Insurance & Commerce - Senate

Uh, thank you, Mr. Chair. Members, I'm here to present Senate Bill 70. Jimmy Hickey with Arkansas Senate. Go ahead. That's real complicated, members, if you look at your bill, uh, that you have in front of you. Lines 30 and 31. What this does is it extends so that if somebody's premium is going to go up 25%. What we've had is, is that the uh Insurance agent would have to be notified 30 days. We're extending that to 60 days and then for the consumer, they only had to have be notified for 10 days, this is going to make it, so they have to be notified. Within at least 30 days prior to that uh prior to that action. Of course, I think you all know the reason is uh insurance rates where they are, it's hard to uh Premiums have went up, so this will allow for a little more shopping time and make sure that maybe somebody can get their insurance before it's canceled. questions. any questions from members? Saying none is there any anyone in the audience who want to speak for or against the bill. See none, you're walking close you will. I'm close. Thank you, sir. Thank you, sir, motion by Senator Irvin, second by Senator Penzo, uh, any discussion on the bill, saying none, all in favor say aye. All opposed like sun. Thank you, Senator. You passed passed your bill. Thank you. I appreciate you all. Thank you. Next, next we'll go to Senator Vice Chair Senator Boyd for Senate Bill 47, there's amendment will pass pass around. I want members to have a chance to digest that. Senator, if you would explain your amendment. Yes, sir. So the amendment and it'll be more clear once I start to explain the bill, but it was pointed out to me after I filed the bill that there is, there were two places in Arkansas Code where we had a definition of deposit account and so I wanted to make sure we had consistency in the code, so this amendment makes sure that both places will say the same thing. Any questions from the members on the amendment? Senator Irvin. OK, thank you, Senator Boyd, so it looks to me that the amendment is basically a new bill. Uh, is that correct? Or are you, are you keeping, I'm trying to follow it. So the title had to be updated because of the of the amendment. So that's the confusing part is the title had to change. OK, but you're keeping sections section 1. Of of the of the current bill you're keeping section 1. And peeping section 2. Yes, so on page 2. Lines 17, you're adding a section 4. Yes, adding Section 4 so that so that all places in Arkansas code would have the same definition of a deposit account. I got you. OK, I just wanted to make sure I was tracking the amendment with the existing bill. Thank you. Thank you. Senator Murdoch. Thank you, chair. Uh, Senator, can you just summarize in lay terms what you're trying to do with this bill. So, so I'm right now I'm presenting the amendment and so what I'm trying to do with the amendment is make sure that we're consistent throughout the code on what a deposit account is, and that's that's correct. I'm sorry, I got ahead of myself. I'm sorry, OK. motion on the amendment. Second by Senator Johnson, all in favor say aye. All oppose like sign, right, your bill is amended. Please present your bill as amended. OK, so sorry, this microphone is a little different. If I, if y'all struggle, let me just see if I can move it closer. That'll help. OK. So central bank, so let's start with what central bank digital currency is and let's talk about what central bank digital currency is not. So what central bank digital currency is today, it's an idea. It doesn't exist, OK? What it is not, is it's not Bitcoin, it's not a cryptocurrency. What it is, what the idea is, is the central bank of the United States rather than issuing physical dollars would issue digital currency, OK? So did, so that would fundamentally change our bank has the capacity to one, create a lot of privacy concerns for individuals because now the federal government knows where, when, and how you're spending money. Or has that capacity and then secondarily we're no longer making physical deposits into our local banks, and that has the capacity to fundamentally change our our banking system. So what this bill does is it sets into place a speed bump should our federal government, should the central bank say we're going to begin replacing physical money with central bank digital currency, and it does this by defining what Money is and what a deposit account is in the state of Arkansas. So with the uniform commercial code definitions. Um, so Florida passed similar legislation. Other states have passed similar legislation, so we would not be the first. This is patterned after primarily Florida, um, so with that said, that's, you know. Happy to try to answer questions. Senator Johnson. Thank you, Mr. Chairman. Senator Boyd, I just want to clarify a couple of things. Um, when we say central bank, we're talking about the Federal Reserve. Yes, sir. OK. Uh, there is a term I'm going to throw out, and you tell me if I'm applying it correctly or not, that word is fiat currency. Is this what the Fed does in these these green things I have in my pocket, those are fiat currency. There is a an entity, the Federal Reserve, that tells us what that is, how much that's worth. Is that correct? That is my understanding. And one of the I'll call it free market arguments for digital currency, cryptocurrency, and you mentioned some of them, Bitcoin probably being the best known is that it's not a fiat currency. It is absolutely determined by the laws of supply and demand. What this thing you're going to talk about and define money, uh, you're not going to, I like the word speed bump. I like this, but I'm, I'm, I'm less I see something I really worried about. I'm supporting. Your bill, but I want to just clarify that this would keep us recognizing an action like this by the Fed as being money for purposes of Arkansas law. Is that pretty well what it does that that's the point we're trying to get at because if the