other states around the country and Developing risk transfer programs such as the one proposed in this bill for Arkansas. Currently I'm working with about 30 states to establish some level of programming such as what's introduced in this bill. The background that I have in this field is the person that designed and implemented the strength in Alabama homes program which this model is based after, um, and, and really what we're trying to do here We're trying to reduce the risk of loss in your insurance market due to these severe storms. That is the only way that you're going to be able to reduce premiums is to reduce the opportunity or the responsibility to pay for to pay for the loss through this through this through the storms. So this mitigation effort is, is a way for for us to to to basically reduce that risk of loss. Now we've seen this happen across the country. It started in a hurricane prone regions of the country. Alabama was the first. We have Louisiana that's online now and most of your eastern seaboard states or online with programs at this point or either they're planning programs because what we're seeing is through this mitigation work and I can go into a little bit more detail of what the program looks like, but what we're seeing in this in these numbers come out of an assessment that we did after Hurricane Sally. We're seeing that the reduction of loss on these on these claims is around 90, around 67%, so about 67. % reduction in the cost of the loss of claims, you know, from these severe storms is realized by by the state. The program itself as introduced in this bill is a grant program. The grant program pays for a retrofit or a mitigation to a home that is performed to the Insurance Institute for Business and Home Safety standard known as the fortified standard, and what that is is a science-based. approach where homes are designed to retrofitted to withstand up to about 130 mile an hour winds. They're also designed to withstand the impacts of hail, so just in that alone you're going to cover the majority of the perils obviously that you're going to be faced with. The programs across the country have been very successful. We're starting to see a real reduction in insurance premiums that are they're being imposed on consumers. We're also seeing other things happen within the within the states too, and that is building through some other measures that really are born out of these acts to build a culture of resilience. We start seeing the adoption of a stronger building codes. We start seeing where people are just educated and aware of the risk or the savings from this these risk transfer programs, and they're actually taking it upon themselves to to perform the mitigation work on their homes. Um, so we're seeing a lot of ancillary things take off from these programs that are a real benefit to the state. Another thing to consider is that after the storms there's about a $12 for for every dollar invested in a mitigation program like this. There's about a $12 savings to the state. and to the local governments when it comes to things like cleanup after the storms. You're not putting as much waste in the landfills, so you're, you're not, you're not absorbing or making that environmental impact as you would be if you did not have these these types of programs. The program itself is a basic program in that once a grant is issued, there is a check and balance on the process for mitigating the homes and it involves not only the department as the administrator of the program, which will have oversight over over the operation of the entire program, but you also have other players that are involved that are effectively third parties, and these are contractors and evaluators. The contractors and the evaluators. are trained to the IBHS standard and they perform all the work, so there's a check and balance on the quality of the work and the completeness of the mitigation retrofits. One of the things that's derived out of the retrofit as a certificate. A certificate is issued by IBHS that will that will basically certify that this home meets their standard, so there's a check and balance on the quality of the work, the completeness of the work, and then also whether or not, and I believe in this bill, we introduced the concept of discount or premium discounts, so the certificate would be used to effectively allow or to trigger the discount for um for homeowners on their insurance premiums. Um, we've seen programs be very successful with this. They are also checks and balances put into the program in which the department is fiscally responsible for paying the contractors directly, so we have oversight over the payment and also the way that the programs are put together in their processes. They're also elements in there that can prevent fraud. So we have a really good model that's that that has been introduced or is being introduced here in Arkansas that has been. in other states right now there are about 6 states that actually have a program like this in place and all of them have worked effectively to to responsibly mitigate homes in their state. What we're also seeing is we're also seeing the reduction of insurance premiums in these states because of the popularity of the programs and also, as I mentioned before, there's some incinerated benefits that happen whereas the the consumers. Take on these mitigation programs on their own. Another thing is economic impact. These jobs for about every million dollars you put into one of these programs, you start seeing about 20 to 25 jobs created and so effectively what you're doing with this is creating a new industry within your state. There's a mitigation industry that's being created, and we start to see that realized in gains in GDP and in other areas of the economy. It also puts more money back into your tax base just because. of the purchase of goods and services that go into creating the retrofits and also can prompt some building spurs and also another thing to realize is that by doing the mitigation work to the standard that you're also increasing the value of your homes. I think in Arkansas, you'll see somewhere around a 7% increase, whereas on the coast we've seen somewhere around a 10 to a 12% increase in the value of homes. Just based on the mitigation standards alone because the homes are better built, they're more resistance to storms and also they carry an insurance discount for the homeowner, which which they'll realize the gains of the of the cost of mitigation in just a few years if they have to pay for it themselves. So you know, that's kind of a general overview of the program and some of the benefits and I'd be open to questions if that's appropriate at this time. Sure thing. Senator Murdoch. That's just speak real quick and then we'll come back to if that's our. Go ahead. I Thank you. Just 2 points from the banking side first, as you all know, when you have a mortgage or taxes and your insurance escrow, and so that's built into your payment. Well, at the end of the year, if you're insurance is short because your premiums went up, then we have to recruit that cost, so either you pay the difference or uh you finance it or they finance it into your next year of mortgage payment. Or could you pull that thing. OK, I'll start over. One thing about higher insurance premiums that we are seeing all over the place, as you all know, your insurance and your taxes are escrowed into your mortgage payment if you have a mortgage at the end of the year, if you're