Call to Order and Roll Call
The 5th meeting of the Interim Joint Committee on Banking and Insurance was held on Thursday, November 9, 2017, at 10:00 AM, at the Brown Hotel, Louisville. Representative Bart Rowland, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Tom Buford, Co-Chair; Representative Bart Rowland, Co-Chair; Senators Rick Girdler, Morgan McGarvey, and John Schickel; Representatives Jim Gooch Jr., Dennis Keene, Adam Koenig, Michael Meredith, Steve Riggs, Wilson Stone, and Addia Wuchner.
Guests: Peggy Porter, President and Chief Executive Officer (CEO), Chip Adkins, Chairman, and Tara Purvis, President-elect, Independent Insurance Agents of Kentucky; Joe Leahy, Chair-elect, Independent Insurance Agents and Brokers of America; Julie Mix McPeak, Commissioner, Tennessee Department of Commerce and Insurance and President-elect, National Association of Insurance Commissioners; Nancy Atkins, Commissioner, and Patrick O’Connor, Deputy Commissioner for Policy, Kentucky Department of Insurance; Representative Steve Riggs, President, National Conference of Insurance Legislators; Greg Kosse, General Counsel, Kentucky Farm Bureau Mutual Insurance Company; Tim Lynch, Director, Government Affairs, National Insurance Crime Bureau; and Owen Caster, Kentucky Medical Claims Examiner, The Progressive Insurance Group of Insurance Companies.
LRC Staff: Sean Donaldson, Jessica Sharpe, and Dawn Johnson.
Approval of Minutes
A quorum not being present, the minutes of the October 24, 2017, meeting were not considered.
Welcome Remarks
Chip Adkins, Chairman; Peggy Porter, President and CEO; and Tara Purvis, President-elect, Independent Insurance Agents of Kentucky (IIAK), and Joe Leahy, Chair-elect, Independent Insurance Agents and Brokers of America welcomed members to the IIAK’s 121st Annual Convention. Mr. Adkins explained the mission and purpose of the IIAK. Chairman Rowland and Chairman Buford presented Ms. Porter citations of appreciation recognizing her service to the industry and pending retirement.
Discussion of the State of Kentucky’s Insurance Industry
Commissioner Nancy Adkins, Kentucky Department of Insurance (KDI) explained recent changes made at the KDI including departmental reorganization and improved collaboration between agency divisions. Deputy Commissioner for Policy Patrick O’Connor updated members on the status of health insurance in Kentucky. He provided an overview of carrier participation and service areas, plan network types, rates, open enrollment, KDI outreach and challenges the state faces moving forward. Deputy Commissioner O’Connor spoke on other health and life insurance issues including short-term medical insurance, rate increases in the group health insurance market, air ambulance and emergency room billing issues, Pharmacy Benefit Manager issues, and long-term care insurance. Mr. O’Connor gave a property and casualty update including the workers’ compensation market and Insurtech—the expansion of digital platforms in the insurance application and claims process. Mr. O’Connor discussed the progress of KDI’s Red Tape Review, and activities of the Financial Standards Department and the Consumer Protection Division. From 2014 through 2016 KDI’s Fraud Division received 5,267 referrals, of which 3,676 were automobile Personal Injury Protection (PIP) related accounting for almost 70 percent of the division’s total referrals. Approximately 62 percent of those referrals originated in Jefferson County. Over the last three years the Fraud Division has recovered $3.8 million.
Responding to Chairman Rowland’s question Commissioner Atkins said Insurtech entities are reviewed by the Financial Standards Division.
In response to Senator Girdler’s question Deputy Commissioner O’Connor said the 2014-2016 data does not reflect an increase in PIP claims specifically due to Florida’s law changes. Commissioner Atkins explained that the agency’s new fraud reporting system should more adequately document fraud claims.
Discussion of Upcoming Priorities for the National Association of Insurance Commissioners
Commissioner Julie Mix McPeak, Tennessee Department of Commerce and Insurance, and President-elect of National Association of Insurance Commissioners (NAIC) spoke on recent revisions to model laws that will impact states. The NAIC recently adopted an insurance data security model that establishes standards for data security for the investigation of a cyber event and for notifying state insurance commissioners of any cybersecurity matters. Revisions to the Annuity Suitability Model allows the review of transactions and annuity products to consider if enhancements might be necessary given the changing standards under the Department of Labor. Annuity Disclosure Model revisions will take into account and inform consumers of innovative marketplace products. And changes to the Best Practices Model will address senior-specific designations in the sale of life insurance and annuities.