central bank issues digital currency. I have a lot of privacy concerns. I feel like there's the upper, it sets up the opportunity no matter what they say publicly. for them to say, OK, well, now, hey, you're allotted $50 for a tank of gas or for gas in the month. Now you're at $50 a cent, we're cutting you off, right? Like, so I wanna make sure we have a speed bump in place in the state of Arkansas to do what we can to protect our citizens to if somehow we go down this road as a country of central bank digital currency that we have something in place to help push back and say, Let's let's think this through and make sure privacy concerns are addressed. Let's make sure control issues are addressed. Let's make sure the banking concerns that might exist because it could fundamentally change our banking system, our address. So that's why I call it a speed bump, not an absolute roadblock. One thing that I, it would have been a time I would have thought this was unneeded and probably silly, but when I saw what happened in Canada when the truckers had their protest and the Prime Minister Trudeau Basically froze their money in the bank, and I'm, I realized that when the government can basically take your money, not a, not a court order, not a, you know, due process thing, just say, well, you know, it's not yours anymore or you, you know, we're not going to let you have it. I, I guess that's kind of a wake up call for me. So thank you for thinking of this. I'll support the bill and you've answered all my questions. Thank you, Mr. Chair. I think Senator, Senator Senator Flowers. Thank you, Mr. Chair. Senator Boyd I do we presently use digital currency? Currently we do not use central bank digital currency. No digital currency. So Like there are crypto, there are things that I would refer to, and I'm, I'm not overly technical here as digital currency, but what I'm talking about with this bill is not cryptocurrency as you hear discussion on it. This is the central bank or the Federal Reserve rather than issuing hard physical dollars, they issue a digital currency. That's what we're trying to put a, or what I'm trying to put a speed bump up against. Yeah, well, This whole concept of digital currency, crypto, all that, that's new and foreign to me, and I'm just trying to understand since you say uh central bank digital currency. I want to know, is there such a thing now that is used. Digital currency, period. I someone might have a more technical definition, I would consider cryptocurrency, a digital currency, but what this bill, this bill doesn't affect that. This bill affects if the central bank of the United States creates its own digital currency and basically we're forced to that rather than a physical dollar or something else. So is the is a domestic bank. Generally a part of the Federal Reserve system. So what I would say is a domestic bank. If you're talking about the bank down the street. They bring in money, you go deposit your physical dollars there. They deposit it, they hold it, they have electronic accounts and then they transfer money electronically based on deposits that have been made at the bank. If you have a central bank digital currency, you no longer, you potentially no longer have those physical deposits, right? My question is, Is this local bank or domestic bank. A part of the Federal Reserve system. Yes. And so that being said, Can federal legislation override what you are proposing to do here? So this is why I'm calling it a speed bump. There is the possibility that federal legislation could do that, but I would argue we have a 10th Amendment and we have states' rights, and ultimately the courts are the arbiters of whether we like it or not, ultimately the courts or the arbiters of what we can and can't do. So what I would say is this is a speed bump to help us ensure send a signal, do what we can to say we have concerns about the concept of central bank digital currency. understand that if you allow me one more. Mr. Chair, I'm just trying to understand what is the role of the Federal Reserve system then in terms of laws or regulations regarding Currency whether it's you consider it digital or dollar bill or goal or whatever. So what a report on their website is, is they're waiting for legislation from Congress, but it didn't my interpretation was that they didn't necessarily have to do that, but that's what they were waiting on. But my I don't know if you understood my question anyone from the bankers association here today. Nobody All right, go ahead, senator. you, you say there somebody's waiting on some legislation, but there is a Federal Reserve system already in place. I just want to know what is their role, what what is their responsibility? Do they have a responsibility to define Uh, whether or not a local or domestic bank. Can issue This No, the local bank wouldn't be issuing this. It would be issued from the Federal Reserve. So rather than the Federal Reserve issuing a hardcore or a hard dollar, the Federal Reserve would issue digital currency if they issued digital currency, that comes with tremendous privacy concerns that tripped up by This You added section 44 um it's page 2. It starts at line one. And a digital monetary unit of account issued by the Federal Reserve system. So if local banks are a part of the system. I, I, I'm just trying to understand how does this all it's complex, Senator. It is complex. I think we're all trying to to grasp it. And I think we need to grasp it before we start putting in place some laws that may or may not be, I mean. I just want to know what I'm doing, what I'm voting on. So what I would say to you is there's no one, the banking department is aware this bill is filed. There's no one here from the banking industry that appears to be giving concerns. This has been done in other states. This isn't brand new to Arkansas. We're playing catch-up with putting a speed bump in place, so that's why I'm comfortable moving forward, uh, with, with this, right? Thank