insurance payments are short. You either pay that difference or it's put into your mortgage payments for the next year. That cost has already been paid, so the bank does have to recoup that in one way or the other, so many homeowners, you know, they can't afford for their morg. payment to go higher. So we are seeing that, and that is a concern for our industry. The second piece of that is with replacement with replacement percentages going down a $1000 roof may now cost you $10,000. Most folks can't afford to go out and spend $10,000 on a brand new roof once it's been damaged. And so what happens is the bank has a mortgage on a home that's damaged that the homeowner can't afford to fix. They may not be able to get a loan, a, you know. A second mortgage or something like that to fix it or a small dollar loan to fix it and so you've got and the the homeowner is now living in a house that's damaged that they can't afford to fix, so it's, it's a bit of a snowball effect for all those things. Paint. Thank you, Senator Murdoch I was trying to get her summary just so this is why you appreciate this or you're just commenting on this. I'm just, we're just commenting on it, OK. We do not have an issue with the bill, OK. So, uh, let me say, uh, a conceptually I have no issue at all. I appreciate even the idea for what it's trying to mitigate the wind situation as it affects roots and those things. I'm very, very familiar with this. So, and I've met with Senator Boyd and talked with um um others on this yesterday. I appreciate that. So there's lots of details of what's not in the bill that will, I guess, get fleshed out, you know, if they make it to. Um, rulemaking, but one thing I do want to possibly get into the bill, that's not there now on the front end, uh, again, there's a lot of other things of details is not here as relates to Arkansas contractors, evaluators, those that will make the decisions in terms of uh inspectors slash evaluators, even the materials that have been used, used that our suppliers and our supply houses currently have these supplies as it relate. To all the way down to the nails and shingles specified that we have that supply verified, not saying that we do or don't, but there's, but it has not been verified. I talked to a couple of people this morning. suppliers about it. So that's something that we need to work out. Obviously they can get whatever. That's here, but That is sitting here now is just in something we got to deal with. The one thing I do want to get put into the bill if if the if the um sponsor agree is how these funds will be distributed versus in the bill that says first come first serve. What I would like to see is by congressional districts, we have 4 congressional districts. If we just can break it up evenly if it's a funded, then everybody we know each area of the state is going to get attention because they're not gonna have a problem getting this done if if we get funded, this is going to be great and you're going to have plenty of of of of applicants. I want to make sure that each part of the state get the same opportunity if we're talking to the senator about that, so rather than going through just cutting up this bill in a lot of ways. I'm OK with the concept. I know we got to go to rulemaking, but I would like to see us put that in there. Thank you, Mr. Reginald or Senator Murdoch, I'm sorry. It's been a long, no, no, not in committee. Senator Murdoch, I appreciate that idea and I've been reflecting on it since we, we talked yesterday. I don't know that I would say I'm opposed, but I think we're going to have to get someone from the insurance department to kind of give us a thing because my My concern with that is like we had, we literally had two tornadoes come through northwest Arkansas, right, so based on and you might be able to answer this as well. My concern is, is there might be more demand after a storm event than before a storm event and so that that was my, since you and I talked, that was the one thing that came up that thought, OK, well, what if that came through when there might be a lot more demand in wind after the fact, then there is in Fort Smith that hasn't had a severe weather event that year. So that was why that was the only pause I had in dividing it into congressional districts. So Can you address that? Sure, Senator, we've we've seen this in a number of states and and the way that I recommend approaches to this. One is The reason for the program is to help mitigate homes to lower risk. So, so what we do at the NAIC, we have an operation there in the Center for Insurance Policy and Research. It's basically a think tank for the for the NAIC and what they do is they can, they have these tools where they can look at, say, a state, and we look at where the population is. We have data that has been provided by the insurance industry, and we can look at something like your lost. lost data and with layers of other information like weather patterns and historical weather, you know, predictions of what's going to be in the future and all these types of things. We have a really good idea of where the mitigation can happen to have the highest possible impact on the premiums for the consumers. In other words, when you concentrate the mitigation work in areas of high risk and high loss. When the storms hit again. That risk and loss isn't there and you can see that in repetitive patterns all throughout the weather, and we have those tools to do that. So, so, so those, that's like, that's like the first cut to say, OK, well this is where you know you're going to have the biggest ROI, you return your investment for the for the dollars that are going to go into the market, but to your point, there are people in the state that may not be in the highest risk areas, but they're all, but they may be in say. At least we experienced this in Alabama where there may be some some economic challenges for for people in the state. And so the program addresses really both of those things. They address the highest risk of loss, and then they address the concerns that that that she brought up where you may have a maybe a place in the state where people can't necessarily afford to replace those roofs. So you know, partnerships with nonprofits, I think that's in the bill as well. That's where those really come into play in that you can block grant money and go into those areas in those congressional districts, you know, and we would ask that, you know, the representatives from and senators from those areas say, hey, these are the most areas of concern for us, and you can take your programs into those areas with those nonprofits. Another provision that's in this bill is something known as a roof endorsement, and for a sum of money and I think in most states. Seeing it for less than $100 a year, not sure quite what it would be in Arkansas, but I think it would be something along those lines. Whereas if you cannot or have not been able to get a a a retrofit to your home. You can purchase this endorsement and what it allows you to do is if you have an insurance claim on your home instead of replacing the roof with just a light roof, it will go ahead and replace it with that upgrade. So you will get that, that upgraded roof and. That, that's available for everyone. You know, we, we looked at this in Alabama and what we found is we found that there was on both ends of a of a of the tail of a calculation is that there were people that may have a claim on their roof that could not pay