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House | March 24, 2015 | Committee Room | House: Insurance

Full MP3 Audio File

I would like to call this meeting of house insurance to order, meeting is to order. Thank you. We appreciate your presence allow to recognize sergeant at Arms Mr. Bass[sp?] Mr Collin[sp?], Mr. Cook and Mr Mower[sp?] appreciate your endurance I'd like to recognize our pages [xx] Deon Haj[sp?] Christian Jenkins and Mayhard Jenkins, thank you all for being here we all appreciate what you are about to do, thank you for having me here today Members of the committee and everyone out there in TV land we will now take up house Bill 151 property insurance, rate making reform Representative Tom please explain your bill.  Thank you Mr Chair. The purpose of the still is to bring better information for to our property rate making process and then they get more consumable to the public and to our policy makers this is substantially the same bill as we passed out of the house unanimously last session with just a few little tweaks we had at one point the department of insurance the Rey joe insures and the people who are representing the home owners around the table going through this bill we went through 18 reads and ended up 20 revisions last year, to make sure that they weren't any unintended consequences specifically this bill asset if you present a model, a computer model for requesting rates as insure then you have to bring to and that's simply that have comparative data, if you look at this, these are computer models owner if you can save other computer models showing from moving this way to this way in regards to what they predict and this is when the storm is right off of our coast because they're different models, face their conclusions on different sets of data and so by having two models to compare against each other, we should have better information where we make our decisions. There's 60s in the data that you're seeing in the next session that I brought out of the models, said that they can be clearly derienated in regards to the making process decisions we also ask our annual historic watch data and the reason that that is there is so we can compare what our actual losses are verses the indications and third the model, and if there is any discrepancies, this also gives the commissioner the right to compile or ask for compiles of that data, and finally the bill would also require that the department of insurance, put all the website after the following, the rates for women hair which is the main hurricane, lose right now only in 18 coastal territories can you see who is paying what for that part of the insurance. This will make it so we can see it all over. So really what we are looking for is having information and then make it comparable and then make it available to all of us consumers and policy makers so we can make better decisions as we go down the road, and stop pointing fingers at each other based on assumptions across the state and go ahead and move forward. Mr. Chair if you want the dictates I know the real dictates in the department of insurance are here if you want to have them come in and I do understand that their's an amendment out there that will be brought, but I don't see the gentleman who approached me on it. Oh there he is. So and it addresses the discussion that has been going on for two years in between the department of insurance and the insurers so look for that and let's [xx] questions thank you. Thank you. Members of the committee, new technology. When you desire to speak, you see the round disk on the table with the red light press the button in the middle and that will light the microphone. You'll be live and if you don't turn it off you will be still broadcasting live. representative Shepherd. Thank you Mr. Chair for mostly for failing to afford in proper time. Thank you. Representative Collins I'd like to support an amendment. You're recognized to support your amendment. Okay and I think we have those who. I can be explaining cause I don't think they'll understand it while as it's being passed around. They will. The amendment is very simple if you look at the very bottom of the first page the very last starting in the middle of the line 34 it just changes one word says the current version says the commissioner may consider model hurricane loses my amendment is to change may to shall. If we're going to and I guess the rational behind this is we're going to require two studies if realize study is