you, Senator. Uh, so Senator Boyd, uh banks transfer assets digitally. This does not Interfere with that that's the cultural part we're trying not to. I'm trying to put a speed bump in place so that we don't fundamentally change the banking industry, or we have some thoughtful input from the state of Arkansas before the federal government just makes a decision and says we're going to do this, whether you like it or not. Thank you, Senator. Is there any other questions, Senator Ervin, and then Senator Flowers and then Senator Murdoch. Thank you, Mr. Chair. So I, I was just curious as to did somebody help you or with the spill or bring the bill to you or I guess what's the origin of the bill? I'm just trying to understand the necessity of it or that's one question is There is there somebody that brought the bill to you that you're, you know, that. Or is this just something that you felt passionate about yourself or who did you work with on the legislation. So a constituent brought it to my attention that Florida had done it, OK, so step number one, then there are a couple organizations out there that have model legislation that we look to to adopt model legislation. So while, so This, do you mind saying who those are so that we're ALEC is is one of the, you know, um entities that has model legislation, OK. And then my second question is, I know so excited and proud that we've got, you know, some people up in the federal delegation, and so I just, it just came to my mind that, you know, our congressman French Hill is the chair of the Financial Services Committee just curious if you've had any discussion with him about this or kind of what you, you know, may, may the what what may transpire under his leadership of that. Committee of Financial Services. I would just think it would be a good resource for you to speak with him about these issues directly as it relates to all the different federal agencies and federal entities that you've listed here. Have you had those conversations or what your thoughts are about that. I mean, what I would say is we're the state of Arkansas and I appreciate that we have an Arkansan in those positions, but this conversation has been ongoing. He To my knowledge, he's not reached out to any of us to have this conversation. I think what this does is it sends a signal to support him and pushing back on any nonsense about having central bank digital currency. That's, that's what I see is this says the state of Arkansas, you know, don't want this, or if we if we do want it, it needs to be very thoughtfully implemented to help protect against privacy concerns, yeah, I just offer it as a suggestion as a resource. And, and I think it's, it's great. I had not thought about that, I may be beneficial for you to reach out to him. OK, thank you. Senator Flowers. I'm still grappling with this idea of digital currency and I recall Before the session speaking to somebody from Arkansas bar. That was Proposing some legislation that would deal with Uh It may have been digital currency. It could have been crypto something. I don't know, but and, and you don't know that we use digital currency now in any Wa Our banking system is based on hard dollars, not cryptocurrency used. At all at this time. digital assets are transferred from bank to bank. Once you go make a physical deposit at the bank, right, but not cry, not digital currency, the United States has not gone down the road of a Federal Reserve system issuing digital currency. It's a policy discussion that they have that they're putting out. OK, but if, if digital assets. You say are deposited into bank accounts, physical dollars are deposited, then they're put on a ledger is the way I understand it. OK, so you didn't say digital. Currency or assets are deposited presently, right? That's correct. That's my understanding. I know of no no place where we have central bank digital currency or central bank digital assets that you're going to the bank and depositing. Well, you're going to the bank ultimately and depositing is $1 a physical dollar. That's what our current banking system is based on. And so Senator Flowers, it's a The Federal Reserve does not recognize cryptocurrency as currency. Does it recognize digital currency. They have not adopted any digital currency as of today, but they're uh that is more or less a barter system created by private industry and it's not, it's not considered as assets or by the Federal Reserve, this crypto crypto that you hear about, it's not. It's OK. I'm not. I'm not stuck on crypto. I'm just trying to figure out what is this digital currency? Is it something that credit cards, it's nothing right now. There is no right now this is just saying Arkansas really don't want, uh, the crypto or the digital. The digital asset system we want, we want our our monetary system based on the dollar and and not and not Digital, so if it doesn't exist, I mean, I don't understand why are we concerned about it because they have serious discussions about a lot of we do a lot of things like that. OK, I'll let this alone now, but I, I would like to have more information and it seems to me like somebody from a bank, we, we, we will definitely get the Bankers Association and and let and let them speak with you and I wish there were some of them here today, and I think it would have clarified it. So I Murdoch, that's you guys just got my exact point. I mean, it's, I think I know where the senator is going to It's kind of a consumer protection to protect us from something that may be coming down the pike at some point, but as the senators are mentioning it's not here yet, so there's a lot of mystery, so I like you wish that we had somebody from the banking industry here that could just talk a little more and just give us a little more information specifically about some of the questions that we have. So what I would say is the banking industry knows about this bill. I, I, I don't know why they're not here today, but I think if they were concerned