the deductible or could not pay to have their roof replaced, but then we have folks on the other end of the spectrum that it would cost an enormous amount of money to have their roof replaced. And It was cheaper for the folks that perhaps could pay for it, not to pay for it because of their deductible amounts, whereas on the other end of the spectrum we had people that couldn't even pay their deductible if they had insurance at all. So we came up with the concept for this roof endorsement. So you pay a small fee and then regardless of what it costs to have your roof replaced if your home is insured, then it will replace it and it will replace it to the standard and then everyone can realize the discounts that are available for your premium. OK, uh, so appreciate that. Additional information going back to the The distribution again, um, because of how wind affects so many parts of the state and I work all over the state and I've seen it happen, so my experience is that Again, if we do it in a manner as I, I mean, you're, I think your research is going to say pretty much what I'm saying when you do your research, it's going to say that each part of our state. It's close in this wind damage. There's no huge one area that is doing more than the other deserves more than the other. So I just think that equitable way of doing that and if an area of congressional district is, uh, uses up there allotment, and we have a situation that we need to do something different somewhere else, we can also address that, but I think initially we need to walk in the room from a just a true. situation for in each congressional district and that just would make it simple. So, so you're suggesting they $250 for each congressional and equitable distribution based on districts, but then look at the the where you're return investment would be within those districts where your highest risk of lossess. Well, yeah, you'll make those those decisions would be made administratively by the AID. That's who's administrated, right? by the AID on that. Situation in terms of of that, but the distribution will be each area of our state has. And allotment For and it's gonna happen. It, it applies all across us. So what I'd say, Senator Murda, I hear you. I'm not opposed to the idea. I'm uh I'm not trying to because I want to continue this conversation with you. I just think that we don't know if we have the permission from the executive branch to move forward or not. And so until I kind of feel like we have that permission in your business a little bit. Well, that, that's my perception, yes, sir. OK. I think we talked about that a little bit yesterday. So. Don't you get to sign off. Thank you. I, I think, I think Reggie makes a very good point, and you know, to divide that up, but also if those funds at the end of the year are somewhere in that 3rd quarter, have not been used. equitably throughout the four congressional districts, I think there ought to be priority in that in that 4th quarter that goes to goes to that most, most needed area, but I don't think you need to distribute all of it in one district uh without consideration until that 4th quarter, I think that's a good point. Mr. Chair, I'm going to work on that amendment, and I appreciate both of you, and that's again the value of you allowing me to hear this bill today. So thank you. I appreciate that. So I have a few questions and then Senator Flowers, uh the eligibility, uh, it only speaks to insurable dwellings. It don't say this, this eligible was insured prior to the event. Could somebody speak to that? Well, I think the concept is a This is a way, especially with your premium discounts, this is a way to allow families to perhaps enter the market and purchase insurance. Because in Alabama when I ran the program there, we saw a pretty large percentage of folks, especially on the coast in our specific case, just because the insurance rates were really high. People were going bare. They were going without insurance just because they couldn't afford it. Uh, and once the retrofits happened and they received the grant and got the retrofit, we saw a reduction in some cases as much as 50%. Of the of the premium now that again that's just in Alabama on the coastal area. I wouldn't expect that discount to be near, near that high in Arkansas, but that reduction in the premium does allow people to be able to afford insurance, you know, where they, as before, they were not, and for those that were already insured, it allows them to purchase even more better insurance for their homes, because there's a savings. So in we're creating a program. By with with people who pay insurance to to help people who have not covered themselves. With insurance for the damages that have incurred. Am I correct? Say that one more time, please. So you're taking the premium taxes that I've paid and, and giving it to somebody who did not insure that property through this, this grant program. Am I correct in that statement because the eligibility does not require that that property be insured to be eligible for this grant program. Well, I mean, that's, I guess that's one way to look at it if if that funding stream comes from from that tax, but there there can be other funding streams that can go into these programs. We saw large employers, we saw philanthropy. We saw a number of revenue streams come in and those folks donating that money could dictate the eligibility requirements in addition to what the department had already outlined, so in, in effect, yes and no. It just depends on on the the funding stream. I'd say point well made, Mr. Chair, and if we're given permission to move forward, we will be looking at that amendment as well. Thank you. So what is, what percentage is that premium tax on a on a premium just an estimation. With, with your permission, I've got some sheets that I could hand out to the committee that show that um this is, so my interpretation and everybody here can think for him or herself, but my interpretation is, is that um This will not reduce the amount of money that is currently going to general revenue, and for the record, I've been transparent about this. This does have a $12 million fiscal impact, right? Like there's not a fiscal impact statement, but I can give you one right now. There's $10 million that would go to fund the grant program and then up to another $2 million to fund the administration. So, um, just again, but if you look at this and what the premium tax increases because, you know, we keep seeing increased premiums. Then we're going to keep in seeing increased uh tax collections, right? And so when you look at this, it does not appear that we're going to Reduce the amount of money that has been going into general revenue. We would be reducing up by up to $12 million. What might go into general revenue going forward. Does that make sense? Because, because of the growth in tax collection, yeah, so you have the premium tax collections 2020 through 2024, and then the annual general revenue distribution 2020 through 2024, and you can see that $12 million is unlikely to affect what is the the amount that is currently being shifted into general revenue. There seems to be ample growth to cover that $12 million. So could, could you speak to the nonprofit. In other states that administer administer these programs because I don't think we have a nonprofit that is has that. Um, structure or or what they're, you know, Built for their goal is right now in the state, yeah, so, so in several