SmartTranscript of House Commerce - 2025-02-05 - 1:00PM

[Chair Michael Marcotte ]: Good afternoon, everyone. This is the DeMaha's Committee on Commerce and Economic Development, Wednesday, February fifth twenty twenty five at one zero five in the afternoon. So we're here to have a walk through of h one thirty seven. We're in act relating to the regulation of insurance product services. So we have our legislative council with us. We also had acting commissioner from the Department of Financial Regulation, Sandy Bicklestone, and deputy commissioner of insurance, and then we have. So thank you for joining us this afternoon, and we'll walk through and start talking about, one thirty seven. [Legislative Counsel Maria Royal ]: Excellent. Thank you for the introduction again. Maria Royal with the legislative council. And, yay, it worked. So I'm gonna do the walk through of the bill. These are all proposals, that were originated with the Department of Financial Regulation. Mostly, they concern insurance, but some other issues as well. And as I go through, sometimes it's helpful to hear the policy rationale for each of the proposals, and she just kinda go through section by section, which is why we thought it would be helpful to do this jointly. I hope that makes sense. So with that, we will start with the very first section of the bill, section one. And so this is in the general provisions of Title eight and concern the regulatory authority of the Commissioner of Financial Regulation and has very, general language on confidentiality of information that the department receives. So all that is proposed here is you'll see I'll just begin on subsection A. This section shall apply to all persons licensed, authorized, or registered, [Vice Chair Edye Graing ]: or required to be licensed, [Legislative Counsel Maria Royal ]: authorized, or registered. And And originally, the existing law says under this title, just Title eight, and under Title nine, Chapter one hundred and fifty, which is Vermont's Uniform Securities Act, because CFR regulates investment advisors and broker dealers, by the commissioner. The issue that came up is that there are other entities, and other titles. For example, title eighteen, pharmacy benefit managers, title twenty one, some workers' compensation self insured. And so this is just meant to expand, not limited just to chapter one fifty of title nine or just title eight, but to say any entity regardless of what title it is. Okay? So pretty straightforward. And did I miss anything further clarification or questions? And then there are some other these are more technical statutory conforming provisions. So you'll see on that line eleven, I think I'm on page two, the commissioner may, instead of his or her, the commissioner's discretion, we just have a policy to replace gendered language with non gendered language. So the other changes in this section are simply those amendments. So that brings us to Section two of the bill. And this is also in Title eight and it concerns insurance companies generally, but this in the chapter, but this specific section concerns mutual insurers. And the proposed change here is also just a technical change. You'll see on line sixteen. So this is basically saying that, that they have to comply with, whatever procedures might be required by the commissioner. And you'll see under Section seventy five, which is now stricken, that's because Section seventy five was repealed, I think, around twenty fourteen, twenty fifteen. That was general rulemaking authority for the commissioner. That general rulemaking authority is now in subsection 15A. So, again, just a technical change. And all of the rules, preexisting rules have either been modified or updated. So there are no more existing rules under the older Section seventy five. And that, anything else? Okay. On, in Section three of the bill, So this also this concerns, property and casualty insurance. And there are some presumptions and filing requirements with respect to the rates that insurers offer in Vermont. And so the proposed change here is just specifying with respect to the rates and any supporting information with respect to the rates that insurance company wants to charge, Rather than as currently required, that that information is provided to the commissioner not later than fifteen days after the effective date of the rates, the proposal here is to make sure that those filings are submitted prior to thirty days prior to the effective date so that before they take effect, the commissioner can take action. So [Chair Michael Marcotte ]: Oh, that's fine. Mhmm. [Legislative Counsel Maria Royal ]: Yeah. And I think it might have been after mostly because of the presumption that in a competitive market, the rates the market itself regulates the rates and but that's not always the case. So this is just an additional opportunity for the department to weigh in before they actually take that. So section four of the bill, affordable housing insurance. So this section relates specifically to insurance in properties where there may be affordable housing tenants or owners of property that are subject to or receive some kind of local or federal or state assistance. And it's basically an anti discrimination provision. So I'll just read through it, and then I will let the department speak a little bit more towards the, the rationale. So an insurer that issues are delivered in this state a policy of insurance covering loss of or damage to real property, containing units for residential purposes, or legal liability of an owner or renter of such real property, shall not inquire about on an application, nor