about this bill, they they would be here expressing their concerns. I think the fact that they're not here, knowing what was on the agenda tells you what you need to know is they're not concerned about this. I'm not saying they're endorsing probably yeah, I I I have shared this with Laurie Trogden. I have had a discussion with the uh people at the the bank department. They know this is here, and I'm not digital currency don't exist yet. Well, that this legislation exists, so I, I really feel like if they were concerned that this was going to create a cog in the wheel on Arkansas that you would be, they would be here expressing their concerns, so that's what I'm trying to say is like there's this discussion, we only meet every other year. It's probably not going to happen in the next 4 years, but I've been wrong before and I want to make sure that this state has the opportunity to send a signal that it I'm not calling it a roadblock. I think what this is is a speed bump to help make sure if the conversation accelerates that we have a bump in the road to You know, slow it down and make sure there's thoughtful implementation. Senator Johnson Thank you, Mr. Chairman. Senator Boyd, would it be safe to say sort of in response to Senator Flowers' questions that that cryptocurrency, which is a digital currency that is not government promulgated and I use the term fiat currency otherwise, uh, it's basically a, if you want to play in this game, you can, and we'll debits and credits of something that we all agree to, but it not official as far as the government or any government is concerned versus taking that to the next level and having the Federal Reserve come up with their own version of that which would not be voluntary. It would be in some ways mandatory of all citizens that earn, and I'm going to put money in air quotes, money. So, so your bill is to preempt. The mandatory use of something that a separate group of people are using an equivalent thing, uh, voluntarily right now, and that's their real right is free citizens but this potentially and I guess until we see the shape of something coming out of Congress or the Federal Reserve. We'd only be speculating, but it would your bill would potentially uh at least temporarily stop. That implementation in Arkansas for, as we say, all debts, public and private, and would perhaps cause a relook at anything that would come down the pike from the Fed or any other even and I know it's the Fed is private. It's not the government, but it, it functions like it's a, I guess it's a chartered corporation or something from the government, but am I seeing this right is that we, we You and I anyway, don't want the government to force people to use this medium of exchange for the time being, we'll just keep the medium exchange that we're using right now. Is that a fair description of kind of what we're doing. Yes, sir, because this gives all kinds of privacy concerns about how I want to spend my money, where I want to spend my money, how much of it I want to spend on something, plus the other issue is I studied it. It has real concerns for fundamentally changing our banking system in the United States. So, yes sir, so it's a it it protects us from a further concentration of power in one limited entity. Yes, OK, thank you, Senator. Thank you, Mr. Chair. Thank you, Senator Johnson, Senator Ervin. Thank you. I, I, I think. I think it's important to state that the Arkansas Bankers Association and the banking department should be here in this committee. Whether they're, they have, they don't have an issue with the bill or not, we as members of the Senate need information, and they need to be in this committee to answer our questions and and it's not about whether they're for or against your bill or anything like that. It's about letting us get the information that we need. From them because to your point this could fundamentally change our banking system. It's what you just said, and they need to be in this room to answer these questions because if these changes do fundamentally change our banking system. I want to know how. I want to know from the industry experts, how that is. And I'm not an industry expert in the banking association. I mean, none of us are, so I think, I think it's really important that people need to be here. That is their job to be here to answer these questions, you know, so that you're not having to answer, but that we need to be able to ask those people from the industry, those questions. And so I don't, I don't think it has anything to do with what their opinion of the bill is. It's just really about us getting the information that I think that we need. I think I just wanted to state that and and then the second my my question is, and again, I don't know if you could even answer this question or not because I think it's the industry that needs to answer this question is what I, what I worry about because this isn't a thing yet, I guess, right? It's not a thing at, at the federal level, potentially, it's the potential hypothetical potential thing, but with that comes consequences of what happens at the federal level that if something happens at the federal level and we're in opposition. Or this language is opposition is that potentially going to cause this huge disruption in the banking system for citizens. I, I don't know the answers to those questions because I don't, I don't know what type of fundamentally fundamental changes, it could potentially be if they did something like this. And so I, I don't, what I don't want to do is pass something that gets us into a special session or whatever that we have to then come back and address. So for me, it's just really about getting that information about to your point, Senator Boyd, what could fundamentally change our banking system and I need to know what that is, but from the banking industry, to be frank, so it has nothing to do with you or this bill. I just need to have that information as a as a member of this