Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection, and Housing, to which was referred H.B. No. 160, H.D. 2, entitled:

begs leave to report as follows:

The purpose of this measure is to provide a formula for determining assessments to be paid by each line of insurance regulated under the Insurance Code, to be capped at a total of $2,000,000 per fiscal year.

This measure also requires the Auditor to perform an annual financial and management audit of the insurance regulation sub-account of the Compliance Resolution Fund.

Testimony in support of this measure was submitted by the Hawaii Insurers Council, State Farm Insurance Companies, and the Hawaii Medical Service Association. Testimony in opposition to this measure was submitted by the Department of Commerce and Consumer Affairs (DCCA). Comments on this measure were also submitted by the National Association of Insurance and Financial Advisors-Hawaii, the American Council on Life Insurers, and the Hawaii Captive Insurance Council.

Your Committee finds that the Insurance Regulation Fund was established as a self-sustaining fund for the purpose of collecting funds from insurers for regulation of the insurance industry. These assessments to insurers have varied and escalated over the years. Your Committee further finds that over the past few years, the Insurance Division has built up cash reserves that have required the transfer of the surplus to the general fund on more than one occasion. Therefore, the concern exists as to whether the amounts of the assessments exceed the amount necessary in order to adequately regulate the industry. This measure creates a formula for the determination of assessments and imposes a cap of two million dollars on the amount of assessments allowable against the whole insurance industry.

Your Committee believes that this measure seeks to promote increased transparency and accountability in the determination of the amount of assessments and fees required to be paid to the Compliance Resolution Fund. However, your Committee recognizes that the DCCA has raised concerns regarding the institution of an assessments cap, indicating that the cap will cripple the fund within the next few years. Therefore, your Committee believes that this measure should continue to progress throughout the session as a vehicle in order to facilitate further discussion on the matter.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection, and Housing that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 160, H.D. 2, and recommends that it pass Second Reading and be referred to the Committee on Ways and Means.