not required so the senate are using models and they need to use two models my purpose to gather enough papers that come from studies sitting on shelves around, Larry I don't think we need any more if we're going to present the models and I think they need to be looked at and need to be used and just make sure we're not just wasting time. Thank you representative Tom. And I'm glad that we're having this public discussion on this today because it's one I've been having with the in charge with the department insurance, I'm going to close the amendment but it's not going to kill the Bill. The reason that I oppose the amendment is because the models are not just a study, they are actually the data that they are presenting saying that it is, these are potential losses and therefore we will incur these rates to affect potential losses. The opposed to the bill will say that the commissioner must use those models when he sets the rates. So the argument is that we're spending more money to bring two models, which is true, but we don't actually require that you do models and today, or bring any model at all. So that's the surest thing we want to bring models, we just say we have to bring two when they come. In regards to the Mail portion, it's May right now. The insurance commissioner may consider models if they're brought so well I dint see it as a change inside the bill to be addressed here so I'll be opposing the amendment. Representative [xx]  Thank you Mr. Chair, I just have the question for the amendment sponsor does this mean North Carolina model parking losses or is these parking losses all over the United States? Because that being the issue, that's been a problem. I do not know what the requirements are behind that entire senate. All I'm saying, That's not my purpose, I have no clue where the models are, but my point is, if they present one model and are going to be required to present to you, then let's make sure somebody is looking at the model they present. I have no idea what the models are. I'm not the one asking to step up two models, I'm just saying that they're going to present two models, that might actually look at. Is there someone from the right row here that could explain is to the committee if you'd like to, we'd love to have you.  I'm [xx] I'm Attorney representing the North Carolina weight bureau we've been using modelling since 1992, it's always based on expected North Carolina losses. They're not losses from South Carolina, Virginia, Florida or Texas or North Tekoda, they're North Carolina losses. Any further questions from the Thank you. Representative Shepard? I guess my question Mr. Chair is for the members counsel also or maybe the bill sponsor. Since we're changing this from may to shall, even in our best interest that the interest permission or use both models and making a determination over I'm little confused here My answer would be yes and that's the point of this memo. Rep. Insko. I think that this is a question probably for the gentleman that was here too, and my question has to do with whether this one model will also be based on North Carolina, like how many models are there who would bring, who wold make a decision about whether the second or third or other model came from, and is there more working one model of a North Carolina based model, that's one way to put it. Okay, my understanding is that across the South Eastern United States where modelling is uniformly accepted an insurance rate necking there are about three or four primary modelers the rate bureau has always used AR out of Boston which was the first model. They were the first ones to develop modelling. It's bothering as you can understand its a quiet an expensive proposition it's highly determined by science by the leading meteorologist at MIT in places like that it costs a lot of money, but there are three or four commercial modelers one I believe Adam San Francisco called all ORMS in one called Aqua Cat and there may

be more, the rate bureaus has never had a relationship with any of the other one's other than just air out of Boston. [xx] so take my name [xx] there are not any additional model that you got with also debate on North Carolina data. Absolutely I mean that will be we are climbers by the way it's always been that way, it's always been the expectation of the average long term losses in North Carolina, extended by scientific modelling over relatively a hundred thousands interrelations of what could happen next year in North Carolina and take an average of hundreds thousands interelations and the advantage of modelling, it doesn't just cut one way it stabilizes worth making we had a year not 2011 for instance when there was a small hurricane that healed Eastern North Carolina those reasons were removed from the white marking formula in North Carolina and substituted for those losses less the model which had lower losses in the white making formula than the actual losses. So that's has always been North Carolina specific and always will be Thank you. Representative Borne. Thank you Mr. Chair, just to speak to the amendment as I read the bill it says if the rate here presents any model loses they shall present data for more than one, and then we wrap-up the sentence here the commissioner he might consider it seems like the [xx] to me would say, if you're going to present data that back up your proposition, we will hire your services today, and then not require the commissioner to consider, it doesn't make sense to me that we'd have Major instead of a shower, since kind of  silly we'll spend this much time on it but I will vote it for amendment.  We spend a lot of time on lot list Representative [xx] Want to make one statement, this is it kind of involve with the member of, I think a lot of people believe that it is the insurance company rural depth interest to have models that predict the insurance companies for overall best interest to have models that predicts how losses, and that's really not true, if you know anything about how insurance works, I don't care whether it's  property or life insurance or anything else. Insurance companies hire re-insurance companies to take a significant amount of their risk. In other words Nationwide or State Farm or none of the rest of them keep all the risk on the books for all the properties whether it's in the coast, the mountain or anywhere else that they're writing policies on this. They re-insure that by pushing it off on other, a lot of times large but unheard of, companies that we don't know about. And they don't want the models to have the risk up here when it's really here. They are going to pay really high premiums to those re-insurance companies. I think a lot of people think, well they just use these models that calls astronomical portents of catastrophe all the time, and that's not true because it's its not their best interest to do that. Rep. Tine. Response. Well I agree with you and that is an issue. One of the things that we're hoping to do with this bill is make sure that the rate is being applied appropriately in the right spots. And one thing that we do know inside the models is that based on the information and the assumptions that you make inside of that and the weight that you apply to certain pieces of information, you may decided one portion of the state is more susceptible to losses at a higher rate than another portion and I think we just saw that in the western part of the state with large increases this last time and so it should help us to better identify by having two models that can be comparatively looked at, and make decisions based after that. And if someone goes in the western part of the States may ask if we'll withdraw the [xx], Representative Alma. Thank Mr. Chair and you can decide whether this is on the amendment or on the bill, l but we gave the commissioner the freedom to use models of not in the bill, but this will tie his hands that he has to use the models. And as parallel to that, is their anywhere in this bail that masters laws history? Do not answer that [xx] time. Thank you it is [xx] today insurers brings models today or we will bring that one model that they have been working with today and he may consider that that's the way it is today that that's why I didn't make a change inside the bill and said let's bring it to the committee and have them make a choice on it. So this where the [xx] would make it so that he does whoever the department of insurance commissioner is, they would definitely have to utilize the models in the right making you have become part of the record as well. The portion about the, Im sorry? Go ahead.