committee. So you can absolutely respond if you, I mean, I have an answer. I mean, obviously I've been thinking about this almost 2 years, right? Like this came to me right after our session ended, right? So I've been working on this. I've had a lot of time to get comfortable with this. What I would say is if that were of great concern, Florida wouldn't have done it. Tennessee wouldn't have done it. Whatever list of other states that have passed this wouldn't have done it. I don't think we're gonna be in that kind of situation because we're not gonna be in the boat alone. We're, we're other, other states. So I, I understand your, your being uncomfortable, Mr. Chair, what I would say is at this point in time I can count and uh I would ask if it's all right if I pull this bill down today, I invite someone from the banking industry. to be here, whether they're willing to show up and answer questions. I don't know the answer to that. I just, I know they know about it because I've had conversations and no one has expressed any concern outside of this committee about this bill. No one from the public has called me. Nobody from the banking industry has called and said, What are you trying to do? I, but I, I also respect that you maybe haven't had as much time to to get comfortable with it. So can I, you, you may I also want to try to just engross the amendment. I mean, that's just a suggestion, whether you want to do that or not, but that's just a suggestion you may want to engross the amendment that way it's cleaner, but that's up to you, Mr. Chair. If I wanted to engross the amendment, do I need to do something in committee or we have adopted the amendment. All you have to do is bring it to the floor, get it engrossed, and we'll have it back here in its full form. So I'm I'm sorry to have wasted a bunch of your time today, like I, I just like. When the, when nobody in the public is having any issues with it when the banking industry doesn't, I just kind of, I guess maybe because it's the first, it's the 2nd bill of the committee, whatever it is, but I will, I will reach out with your permission. I will see if they will come to try to address concerns and we'll go from there. So, thank you for your time today. The staff will help. We've already engrossed the amendment or we've already adopted the amendment, so all he's got to do is get it to the floor and get it and get it engrossed, so we'll, uh, we'll readdress that next week and have the Bankers Association here, so. Yes, ma'am. And maybe somebody from the department of commerce, we'll get, we'll get everybody here that has a concern with commerce and the bankers association, I think she, I think she's traveling right now, uh and whenever I talked to her yesterday, she wasn't, didn't didn't voice any concerns with this bill, but it's better for everybody we're early, early in the session and we can get this and grow. and have it in its full form. I always liked that better anyway, you know, you're not dealing with amendment and but uh We have Yes, sir. Yes, ma'am. Also point out on page one of the amendment, page one delete says leans, not lined staff might bureau might want to check their spelling. They ought to have it on the word processors they use. To the Thank you. So, uh Next, next is, uh, Senate Bill 76 I'll hand the chair over to Senator Boyd. Oh. Thank you, Senator Johnson. Please proceed with Senate Bill 76. Thank you members. Thank you, chair. Senate bills 76 is dealing with surplus surplus. Good grief. Surplus lines, uh, the bill does not change existing public policy since 2015. Uh, the Arkansas Insurance Department has interpreted state law to exempt surplus line brokers from the 20% fee cap, recognizing that the exemption is critical to provide insurance availability at Arkansas residents. The process for procuring surplus line policies is different than the standard admitted policies, costs associated with standard policy or or back into the premium and approved by the Department of Insurance, whereas the cost associated with distributing surplus lines policy are not included in the base. rate provided by the surplus lines insurer. For that reason, surplus lines, brokers frequently charge fees in order to in order for to profitability find insurance solutions for hard to place risk after they declined by the standard market. If surplus line brokers cannot uh profitably place policies with surplus lines insurers, Arkansas businesses will have fewer insurance options or none at all. It's worth noting that 44 states have no restrictions on surplus lines, broker fees, including every state surrounding Arkansas, of the states that do provide restrictions on fees. No states include commissions and the restrictions of the fee. So this uh this bill is putting in a code what has been in rule by the Arkansas Department of insurance since 2015. And, and it will, yeah, it'll help give reassurance to those surplus lines that it's in code rather than in r and to help citizens of Arkansas in places that they have might have trouble getting insurance by the standard standard lines. Uh, that's what the bill, that's what the bill does. I have former Commissioner Alan Kerr here and he can, he can help with with this and also I think the surplus lines uh Industry brokers here also, so. All right, any questions, Senator Murdoch? Yes, uh, thank you, chair. Uh, thank you, chair. My concern will be rates as we talk about these surplus lines and the making sure that these rates are not something that's going to be a, you know, a huge burden. I understand that notification is here and and and and that and you say this has been going on as a practice since 2015 by rule. And now we're just putting a rule into statute, if you will, um, those rates associated, how have they been regulated previously and maybe Alan, go ahead. Morning committee, former insurance commissioner Allan Kerr uh to answer your, your question, Senator, um, The rate structure will not change. It does not