states around the country one of the nonprofits that's that's probably the most prominent is Habitat for Humanity, because they, they're very good at handling paperwork and they're very good at building homes, uh, so they effectively act as a force multiplier for for the administrator of the program like this. Because what they'll do is they can be tasked with um Handling all the paperwork according to the rules established by the insurance commissioner, and they can, they can be bought granted money, and they can work to within their communities or their designated areas to provide these retrofits and Habitat typically the way the affiliates are organized is that they'll have a certain geographic region within the state, so you're not, you're not necessarily working with one habitat, and one thing that I found from experience in working with Habitat for humanity is that they do partner with with other organizations. One of the the most profound programs that we, we launched and ran down in in Alabama was in the Africatown community down close to Mobile in the Pritchard area where we were able to bring in habitat for Humanity to help the strength in Alabama Homes program administered the grants there, but through partnerships that Habitat had With with Home Depot and a few of the other large box stores. They were able to bring not only additional funds in, but they were actually able to bring materials in that didn't cost the program any money and because there was those those partnerships there not only were the homes retrofitted to the IBHS standard, but they also were able to go into those, those communities and repaired other things like electrical and plumbing and all. What's more is that those communities that we went into were uninsurable, and when we finished the homes that were that were in those communities, those residences were were had an insurable home, and they were back in the economy and and we're becoming more productive in that regard. What about uh administrative costs for that nonprofit is that I mean I hadn't. That's typically something that they absorb um they have other funding streams that come in that are in the form of grants that that helped them do this. So the money that that you would block grant them will go 100% toward the cost of those mitigation programs. Thank you, Senator Flowers. Thank you, Mr. Chair. Thank you for presenting and for being here. I wanted first because you were about to leave. I I was confused by your response because at the end you said Bankers Association afford this. I thought I heard you say that, but then you gave so much of a Contrast in what would happen, people can't afford to put a new roof on and mortgage increase and I don't, it was confusing to me. So why would the bankers association Senator Boyd, yeah, Senator Boyd asked me to come and just talk about some of our concerns with what we're seeing with premiums and mortgages, if I'd stated it correctly, what I meant to say was, we do not have an issue with this bill. We've Senator Boyd showed it to us, and we had no issue with it. So, so Senator Flowers, if I can try to answer, well, even though the bankers have mortgages with people that can't afford to increase the putting in more money to to get a new roof or to get even an endorsement. And I think, I think I'm unclear on I am too, so, so, so this there was discussion in the interim, so we had interim insurance and commerce meetings. Like I didn't just come up with this out of a vacuum, right? Like there was discussion and the bankers, it was not Laurie or Miss Trogden, who came to talk to us, but there were mortgage bankers who came and shared their concerns about the rise in property and casualty insurance rates and how it was going to affect the mortgage. So I just asked her, the bankers association doesn't have a position one way or the other. I didn't ask her to. I just, but I asked her because I felt like she could say in a more intelligible way what the impact will be on the mortgage market if we fail to act, if we don't do anything, and so I apologize if I created confusion, but because I thought I heard her say that the bankers support this, so. That's what I thought I heard you say at the end. We are neutral on the bill. We have no issue with the bill. OK, I'll move on. Thank you. Can I, can I make a comment on on the impact of these programs with the mortgage industry and the bankers, so With these programs, when you see the reduction of risk of loss when the storms come through, you don't have the loss that you would typically see. The roofs stay on the home. The homes stay together, and you don't have that loss now just like with mortgages and like with this program, insurance is required. So when you have the reduction of loss, you have an insurance requirement which will be reduced for the consumer, so it's more affordable because of the insurance premium discounts that really locks in that position for the consumer in a very good way. What's even more of a benefit is that the consumer is going to see an increased value of their home. So they'll have more equity in their home because of this, so they're going to see an equity in their home. They'll have a better built home, and then they also see a less of an insurance premium because of the retrofits. And that helps stabilize the insurance market, and it also helps with the stabilize the the mortgage and the housing market within a state right now I'm working with HUD out of DC on these issues. And how's that going? It's, it's going fairly well. It's going fairly well, as a matter of fact, the NRC is going to release a statement later this week to the Secretary and it's going to talk about the effects of the retrofits and how they impact housing nationwide and it's not just for win, but it's also for wildfire and earthquake. We do other programs as well. Feds are going to Give no, the feds are the feds are not, but what we're doing is we're finding a state-based solution to to solve this issue, and that's what we're doing. Oh, you mentioned you'll have other sources. For funding this. What about the insurance companies. Funding some of this. A lot of money that the insurance pays into the state to do business in this state are typically rolled into these bills. It's not just your premium tax, but they're also licensing fees. There are other fees that the insurance industry pays to do business in your state. Most states profit, don't they? Most states, most states use some of that money and it's allocated just like in this bill to pay for that. Now one of the things that that we have been working on and one of the things that I did do in Alabama is we had 4 insurance companies that did donate money to the program, and we went in and and retrofitted homes within their within their policy pool. We also have a fair plan or like an issue of last resort, and we did a depopulation from a surplus that they had attained over a number of years where we went in and retrofitted these homes so they could leave the state's insurer of last support of last resort and go into the traditional markets, so they were actually able to get better insurance because of that. So the insurance industry has been behind this. They have supported it in a number of ways and probably one of the biggest ways outside of giving money to a state, as I mentioned, the insurance institute for Business and Home Safety that does the research for this. They are 100% funded by insurance companies. Well, that makes sense, but