Ms. McPeak said the KDI’s presentation addressed some of the issues being considered by the NAIC nationally. Areas of interest include shifts in technology, changing consumer demands, and an expanding global market. Some of the problems facing the industry include life insurers grappling with long term low interest rates, more severe weather events impacting property insurers, a looming retirement and savings crisis and a concerning trend of higher claims costs for auto insurers. The health care market needs certainty in funding and regulations for the market to reach stability. Carriers continue to leave the market sometimes leaving only one area carrier. Ms. McPeak reviewed the NAIC’s suggestions to stabilize the market. The NAIC has urged congress to take measures to address shortfalls.
Regarding air ambulance billing concerns, Ms. McPeak said the NAIC and other organizations have directed their advocacy efforts at the federal level due to the preemption clause of the Federal Airline Deregulation Act that prohibits states from regulating the price, route, or service of an air carrier.
Ms. McPeak explained that while insurance is an important mechanism to allow communities to rebuild during a disaster recovery event, the NAIC advocates for resilience planning that should integrate with other community planning efforts such as land use and hazard mitigations plans. The NAIC is working with lawmakers to improve building codes to minimize potential damage before disaster occurs.
Regarding financial regulatory reform, Ms. McPeak said since the passage of the Dodd-Frank Act, changes are needed to better respect the role and strength of the states in regulating insurance. Eliminating or limiting the authority of the Federal Insurance Office, providing state insurance regulators a vote on the Federal Stability Oversight Council, significant reform to the designation process of the Financial Stability Oversight Council if not outright elimination, and prevention of regulation duplication of insurance entities by banking regulators are some of the suggestions of the NAIC.
Responding to Chairman Rowland’s questions, Ms. McPeak said Tennessee allows off-exchange product offerings but not in counties with only one carrier on-exchange. Tennessee also offers a statewide association health plan through the Tennessee Farm Bureau. They would offer in-network benefits outside of the state of Tennessee. She said Tennessee has had substantial year-over-year premium rate increases that Kentucky did not experience. When the Affordable Care Act became effective, Tennessee had extremely high claims costs and extremely low premium rates. They hoped 2017 would level off, however, the lack of Cost-Sharing Reduction funding resulted in an additional 18 to 20 percent rate increase.
Senator Buford said organized fraud rings are taking advantage of Kentucky’s no-fault vulnerability. This is also leading to a significant increase in prescription pain killers available to sell. Responding to Senator Buford’s question Ms. McPeak said Tennessee has responded to insurance fraud through tort reform and an opioid task force has been created. The task force is considering prescription limitation to make opioids less accessible. Ms. McPeak noted that Kentucky’s fraud investigation division is unparalleled in Tennessee and they will likely turn to Kentucky for possible solutions to fraudulent claims.
Discussion of Upcoming Priorities for the National Conference of Insurance Legislators (NCOIL)
Representative Steve Riggs, President of NCOIL, provided background information on the organization and its functions including writing insurance and financial services model laws and encouraging dialog and cooperation with state executive branches. The main priority is to maintain state jurisdiction over insurance by working with Congress to ensure state-based regulation of insurance, enacting consumer protection model laws, and ensuring solvency and education of state legislators on insurance policy making. Representative Riggs discussed various legislation recently presented including model acts and resolutions on topics such as minor identity theft protection and air ambulance regulation. He gave an overview of models and resolutions to be addressed at NCOIL’s upcoming 2017 Annual Meeting. Representative Riggs said the organization serves to educate legislators through various means including a partnership with the Institutes Griffith Insurance Education Foundation.