actually this helps the rates by brokers being able to place those fees separately from the from the base premium. It is they're required by law to show them on the policy, show them to the public what the fees are, what the commissions are, and by doing that, that they don't have to roll them into the to the rates and increased rates. Give me an example of a sur surplus line broker, surplus line surplus lines would be someone who who can't get a policy. None of the preferred markets will write a particular type of risk, let's say a contractor or someone like that who's had a couple of claims or something, and that risk is a little too high for the for the admitted market, so they have to go to a higher risk market. It's considered a high risk. type of insurance market, right? So, you probably know where I'm going with my concern as we deal with predatory lenders are we protecting our consumers from That same type situation here. I, I. Cause you're saying it's for the basically people that can't get the normal market, you are higher risk. So here's a market surplus lines market, but sometimes that can get to be outrageous. Is there caps here in place like we have because I think we currently have legislation that prevents predatory lending in Arkansas from Uh, what you call those, uh, Those lenders, uh, title loans or, you know, they can traditional banking, so this is for people that can't get a traditional line of insurance and we're so. How are we watching to make sure that doesn't be outrageous as it is in some other states. Well, first off, it's a a consumer friendly bill and, and that the, the market is going to be able to manage that. You, you have a, a competitive market in the surplus lines industry as well as the standard industry people shop for rates and if there's a gigantic fee on a on a particular risk. whereas another another provider will not have that fee on there. Obviously that's where the market's going to go, so I mean it's a, it's a market bearing consumer bearing situation where they would shop that because all those those fees aren't hidden. They're they're presented to the insured, the fees, the commissions, all that, whereas if you buy a policy from State Farm, you never see that it's all rolled into the rate and on the surplus limes market, it's it's different where the all that has to be spelled out. Senator Irvin. Thank you. I think Senator Murdoch asked one of my questions. Appreciate you being here, Mr. Kerr. Um, when you, we talk about the on the bill on page 2, the fee under subdivision of the section shall be reasonable in relation to the cost of underwriting issuing and processing the policy or contract. Can you define reasonable and what that actually would, what that means. Well, reasonable would, would the feed is dictated by the cost of the underwriting. In other words, if if you've got an apartment building that you need insurance on, and I, as the broker, have to hire an inspector to go out and inspect that building. There's a cost involved in that, OK, so the costs have to be reasonable. I can't just be an arbitrary number, OK, OK, so it has to go to an actual action item, basically, OK, and then these are approved then by the insurance commissioner or insurance department or would these be kind of considered the same, uh, as we do with other types of feeds. In other words, do you, do, is there anything that the insurance department or insurance commissioner reviews with these or anything like that. Each policy's going to be a little different because each underwriting situation is going to be different, so He's, it would be impractical for the insurance commissioner to approve each and every situation, but that being said, in there he does have the purview to decide what's reasonable. OK, all right, thank you. Senator Flowers. A couple of things. I wanted to you all mentioned that. Uh Surplus lines broker. President or somebody is here. I just wanted him identified or her identified so I know. OK. And the name of that person is what? This is John Adams. He's go ahead and come to the table, Mr. Adams. He is the president of the surplus lines association for Arkansas, OK, and then my question is um concerning on page 2 lines 2 through 4. It appears to be an exception made. When A licensed property or casualty agent or broker refers a risk to a surplus lines broker licensed under this section 2365308 of the code. Uh, and it goes on and I understood that part of the code to say somebody licensed in Arkansas as a surplus lines broker. Am I right in that? Did I read that statute correctly? I had it pulled that. Well, there you go. And so and so the in question is. Do, are they not subject to The cap Of 20%. Yes, ma'am. The agents, the agents are subject to the cap. OK, the agent doesn't do anything but secure the customer. In other words, they, they're, they're the customer that refers them to the surplus lines broker. Surplus lines brokers do not talk to the public at all. They deal only with agents and to keep the agents from tacking on too much of an additional fee which some of them tend to do sometimes. They put a cap on the agent side of 20% of whatever that premium is, so commissions, taxes, and everything could not be more than 20%, but I'm just trying to square what does this mean? uh, this. Well, uh, it means what does it mean? It means that that cap does not apply to the broker but applies to the agent. The cap does not apply to the broker, but rather the agent. Yes, ma'am. The agent doesn't, doesn't bear the ah if the agent or broker refers a risk. To the surplus lines broker, it's licensed under this other statute. Then it says this subdivision that has the cap. Or C1, what is it, C1. B I, which is the 20% cap does not apply, I'm trying to visualize this. You've got two entities involved. You've got a broker and an agent. Actually there's 3. There's a company that the broker represents, and then there's the the the broker and then the agent. The broker is kind of the