Uh It's just been so many different topics here and I'm trying to draw my questions. I had some questions about some things, so Uh What about How does this fit in with Well, first of all, let me go back because you just mentioned something about the homes if they were better built I guess. And less risk. Like with the better roofs and all that. So we changing the building codes. In the state I'm going to answer that no, there is no mandate on builders in this bill and, and I should have said that from the get-go. We, that is absolutely zero mandate on a builder. The only mandates are if someone took money from the grant, then they would have to build to a certain standard, but there's no changing code on the way builders have to build. OK, and so then the next question is, Do we have contractors that are certified by This, uh, it was a Here, here I got it. Uh, these contractors that are hired to perform this work for mitigation standards. have to be properly licensed, insured, and certified by the Insurance Institute for Business and Home Safety. Do we have these contractors that have this certification already in the state of Arkansas. There are a few, however, this, this goes back to the statement that I made earlier where you're effectively creating a new industry here. IBHS, one of the things that happens later on in the design and implementation of the program way before grants are even issued, is that IBHS comes in and builds a workforce and they and they train contractors and it's open to any contractor that wants to get into this free of charge or what? They've got to pay a fee. There's a fee for this, but it's only a few $100 and but they also have to meet other standards which are really put in place or eligibility requirements which are really put in place as as a level of consumer protection, so you have to have a certain level of liability insurance. We want to make sure that when a contractor goes on the job site that that consumer is protected as best we can. protect them and that the contractors are are trained and certified to do the work. One of the beauties about the the the the way that this program operates with the especially with the evaluators coming in is that is that is an independent third party that comes in and also does an evaluation of the quality of the work that is done by the contractor a little bit, a little bit more in detail about the process, the evaluator will will Look at the way the contractors and the work that they're doing in certain different or different levels of of of work that they're doing and looking at at the projects in different iterations through the life of the project to ensure that the work was done properly. So in Arkansas Senator Flowers, I need to go to Senator McKee and then we'll come back to you if you need to continue. Well, look, I'm trying to follow the discussion and have questions Flowers, Well, look, I'm trying to follow the discussion and have questions, but thank you so much. I don't need to get back on. Senator McKee, thank you Mr. Chairman. So I know that you mentioned that it won't, you don't think it'll result in a decrease. In the general revenue distribution. But if, if that distribution or the forecast is based on the increase in those premiums. Doesn't that have the same net effect? So, let me read it like this, OK? Let me be very clear. The strength in Arkansas Homes program could be funded with revenue collected by the insurance department without a year over year decrease in the department's general revenue distribution. So yes. I fully disclosed there could be a $12 million fiscal impact, but it's not going to lessen the amount of money that was transferred. So there's going to be at least as much to be able to transfer this year as there was last year, and quite frankly, probably more, but it's going to be, at least, but yes, it could. So, so anyhow, does that answer your question? Senator Flowers, do you want to continue No right, not right now. I prepared to be interrupted. Thank you. I want to know about These Evaluators. And people, you say that in other words, it seems to me like you're talking about inspectors or some something akin to inspections. And so if that's the case, I remember last session, we merged the Appraisers. The home inspectors. And even had some people dealing with Uh Abstract of title and something else altogether under one branch. And so are these evaluators gonna come up? And be a part of the inspection or are you all doing something entirely different. The evaluators are are typically independent business owners. This, this is where you start getting into job creation. And creating this industry so you're not taking away jobs from whom from the the home inspectors that exist now. No, now home inspectors and home inspectors are, will continue to do home inspections, but they can get an additional certification to do this as well. But it's not being rolled up into like a like say a code office, a code officials where they're out inspecting for building codes. Some jurisdictions have those. I don't know if they have them in Arkansas, but in some states you have, you have within certain cities and towns you have a department. They are, you know, city or county employees that go out and do this. That's not what we're talking about. The evaluators are independent folks, so they would be in home inspectors. They may be people that um even even do some inspections for insurance companies for reasons so, so they're they're independent, separate from any government agency, or entity. I don't see any more questions, Senator Boyd, if you want to wrap up. Senator Flowers. OK, and this might be for you, Senator Boyd to answer. Now we're talking about painted this picture of Arkansas being this 100% in the tornado. Alley. And so When these things happen. These weather events most times I've never seen it not happen. That They Emergency declaration has not been declared. So And money pours in. To help communities and individual homeowners or business people. So how, how does that play? I don't think there's anything in this bill that that changes this. This just gives people an opportunity to retrofit their homes to be more resilient against the weather and to help mitigate it. We can't change the weather, uh, we can argue about what's causing the changes in weather, but it doesn't matter the fact of the matter is, since the 90s, weather in Arkansas seems to be more significant, more regular, not more significant, but more regularly more significant. So Um Well, all I'm asking, I want to know. We're talking about money here basically. Money for homeowners to retrofit their homes or to reduce their premiums and for insurance companies not to have to pay out so much. Am I right about that so far? You can shake your head. Yes, but I want to add something to that. I, I, I'm, I'm just trying to figure out what all this money flowing in when you have emergency declaration monies, uh, FEMA money is coming in. It just seems, you know, as a homeowner, you know, I'd like to have a More or less what I think you're talking about a weatherproof kind of home in a roof. But Like Ms. Trodin said, I mean, if it's going to cost more than I can afford and then I got a Figure out a contractor and And, and is that contractor gonna You know, treat me right and is what kind of warranty I'm I have the insurance companies is still going to have a deduction on my premium and uh You know, I'll feel more safe in my home, maybe. But I have