Interim Joint Committee on Banking and Insurance


Minutes of the<MeetNo1> 3rd Meeting

of the 2005 Interim


<MeetMDY1> August 23, 2005


The<MeetNo2> 3rd meeting of the Interim Joint Committee on Banking and Insurance was held on<Day> Tuesday,<MeetMDY2> August 23, 2005, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Tom Buford, Co-Chair, and Representative James Bruce, Co-Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Tom Buford, Co-Chair; Representative James E Bruce, Co-Chair; Senators Julie Denton, Ernie Harris, Robert J (Bob) Leeper, Dan Seum, and Tim Shaughnessy; Representatives James Carr, James R Comer Jr, Robert R Damron, Mike Denham, Ted "Teddy" Edmonds, Danny R Ford, Jim Gooch Jr, J R Gray, Mike Harmon, Jimmy Higdon, Dennis Horlander, Dennis Keene, Rick W Rand, Steve Riggs, Brandon D Smith, Ken Upchurch, Susan Westrom, Rob Wilkey, and Addia Wuchner.


Guests:  Roger Fries, CEO and Jon Stewart, CFO, Kentucky Employer Mutual Insurance, Ballard Cassady, Executive Director, Kentucky Bankers Association.


LRC Staff:  Greg Freedman and Jamie Griffin.


Roger Fries, CEO, Kentucky Employers Mutual Insurance(KEMI), stated that when KEMI started doing business, a promise was made to Kentucky.  The promise to provide and sustain financial stability in the ever changing world of workers' compensation insurance.  To maintain strong claims reserves as a commitment to ensure benefits for injured workers now and in the future.  To deliver outstanding service and competitive pricing.  To educate businesses about workplace safety and to make workers' comp work.


Jon Stewart, CFO, Kentucky Employers Mutual Insurance(KEMI), presented a PowerPoint presentation outlining financial details at KEMI.  He discussed the Kentucky Revised Statutes that regulate KEMI and pointed out the monitoring system that the Office of Insurance uses to make sure that KEMI remains solvent.  He discussed the National Association of Insurance Commissioners (NAIC) established uniform accounting standards that KEMI must also adhere to.


Representative Susan Westrom asked if AIK was monitored by the same process that KEMI has to adhere to.


Mr. Fries stated no.


Representative Steve Riggs asked if everything is being done to prevent fraud with worker's compensation insurance.


Mr. Fries stated that it is not as easy as one would think, he pointed out that they recently prosecuted a policyholder for fraud and it was for over $6 million dollars.


Representative Jim Bruce stated that he introduced legislation in the past to deal with fraud and it did not make it through the legislative process.


Representative J.R. Gray thanked KEMI for coming to the meeting and sharing information regarding their process of running a successful program.  He stated that the Labor and Industry Committee has been in contact with KEMI for years and tried to help resolve any problems KEMI encountered regarding legislation.


Representative Danny Ford asked if worker's compensation insurance companies are required to be rated and are those ratings made public.


Mr. Fries stated that AIK was a group fund and had a choice regarding being rated by AM Best.


Senator Tom Buford asked if Mr. Fries had made the rate comparison for Art's Electric Company that testified at the last committee meeting.


Mr. Fries stated that KEMI's rates would have been at least twice as high as the rate that AIK was charging the company.


Mr. Jon Stewart stated that the signs of failure were there with AIK, he stated that under reserving was the main problem in the failure.


Mr. Fries stated that the signs of failure were clear.


Representative Jim Bruce asked if Ballard Cassady, Executive Director, Kentucky Bankers Association, would talk to the committee regarding the concerns the banking industry in Kentucky has due to the fact that a Executive Director has not been appointed at the Office of Financial Institutions.


Mr. Cassady stated that the industry is very concerned and anxious.  He stated that the position has been vacant since the beginning of April.  He stated that there are critical concerns regarding the bank examining staff.  He stated that the Office of Financial institutions has lost 30% of the examiners on staff and will loose 35% over the next two years, many are due to retirement.  He stated that it takes at least 18 months to train an examiner to travel the state and make the examinations of Kentucky banks.


Senator Buford stated that a decision needs to be made soon.  He stated that he is aware that morale is lacking at the Office of Financial Institutions and will only get worse if a decision is not made soon.


With no further business, the meeting adjourned.