middleman, OK, but in a surplus line situation, the broker is responsible for all of the cost of writing that policy. The underwriting, the inspections, all of that upfront cost, and it sometimes Quite a bit and so then then are you saying that that surplus lines broker who's been referred. I guess a customer. They can charge in excess of the 20% if, if it's warranted and if it's reasonable. Correct, correct. See, see the broker has to pay the agent the commission, and he has to do all the all that cost the commission, everything is on the broker's side. Well, if the, if, if the If the broker is having to pay the agent, I mean, It it just seems like this is kind of inverting the whole process. I mean, you say it seems like some more costs are being added on that wouldn't ordinarily be allowed. No, those costs are always going to be there. OK, we just this, this is the way to keep that premium down so that it's not rolled into the premium. But it's not capped at 20%, not on the broker's side, no, ma'am. It was never meant to do that, that, that gives that gets to tap in and pay. For any fee for referral. Go ahead. Introduce yourself. My name's John Adams. Um, so the mechanism works like this. The agent brings you something he can't place with the standard market. The way the rule is written, we're capped at 20%. We pay him a 12% commission. Say it's a $500 policy or we'll do 1000, so it's simple. We would have $200 available to pay. The inspection fee would be $150. The API or the systems to look at the risk whereas protection class, how far the fire hydrant is, all those things, that's going to be another $75. So when you get The end of it, we would spend $400 for $200 commission. And therefore we would have to raise the premium. To cover all those costs, so instead of it being $1000 premium, it would go to 30 or $4000 premium to pull those costs back in. Well, well, does, uh, The customer. Are they allowed to pay those costs up front and not Have them tacked into the premium if they can. I mean, well, so the way it is, you schedule the premium, you schedule the fee, you disclose that on an invoice that goes to the agent and to the insured so they know about it all up front. Um, so there's, there's no hidden things there. They know what their costs are going to be. They have reviewed it before they take that. Um, so it just allows Us Not to raise the premium prices. We just instead of we'll add $200 instead of $2000 so it's It is actually a benefit to the consumer to do it this way. Senator Mark Johnson. Thank you, Mr. Chair. Um, Mr. Kirk, could I throw out a Theoretical and tell me if I'm, if this is tracking on what we're talking about. Let's say I own a 10,000 square foot building and I want to get it insured, but I've had some ding on my credit or some kind of thing that might caused me to be forced into the surplus lines market. It's just, you know, it's a big steel building, let's say, uh, so I want to get it insured. Well, the Inspector or whoever's doing. Doing this work to advise the company and you go out and say, OK, what is his storing in this building. Well, it's rebar, OK, that's fine. It's not a big deal, so, but let's say instead I'm storing fireworks, which might raise the risk significantly. Um, there's a cost to determine those things and you, you mentioned things like how distance from a fire hydrant and things which are underwriting consideration. So I guess what you're saying is, since there is a cost to make those determinations. This This 20% cap is waived because there is a hard cost involved of underwriting this, the alternative being I couldn't get insurance on this. Is that the purpose? Is that what we're trying to do here? And is that a one-time cost or at least a definable. It's clear y'all made it clear it's transparent that the consumer knows what he's paying for, but is that the purpose of this to allow them to have, I'm going to call it an extenuating circumstance of why they should be a little bit more than what the general policy price would be. Am I seeing that the right way? Yes sir, yeah, you're pretty much spot on there, OK, all right, and I understand it now. Thank you. Thank you, Mr. Chair, and also the current insurance commissioner here and his deputy who deals with this on a current regular basis is here also if the members would like to bring him to the table. OK, Senator Murdock, OK, quick question. So along the line of Senator Johnson's example and also along the lines of Senator Flower's question of them being able to possibly pay that upfront to not make it a part of the policy. What I want to talk about as it renews. Do these one time this inspection, these things that happened at the origination of this. They don't have to continue to pay that when the policy renews because it's already determined it is fireworks and the hazard has been determined. The inspector has come out, so we ain't going to keep paying that $200 or whatever that number is for the inspector each time. It's a complicated answer to that because it depends on what we're, what we're ensuring. And whether we have to inspect it again the next year. So if it's a warehouse that we're talking about and he stores various items, we will have to reinspect that next year to make sure he hasn't changed. He didn't go from rebar to dynamite. So if everything remains the same, yes, but we have to verify that it remains the same for the insurance company. Um, and sometimes we do it every other year, sometimes we do it every year, sometimes we do it every 3rd year, depending on what the risk is. So, just to be clear, if there is an original policy. In this surplus line situation is determined by inspectors and those others that need to investigate that it's going they cost an additional $300. I'm using $300 as a number. That's how we generate with that original number is for their cost. And and a year later, if it's an annual policy and nothing has changed because even in my homeowners or other insurances, there