less to work with in terms of other things that I would like to afford, so that's part of the reason we're setting it up with grants so that it can be affordable to people. Not everybody needs a grant. Not everybody's going to apply for grants, but the more homes that become built in a resilient way, the more stable the the market becomes and more competition, more insurers will want to do business in Arkansas and with competition, that's what we can do to hopefully I'd like to see a reduction rate, but certainly stabilize rates. So I don't think FEMA has anything to do with this. If there's a severe weather event. None of this is going to preclude FEMA from coming in and providing aid or any anything else. So I'm just suggesting that maybe on the front end that money that is allotted to FEMA might be used to help with this grant program, and you were sitting up there saying you're talking to the people up there in Washington DC, are you all talking about that? Yes, we have. We've, we've talked to FEMA. We've talked with with HUD. And I've even, I've even talked to the White House about this over the past 4 administrations, about Building this mitigation process into the resilience of communities. So when an entity or a federal agency does come in and provide some level of assistance that that perhaps this is a way to To this is what you spend some of the money on is to build it in. The problem is, is that like with FEMA individual assistance, it's, it's not really designed for um for individuals to receive assistance to do this type of work. It's more of a community-based thing. You may get a little bit of money to to kind of cover some emergency issues that you may have, but it's not going to rebuild you. It's not going to make you whole. That's not, that's not FEMA's, that's not the way they operate. They have the Small Business Administration. There's some other agencies out there that that that do provide some level of funding where this can happen, and we would really like to see congressional, you know, input and we, and we've seen some on on making these retrofits available and at least the financing or money available for them. We've been working on another bill that as a matter of fact, I just saw another draft of it the other day where we're talking about, you know, the taxability issues with federal money that comes in for homeowner's assistance. And for community assistance. So there are things happening. There are things moving to help protect the consumers. But one thing Senator Flowers to remember too is that you know it is the grant to make your your home more resistant to these storms, and this is pre-disaster. So think of it. This is something we're going to do ahead of time, not reactive after the storms. That's what FEMA does. That's what your EMA does. Let's do this before the storm. The way the homes are retrofitted in the science shows that after these storms, Uh, you're still in your home. You're able to return to work faster, you're able to start putting money back into your local tax base. You're not displaced. kind of a quick example of this. There's a manufacturer that has 4000 employees on on site 24 hours a day, 7 days a week. When hurricanes come in, they have to shut down a week prior to the landfall, and then they'll open up whenever after, depending on the damage and severity of the storms and so forth. But what they're doing is they're effectively shutting down every penny that's going into a local economy or the state's economy for probably about 3 weeks because they have to displace and get out of the way with these retrofitted homes. They're able to return back to work or not even they don't even have to leave work until about 2 days before the storm hits, and they can return to work a lot faster because of the commercial mitigation work that's being done on that facility, and this is something that's being paid for by the company, so it's part of an employee benefit. So what you have is you have some level of resilience that's being built within your economy with these programs as well. OK, one last question. So we see so much in the way of disasters because of weather events. West Coast, East Coast, everywhere south, north. And Tell me If I'm wrong, Our premiums in states. That may not have so many. Events Having to suffer with higher premiums because of these events in these other places around the country. So if they don't have the let me make sure I understand, so if they, if they're not suffering the loss, are they paying higher premiums? Well, like I think I heard in California and even in Florida, some insurance companies pulled out. Uh, would not offer coverage anymore to residents. And so I would imagine that people cannot even get insurance. They have a difficulty finding insurance. Or their premiums. Skyrocket. And is that affecting people in other states. premiums. Yeah, I don't know the answer to that question. That's what NAIC that that's for AIC and that's the National Association of Insurance Commissioners, and you don't know, well, ma'am, there's a lot of people that work for the NAIC. I don't work in every area, but I will tell you that the area that I work in, and to your point, like say with Florida and California, one of the issues that they're having, especially in Florida, is that they don't have a consensus. a program like this to adopt a standard, a measurable science proven standard to reduce the risk of loss. What they do in Florida is they will allow you to take mitigation credits and to obtain insurance by doing, you know, minimal things to your home that have no real consequence. So that's why it's important to follow a standard and to have some consistency through your through your market in a state and adopt a program like this. Is anybody in NAIC uh you know department that could answer my question. Do you know? At the NAIC, I'll be more than happy to ask that question and get back with you. Mr. Harris may be able to answer it. Thank you. Just introduce yourself and uh Jimmy Harris, Deputy Commissioner of market regulation at the insurance department. To answer your question, uh, While there is a chance, uh, reinsurance rates could go up. Rates in Arkansas are required to be based on the experience within our borders. OK, yes, catastrophes and that sort of thing are considered, but the number one consideration for us when we review rates is what happened in Arkansas. Thank you. Thank you, Senator Boyd. If you want to, if you want to finish up. Yes sir, I want to wander down. Uh, so first of all, thank you committee for giving me an hour of your time today on something I I I feel like I have to apologize to the committee. I filed this bill about a week ago or so. I put it on a special order of business. I didn't hide in there that there was a $12 million impact. All that was plain and for the public to see. Nobody really said anything to me about it until about 5 o'clock yesterday and then all of a sudden the sky was falling, uh, but that said, I want to close with this bill really as written today, does 3 things. It creates a grant program with $10 million from premium tax collections and up to $2 million for the administration of it. It does mandate that insurance companies offer an endorsement or rider on property and casualty insurance policies to rebuild after an event with fortified standards. I'm not hearing anything but positive reactions from the insurance industry. None of them seemed to be concerned that that mandate exists. The