STAND. COM. REP. NO. 785

Honolulu, Hawaii

RE: S.B. No. 1212

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirtieth State Legislature

Regular Session of 2019

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection, and Health, to which was referred S.B. No. 1212 entitled:

"A BILL FOR AN ACT RELATING TO REGULATORY AUTHORITY OF THE INSURANCE COMMISSIONER,"

begs leave to report as follows:

The purpose and intent of this measure is to:

(1) Require third party administrators to be licensed and regulated by the Insurance Commissioner; and

(2) Authorize the Insurance Commissioner to issue targeted variances, waivers, or no-action letters under provisions of the State's insurance code.

Your Committee received testimony in support of this measure from the Department of Commerce and Consumer Affairs; MDX Hawaii, Inc.; and Hawaii-Western Management Group. Your Committee received testimony in opposition to this measure from the Hawaii Association for Justice. Your Committee received comments on this measure from State Farm Mutual Automobile Insurance Company, Kaiser Permanente, and Hawaii Medical Service Association.

Your Committee finds that third-party administrators collect charges or premiums from residents in the State in connection with insurance policies, or adjust or settle claims on those policies. Hawaii is one of eight states and jurisdictions that do not regulate third-party administrators. Currently, nineteen states require third-party administrator licenses, sixteen states require certificates of registration, eight states require certificates of authority, and two states require either licenses or registrations. This measure is based on the National Association of Insurance Commissioner's Registration and Regulation of Third-Party Administrators Guideline, which offers flexible, bright line rules to help states tailor and adopt measures particular to their own needs.

This measure regulates third-party administrators, ensures adequate consumer protection, and promotes transparency of third-party administrators by requiring licensure, encouraging disclosure of contracts between insurers and third-party administrators, and promoting the financial responsibilities of third-party administrators.

Your Committee has heard the concerns raised in testimony that the ability of the Insurance Commissioner to issue targeted variances, waivers, or no-action letters, as proposed by this measure, is overly broad. According to testimony received by your Committee, this measure appears to authorize the Insurance Commissioner to broadly exempt any person or entity from almost every law in the State's Insurance Code, for any amount of time and in any scope. There are also no guidelines for consistent application of variances, transparency, or opportunity for public comment. Your Committee understands these concerns and concludes that amendments to this measure are necessary.

Accordingly, your Committee has amended this measure by:

(1) Deleting language that would have allowed the Insurance Commissioner to issue variances, waivers, or no-action letters; and

(2) Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection, and Health that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1212, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1212, S.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Commerce, Consumer Protection, and Health,

________________________________

ROSALYN H. BAKER, Chair