The portion is D22 annual historical exposure in hurricane [xx] for the territories for 2003 subsequent that's because, that's the only information the rate bureau had on file they felt was credible the 87 to 2002 was historical lost data that they felt that they can get pretty much the information that we're looking for. Follow up. Follow up. So on answer to my first question, verification that, we may tire his hands where he has to salivate in another ocean, oh thanks or the fact and the second part is this is only Hurricane loss data, or is the other loss of history We can settle. By essence, Dola[sp?] lost [XX]estate. Mr. Helsinki, correct me if I'm wrong, but the way that it states. It's a circle explosion that can loose data, but that is been the main focus of what the bill was trying to address, but I would okay, [xx]. Representative Magill Thank you Mr. Chair again. Maybe this is for the commission if we have anyone from the commission. I would like to know how they feel about making this shell, because my concern is that we're making that part shell, but we are not making the historical data shell. So we are putting more of an emphasis on this modelling then we all own historical data, and quite frankly historical data, I think serves the state data. Thank you representative Michael Rapp and thank you all, my name is Ben Patskin, I'm director of government affairs for the department of insurance. It's an honor to be here and to regularly spend many hours in in a previous life, and so thank you for the question we had discussed that proposed amendment before hand, and it's the opinion of the commissioner that in fact he has every intention and is of the practice of considering all the data that is presented to him in this fillings. So the question really is is it up to the rate bureaus on whether they would like to include the model under this bill and if they did so they would then be required to include at least two models when they did that filling so the shell that is the appoint of the amendment is really the commission is not terribly concerned because he is intent, he's fully intent to go ahead and review that data anyway, if it's included in the filing, and as to the second part of that question that relates to historical loss data, that's really sort of a separate aspect of it so what it does direct the certain type of information be included in the filing, and again the commissioner fully intends to review whatever is there, so as to of course it's up to you if the legistlator is to decide what you like to acquire be part of this filings but the bill has no opposition whatsoever to additional data and additional information and which regards to the filings. Thank you.   Now follow up. May I just make a statement yes mam. This commission might be considering both the historical and the modeling of these two models, but what do we do if we have another commissioner down the road? This commissioner retires or whatever, may I. Thank you Mr. Chair If that's a shall in that section of the bill, at the beginning of it it's a shall for the historical data, and all the things underneath it. Thank you Representative Templeton? Representative Lucas? Thank you Mr. Chair. As we've answered back and forth about these two words, shall and may, it seems to me that the point's almost become moved after we heard the discussion from commission authorities. Whether we use shall or may, and of course, we heard that he intents to consider, and to me, consider is more weighty than shall or may. Consider would determine whether he has an obligation, or whether he has an intention to consider you to law. Consider is the keyword to me, so I just think that the problem may not need the amendment. Thank you. Representative [xx]. Thank you Mr. Chairman. This may be a question for staff, but if, maybe I didn't understand the information I got, but if all of these models are based on the same data, why would we expect the models to be different.