second thing it does is it places another mandate on the insurance industry. If, if you're home is retrofitted according to the standards, then it does mandate that they offer a discount for for homes built to the fortified standard again, I've not heard anything but positive support from the insurance industry. Uh, and reiteration, this isn't like Arkansas's first to the table with this idea. It certainly started with Alabama initially I, I asked them to to draft the legislation based off of what Oklahoma had done, right? So these are other southern states with similar weather events only again reiteration we're 100% in tornado alley now, which is different than other states. Um. The, the proof is really in the reduction of rates that other states have seen. I'm not here to guarantee you that it would reduce rates, but I do feel confident that we would see competition, which would at least help stabilize rates. Uh, what, what this bill does is right now we're taking, we're taking money from insurance policies and reinvesting in a way that that stabilizes the same people who are paying the ultimately paying those premium tax. Another method, I mean, if we don't do this, then We're just going to allow those premium taxes to slip on over to general revenue and we hope that they're used in a way that that we would, we would like to support, but this takes a product specific tax and helps us in that product specific market, and I think it's the right thing to do. Finally, Mr. Chair, I have heard from Senator Murdoch. I have heard from you. I've heard from our gentleman from the NAIC. I think we have some ideas. I'm going to regroup. I'm going to try to to find a way to uh see if there's another way to to redo this bill in a way that doesn't result in, you know, disruption less than 24 hours before we are in committee to present it. So with that, I'm I'm pulling it down and I do appreciate the committee for accommodating me hearing this bill today. Thank you, Senator Boyd. I want to make a comment, uh, as part of the leadership in the I What the 2nd floor's concern is is not my concern or this body's concern. It is a, I have said we will hold on anything that has a possible impact on general revenue, and we'll make those decisions because those will have a have a have an impact on revenue stabilization and and we want to have those ducks in a row towards the end and If at that time we decided to go with this, this effort, we will, we will do it at that time. Appreciate it, Senator Boyd and committee. Thank you. Next, we will go to Senate bill 186, Senator Bryant. And Uh, we have an amendment on this to be passed out. Senator Bryant. Senator Bryant, I don't even want to see that far down. Thank you. Just, just a minute and let, let's get those uh. Passed out Senator Bryant, you recognized Senator Bryant, you recognize to explain your amendment. Thank you, Mr. Chair. The amendment just includes an oversight when BLR sent the original draft. It did have the $750,000 struck, and then when it when it got sent in for introduction, I missed it. Staff missed it, so the amendment is just to strike the original language $750,000 of which I'm asking for an increase to 1.5 million. motion, is there any questions? On the amendment, a motion by Senator McKee, seconded by Senator Johnson, all in favor say aye. All opposed like. Thank you, Senator. We have adopted your amendment. If, if you would go on to your bill. Thank you, Mr. Chair, and thank you committee for allowing me to present this. The Arkansas contractor's licensing board requires all anything, any project in the commercial world that to be a commercial contractor, you have what's called an unrestricted license in the unrestricted license, anything whenever you go to get the application or to renew the application, you are required to provide a financial statement. They did at one point carve out an exception for that to authorize a compiled financial statement, which is a lower bar and easier for accountability for accounting, much cheaper process that you can use it basically your typical mom and pop accountant for commercial projects that are 750,000 or less on an individual basis as long as they do not exceed 2 stories in height, so they they build this umbrella. They promulgated the rules for it. Everything's going well. Well, come today's market. You cannot do a limited or light commercial for $750,000 maybe 2018-19 we're starting to push on that. And so what that did is that pushed you and if you're going to bid on a project for a small single story commercial building and it was a million dollars you had to go get a a financial statement that was not a compiled financial statement, but it was a regular financial statement which meant your accountant either had to be certified to be able to do that, or they had to have a relationship with an accountant that was able to do that, which drove your costs up from a typical $500 to $700 for a compiled statement to a $300 to $5000 charge for a full financial statement when you may only be doing one or two of those projects a year because typically a restricted license is for tenant finish outs or these smaller buildings, so I'm just trying to keep up with the inflationary times of the cost of goods and services to allow the unrestricted license to have a $1.5 million cap instead of the $750,000 cap. Any questions? Senator Flowers OK, Senator Bryant, I've always been a little concerned about Increasing these limits for contractors to comply with. Now I don't know. I haven't looked at the code to see what else is there that they have to submit uh if und required these types of projects that you're talking about uh that are one. $1,500,000. Yes, Senators, you can do a bond in lieu of a financial statement. So if you wanted to bear the cost of a bond up to a point that is a process that if you wanted to go, if I wanted to go purchase, I could do that in lieu of a financial statement, but most we getting rid of the bun. No, no, ma'am. So even But the thing is, So we won't need a bond or financial statement for Project $750,000. You need a compiled financial statement or a bond for even $750,000 that you're changing to 1500. Yeah, so currently if I were to build a project for $749,000 and I went to my accountant who's going to do my annual taxes. They're also going to produce a financial statement. for me. It'll be a compiled financial statement of which when I go to renew my license, I can turn in my renewal application and that compiled statement, or I can go purchase a bond for that amount as required by the licensing board, and I can submit that as a package. If I were to, I've done one project for $750,0001 he would have to either have the authority through his license, which is a much higher accreditation and therefore reflective in the price. Or he'll have to hand my entire accounting package off to a certified CPA that can handle that, which is a much higher cost. It's like I said, between 3000 and $5000 and I think I heard you say now. That's the process. What does this bill Make different. For the 749 moves that number up to $1.5 million. So if I turn in all my documentation and I'm doing consistently projects and the, you know, 0 to $1.5 million dollar range, he can still just provide me with a compiled financial statement of all those transactions for that single project versus having to hand it off to a higher threshold of the CPA required after if your bill passes. Yes, so currently it's compiled under 750. This