Discussion of Personal Injury Protection Reform and Fraud Prevention
Greg Kosse, General Counsel, Kentucky Farm Bureau Mutual Insurance Company said PIP insurance costs have been increasing at an unacceptable rate and current law prevents meaningful oversight of costs within the PIP system. A presumption of reasonableness prevents insurers from questioning amounts billed and occasionally services provided. The current system is ripe for abuse and fraud noting that a significant driver of PIP coverage costs is abuse by unscrupulous providers, sometimes to the level of medical fraud. Mr. Kosse said recent years have seen the no-fault insurance cottage industry flock to Kentucky with fraud being most prevalent in urban areas and in eastern Kentucky. Mr. Kosse recommended reforms that would curb costs such as a fee schedule similar to workers’ compensation. He stated that PIP reform benefits all customers.
Tim Lynch, Director, Government Affairs, National Insurance Crime Bureau (NICB) said the bureau is a national not-for-profit organization supported by property and casualty insurance companies created to work with members and law enforcement to investigate organized criminal activities involving insurance fraud and vehicle theft. He said the pervasive abuse of the current PIP system are undeniable. Organized criminal elements in Kentucky are abusing and benefiting from Kentucky’s no-fault insurance environment. Pain doctors, chiropractors, and attorneys convert PIP abuses into cash necessary to acquire high volumes of prescription narcotics. PIP abuse has led to other crimes such as cargo theft, gang activity, and even homicide. The NICB along with the Department of Insurance can be a resource for specific data to help identify existing and emerging fraud trends. Nationally, Louisville has ranked in or near the top ten cities in organized crime involving questionable medical claims, organized group activity, and suspicious vehicle claims. Information obtained during fraud investigations describes the migration of organized criminals from south Florida and New York to Kentucky. Kentucky, and Louisville specifically, has become fertile ground for organized criminals who have hijacked Kentucky’s PIP system and led to other organized activities.
Owen Caster, Kentucky Medical Claims Manager, the Progressive Group of Insurance Companies said that while PIP coverage has served the state well since its inception, in recent times it has become a source of frequent abuse straying from its original intent of providing prompt payment for reasonable medical care and lost wages, and to reduce litigation for those injured in automobile accidents. Mr. Caster said currently medical providers’ charges are not limited. Establishing a fee schedule would help eliminate exorbitant medical charges. Mr. Caster provided examples of fees charged for an automobile accident versus what would be paid under the Kentucky Workers’ Comp fee schedule. Other areas for possible reform include reduction of “red tape” that automobile insurance companies face as they investigate questionable and potentially fraudulent PIP claims. He also suggested clarifying existing law and consumer education noting that PIP benefits are not primary insurance coverage over other private health insurance coverage.
Chairman Rowland questioned whether Kentucky’s penalties for insurance fraud were stringent enough compared to other states. Mr. Lynch said he would research surrounding states and provide that information.
Representative Wuchner suggested the development of a shop-for-services program that incentivizes consumers and encouraging consumers to access primary care coverage over emergency room visits for secondary care. She suggested the development of a formulary.
Responding to Chairman Rowland, Mr. Lynch said Florida’s response to claims fraud was House Bill 119, enacted in 2012 that requires people injured in automobile accidents to seek medical attention within 14 days in order to implement PIP coverage, it banned treatment for acupuncture and massage therapy, it tightened licensing requirements for chiropractors and physicians and strengthened penalties for doctors and others who violated provisions, it capped some attorney fees and allowed insurers more time to investigate claims. He said Florida’s changes were marginally effective and they are still addressing issues to reduce fraud.
Senator Girdler said Kentucky’s rates are tremendously higher than surrounding states. Mr. Caster said it is somewhat more expensive to purchase insurance in Kentucky but some states are catching up. PIP coverage is an additional coverage that neighboring states do not have. He said Kentucky’s laws make it easy and attractive for outside entities to do business here.
Responding to Representative Riggs’ Mr. Kosse said while lawsuits have been filed against overcharging by medical providers, challenges to the presumption of reasonableness have been upheld. Representative Riggs said he would like to see more legal challenges towards overcharging by medical providers. Mr. Kosse suggested that legal challenges can become expensive so companies opt not to.
Representative Gooch said the current PIP legislation is flawed and statutory protections from exorbitant medical fees should be enacted. He has attempted to make changes on numerous occasions but has been unsuccessful.
Senator Girdler said insurance companies would be subjected to negative publicity if they took the matter of overcharging to court.
There being no further business to come before the committee, the meeting was adjourned at 12:30 PM.