They found how they use these I will try to answer that, borrowing takes all available neurological data that goes back to 1900. That's when the good data first began being collected. Then it takes through these extraordinarily fascinating but scientific methods. It extrapolates from that data what could have happened, how housing patterns have changed, the various, the probabilities of different kinds of hurricanes, how large they are, how strong they are, the payoff they take. All of these different combinations and permutations and they put them into a 100 000 simulations and this is what was done when the atom bomb was being developed by the Manhattan project. It's really sophisticated mathematics by the top. Scientists from the top, and wind engineers, meteorologist and so forth across the country, they put it into the mixer and do 100, 000 simulations of it, now you can have just like anything in science, you may have two scientists who kind of something slightly differently, they may have a slightly print, determination as to the right of mathematical formula that deals with how frequently how this storm occurs and hits this particular zip coded in North Carolina, and that sort of thing, but it's a very sophisticated scientific process, it is indeed based on history it is based on the actual history of storms that have struck North Carolina since 1900, it expose and extends the [xx] into the future and you take up an average of 100, 000 simulations of what could happen next year, and that's what we use in the right making. So hope that answers, I'm not a scientist but I do understand the process. Well, this outside, there are thousands of variables, and you do different kind of factors now [xx] now respondent and because it gives difficult way to the [xx]  well their're different distribution that if you take how often a model occurs and I'm excuse me a hurricane occurs, and their is a distribution around that, that the mathematicians and statisticians take and you then you multiply all of these different things out, and you come up with it most. Almost everything in the model is through the National Hurricane Center, through government sources of historical storms as they've measured for instance they go back as fascinating they go back and we've looked at storms early part of the last century, and if we determined some of the wind speeds and some of the locations based on the National Hurricane Center looking at them and that will change the model ever so slightly, because the National Hurricane Center has said that was a storm of 107 mile an hour winds raving at 113 mile an hour winds something approximating that, it is highly scientific that it's based on the mathematics, and it's let me one of the thing about I think the reliability of modeling, and the representative mentioned this it is used by parties with opposing interest the reinsurance have opposite interest from the primary insurance the ones that you buy your home owners with. Also the catastrophe this is a sophisticated world wide international market, they have a different interest than those primarian tourist who are trying to get reinsurance and they are negotiating and they use the same models, I mean it's not fixed to go up or to go down, so it's a really, and if you have a look at this descriptions of the models. People of the scientific mathematical [xx] would be highly impressed. It's faded by the looting scientific MIT losing one of the engineers and one of the other things that is done, and this would be an approach North Carolina could take is the [x] of parking commission looks at these and they've got leading meteorologist leading, wind engineers leading, computer people and they are look at this every year so it's been vetted by that, so thank you. Thank you very much representative Collin moves for the adoption here is the amendment further discussion or debate all in favor say

aye aye all oppose no motion carried amendment is adopted now we are on the bill a simple little bill question is their further questions for the committee, we have a motion from representative Shepherd to adopt health bill 151 as amended and goes into a new committee substitute and given a favorable report [xx] of the original the bill. Any further discussion or debate? All in favor say aye aye All opposed? Motion carried, 152 passes thank you. And thank you for bring that simple [xx] too [xx]. Members of the committee, we have one more bill and represented by honorable [xx]. order Representative Pendleton is going to come up and explain the bill. House Bill 16, Good afternoon? This is a house bill 16 and it was requested by the state department of insurance [xx] they call you not the [xx] Sir Represent Carl I just like to make a motion appropriate time. OK. Go ahead. Okay, but anyway I'm going to have then with the department of insurance go over these different areas that need to be reviled if you have questions on So if anybody has questions on section one through eight, then ask your questions. No questions? OK, now I also I want to offer up a committee is it called substitute amendment [xx] committee substitute. Amendment Amendment Okay. Well I want to offer that up department of insurance came back, and they requested this. So, if you will read that with me, if you have any questions on that, this is very, very technical, if you have any question we'll be glad to get an answer for you. Yes sir I move to [xx]  the document amendment, name it. Have the most pretty [xx] OK all of. Any further discussion alright? OK, none, saying none, all in favor say I. I. Oppose, the amendment carries are there discussion or debate on the bill? Sir. Go ahead. could you explain about professional liability in this respect We need somebody to explain that.  I'll be happy to [xx] OK right behind you.  Thank you Mr. Chairman, again these provisions as you all well know for the last few years the legislature has been focused on eliminating redundant or unproductive reports, and so the list in this bill is the department of insurance effort to go ahead and do that, this is a language we had prior sections that hadn't been included in various points [xx] through no opposition any of the contents of it. At this point, the liability provision is information that we receive through other claims date and other reports. So as with many of these it's information that perhaps innitially with help of [xx] is a separate dedicated report, but this information we now get anyway through other reporting, we don't really need a dedicated report and staff to handle vote, thank you. Thank you sir, I appreciate that. OK, any further discussion or debate? I move for adoption Mr. Chairman. OK [xx] original bill. Thank you for that. Okay. All in favor say aye.

Aye. All opposed. The motion carries. We're adjourned.