bill. make it compiled under 1.5 million. Under 1.5 1.5. Anything over 1.5 million, it is a higher threshold, and you go to a different level of accounting. Senator Flowers, I need to go to Senator Murdoch, and then we can come back. Uh, real quick, is that per project so if I if I do one project under this guises, and I get the license her to do that. If I go do another one, you have to keep going back or just once you get that license for you get qualified. You don't have to keep going back. So, so say I do 10 projects for 1 point under 1.5. Do I have to keep getting my uh renewal it's any single project. That if the bill passes, if I can get this through any single project that is 2 stories or less and less than $1.5 million as a as an all-inclusive project. You can just maintain the unrestricted commercial license. If I go to a 3 story, even regardless of value, same, same type of, stay with me. I'm doing more than one. I get so I'm I'm doing one in February. I'm doing another one in June. Another one in March, I mean in September it's all under the one unrestricted, all under the one restricted license. I don't have to keep going. You don't have to go get the unrestricted as long as each individual project stays under those thresholds. Yes, yes, sir. Senator Flowers, you get But even if your bill passes and becomes law, are you saying that they still have to have a bond. It, it's so we have a error as an omission or I'm sorry, a payment of performance bond if the job requires it, but there's that $10,000 bond that we get for. I forget what they call that $10,000 bond on a $1.5 million project. Well, so if I were to bid on a commercial project and the requirement for the project was made to bond the project for a payment performance bond, I would, you know, that would be part of that project with the licensing board says is I want to review your compiled financial statements if it's under this value or your full financial statements if you're unrestricted and above that value, which means you're you're doing some very large projects or I can Forego that financial statement and just go purchase a bond, and I believe it's it's a percentage of the value of a typical project, so you can have a smaller bond in lieu of the financial statement. But not all jobs require a bond, and this is all just to get your license. The the restricted commercial license. And we've been changing this so much since I've been up here. Raising the cost. Of a project to be. Uh Authorized or certified or the contractor's license renewed. And, and I I just, I just have had issues with this because It seems to me like you just get these fly by night contractors. And they don't do a good job. You call up to the contractors, uh, board. They can't help you because the legislature has Up the cost of these projects and the licensing requirements, and I just don't think it's fair to the public. I'll just tell you that, you know, you have good intentions, I suppose, and I hope I'm sure it helps the contractor's business, but it doesn't help. I don't think many of the consumers in the state of Arkansas. Thank you, Mr. Chair. Would you agree, if you want me to ask a question? Is there any other questions? Seeing none, you want to close? Uh, thank you, committee. I appreciate a good vote. entertain emotion to as amended. Second by Senator McKee, all in favor. Say aye. All opposed like sign. All right. Thank you All right. Rogal Senator Stephanie Flowers. Now, Senator Missy Irvin. Senator Missy Urban. I Senator Irvin Bolt's eye, Senator Mark Johnson, Senator Mark Johnson votes aye. Senator Reginald Murdoch. Senator Reginald Murdoch. Senator Matt McKee, Senator Matt McKee vote's eye, Senator Clint Penzo. Senator Clint Pinz all votes yes. Senator Justin Boyd, Senator Boyd votes yes. Thank you, Senator. You passed your bill. Uh, is there anybody here to run Senate bill or House bill 1205. All right, Senator Boyd. Yeah It's 12:05. Senator Justin Boyd present House Bill 1205. I promise I will do my best to make this much quicker than the last presentation. Robert Coon impact Management Group. I'm here representing the International Code Council. Thank you, Senator Boy. I appreciate you taking the lead on this for Senator Payton. So this bill deals with third party inspections of modular structures or factory built buildings, so think about an example of some that recently I think we were shipped to Arkansas where some roadside restrooms on the Greenway Trail in Hot Springs, so you're talking about a building or a building or a factory built structure that is then shipped into the state. So back in 2001, I think when Arkansas established a process to ensure that through a third party certification, a third party inspection that any buildings that were produced in a factory met all of our plumbing, electrical and mechanical codes. So that's what we've been doing since 2001 is to have, if you're a manufacturer, you have to in order to avoid having local inspection or anything like that where you've you've created a structure that has the walls closed up and everything. You don't want to ship it into state and have Somebody coming and ripping out walls so that they can inspect your your code. They contract with a third party entity that does the inspection, the testing, and the certification of their code on site. They're making sure that they are in compliance with state and local codes where the building or the factory built structure is going what happened in 2005 was, you know, you have to know who's watching the watchers, right? How do we know that the people that are doing the inspection and the testing of the of the factory built. Structure, know what they're doing and so all of those companies have to be accredited in order to do that, and so the statute as it exists today says that in order to do those inspections in a factory, you have to be accredited with IAS, which is an accrediting organization. The problem is that it's specifically in our statute says IAS is the only accrediting organization and there are other accrediting organizations that exist that all meet a standard of accreditation and so all this bill does is say if you are doing these inspections on the factory floor, these testing and these certifications, you have to be accredited with an accreditation standard, not necessarily one sole accrediting organization and so we've changed the definition, made it definitional based on what the standard of accreditation should be instead of an organization. We've run this by Department of Health. We've run this by the governor's office. We've run this by the state fire marshal, checked all those boxes. Everyone's comfortable with this language that makes it a standard of accreditation rather than just naming one group, so happy to take any questions, but I don't know that there's, you know, I haven't seen any opposition that's out there on this. Any questions? person Um, seeing 9 you close your bill. I'm closing and I'll second Senator Ervin's motion. All right, any discussion? All in favor, say aye. All opposed like son. Thank you, Senator. You passed somebody else's bill. is a reminder we have an outing at noon on Wednesday, so don't forget that. Um, the line lunch. As the Senate committee, we have a lunch on Wednesday. Mhm At those Oh. If, if, if you don't want to eat, then I'll eat the rest, so. All right. Thank you committee there anything from the public that they would like to, all right, we are adjourned. Thank you again, sorry.