is questions that's asked of me, you know, if I had a pool or if I do certain things, then things do change, but that's generally a statement and a statement that's ratified through um um. Um Verification of filling out that form. Yes, it's not a cost. I can go get a uh person that's what's the person that signed it. No, I can get it notarized. So you, you know, so that happens many times to verify the things have not changed. What I don't want to, what I'm scared of here is that there is a continued cause that never goes away, that it really was a one time cost for you, but you continue to charge it to the consumer. Make me, make me know that's not the case. Well, the way the model works is, as as soon as you know, so 3 year loss run is, is the standard. The industry when that gentleman has 3 years loss free, he's going to take it back to the standard market away from us. So we, we serve that area where it's high risk and when it drops down in risk level. So if he's no longer storing anything like fireworks, and he's just doing rebar. I'm probably not going to write that. That'll move back to the standard market. That's a different question. I understand that. So what it, what happens is the agent every year, his agent is his advocate, and he'll come to us and say, hey, our losses are good. We're moving that back to the standard market. So that's the agent's role in that. He'll either bring it to us we may not have it more than a year is what I'm trying to say. We don't keep this for 20 years. We'll keep it for a year or 2 years and then it'll go back to the standard mark. OK, well, let me use the word if then. So if you keep it. If am I going to be charged again for a one time fee that you incurred that I paid for initially upon renewal, and I signed the verification that nothing has changed. Well, I have to pay that again. It may be a reduced fee, but there will be some kind of fee on there. He still has to pay commission to the agent. He still has to pay the cost of putting it in their system and so forth. So there's, it won't be a full blown inspection fee, but there will be a fee of some kind instead of a $300 fee, it may be a $100 fee. Yeah, you understand, I just want to make sense and we don't have redundancy where it's not necessary, there's not and Unnecessary. Um, collection from the consumers. Let me see if I can clarify that for you. With a standard market policy, these costs are inside the premium. So you don't see them. In a surplus lines policy, the system to track the data, to report the data to the insurance company. That all is something we bear the cost of. Those fees cover the risk meter that we have to do to show them the crime score, the distance for the protection class, so those are ongoing things we have to produce every year for that insurance company. So it's not, it goes away. Some of them do, and so the fees fluctuate depending on what our costs are going to be on that year. So are you suggesting make sure I'm clear with you that in underwriting for the regular market that Those one time calls. I'm calling them one time calls that are built into the premium. You're saying. Even for the standard market, it stays, is what you're suggesting. I wanna make sure you're saying that clearly. Yeah, so they have those fees built into their premium, and so you just don't see them because they do it all as one lump sum. So the rules where they wanted to have more transparency when it comes to a higher risk market, so we have to schedule them. Plus me a lot of times they're well within the standard market there's not that that that broker in the middle, OK, your State Farm agent is an agent of the company, OK? There's not a broker in between what they deal with is Lloyd's of London they give them a premium period and a premium. amount, and it's up to up to them to do all the required underwriting that Lloyd's of London sends them to do that. So I'm, I'm, I'm gonna say something that kind of jokingly, but it crosses insurance world we hear terms of these third party people, brokers, PBMs, people that, yeah, yeah, OK, you get me? Well, let's not put that industry into PBM category, Senator. Let's, let's, yeah, they're not quite that bad. So, so I, I, I uh reflect Senator Murdoch's concern about the use of broker and an insurance discussion. Senator Flowers, you had a question. Yes, just. So A person seeking insurance. Through a surplus line. can, can one just Go to a surplus line broker. You have to have an agent. You have to have an agent, right, right. They're not allowed to talk to the public. They're just, they just deal with agents. OK, thank you. OK. Any, any further questions? Sing none. We only had one person signed up to speak on the bill. Mr. Adams, he's already spoken, uh, is there anything else you need to, to say, or did you just want to reiterate this has been the process for the last 10 years. I would just put it into to code and we appreciate a good vote. OK, so Senator Johnson, are you closed for your bill, or do you want to say something all the discussion and consideration for the customers here, but this gives, gives a consumers' ability to be ensured that they might not otherwise be insured and, and hopefully by putting this into the code, it will attract more surplus lines to the state of Arkansas being solidified in code rather than just in rule and and make that market more competitive for the consumer, so I would appreciate a good vote and I make a motion to adopt. I accept. Got a motion. We have a second. All in favor say aye. Any opposed same sign? Hearing non, Senator, your bill passes. Senator Boyd has Senate Bill 48, and he's going to skip over that. He's working on that bill and, and that's all the business that I have before me unless other members have something we are adjourned until until Tuesday, and we'll try to get that engrossed on the floor with the members' help and get that bill back here and then get the bankers' association. Thank you. We're turned so.