shall an insurer cancel, refuse to issue, refuse to renew, or increase the premium of a policy, or exclude, limit, restrict, or reduce coverage under a policy based on the following. And so there are, I think, four or five, four, criteria. So these are things that you cannot inquire about. One, whether the residential building contains dwelling units that are required to be affordable to residents at a specific income level, pursuant to a statute regulation, restrictive declaration, or regulatory agreement with a local state or federal government entity. Two, whether the real property owner or tenants of such residential building or the shareholders of a cooperative housing corporation receive rental assistance provided by a local state or federal government entity, including section eight federal vouchers. Three, the level or source of income of the tenants of the residential building or the shareholders of a cooperative housing corporation, or four, whether the residential building is owned by a limited equity cooperative, public housing agency, or cooperative housing corporation. And then I'll just finish out this proposal. Subsection B basically says, despite what I've just read, if current law allows, for other factors to be considered, that this in no way changes existing law. That make sense? So if you're not specifically prohibited or if you're specifically allowed to consider other factors, you can continue to do so, kind of a notwithstanding provision. So that's the proposal. And maybe the Department wants to. [Deputy Commissioner Emily Brown ]: Sure. Thank you. Yeah, that's all right with the committee. So Emily Brown, Department of Financial Regulation. So essentially, as Maria said, this prevents insurers from discriminating against affordable housing. And that could be whether you're a developer of affordable housing, whether you're a receiver of affordable housing. And then also in Vermont, some of you may be aware of the emergency housing program, assistance program that we have set up for motel and hotel owners to offer their facilities to individuals who are eligible for that program. This would also apply to them. We do believe that currently in Vermont law, unfair discrimination is not allowed in rate making. So we do believe that this type of discrimination would be unfair and not allowed. But we did think that this was a good opportunity to put it into law, make it clear, that that isn't allowed in Vermont and it's prohibited. New York does have a similar law. We based our language, off of that law. So if you're interested, I can I can circulate that too? One issue, there's actually two things I'd like to suggest or ask the Committee to consider for slight adjustments to this. So originally, Maria had suggested that this language live in our unfair trade practices statute or chapter, I should say, chapter one twenty nine. And it actually ended up in this bill being put in our rate our rate authority, chapter. But what that inadvertently does is exclude surplus lines insurers from having to comply with the statute. So what the Department would suggest is actually locating this section in our unfair trade practices chapter, to make sure that it's very clear that it not only applies to insurers that are required to file rate through us, but also surplus lines insurers, who operate in our state but are not under our rate authority. [Speaker 4 ]: Yep. Can you explain operating in the state but not using their rate authority? [Deputy Commissioner Emily Brown ]: Yep. So there are certain insurers, they're called circle signs insurers, who operate in the state, but they are not subject to our requirements to file their rates with us or their policy documents. So in every state in the country, there's an admitted market, which means that it's a market where people who have normal risks can go to receive insurance coverage. So if you're you you have a home or your your auto and you don't pose any kind of unique risk, you're most likely getting written in the admitted market. If you are unable to acquire coverage in that market, there's what's called the surplus lines market, and excess lines. And what that is, is a market that is available to companies, individuals who maybe their risk is unique or, so high that an, an admitted insurer doesn't want to take that on. So there's kind of this this excess market where you can go, and you the insurer can kind of maybe make a unique coverage option available to you that wouldn't necessarily be available in the admitted market. [Speaker 4 ]: Does that For what this is describing, you're envisioning individuals who might need to be accessing that market. [Chair Michael Marcotte ]: Do I follow that [Deputy Commissioner Emily Brown ]: Not necessarily. So there for instance, if you are buying a renter a renter's policy, it's likely that you're getting that in the admitted market, right, to protect the contents of your apartment. But let's say you're an affordable housing developer and you have several huge projects. You know, there are unique risks depending on the building that you're maybe building or renovating, you might not be able to obtain insurance in the admitted market. So then you would go to the surplus lines market and you know, have a carrier there who would say, okay. I'll be able to write this, you know, either very high amount or unique risk that they're able to kind of more tailor a product and a premium that can fit someone's needs. So [Vice Chair Edye Graing ]: some division three around that. I was wondering, Cooperative Housing Corporation, is that sort of a defined term, or is that a particular concept? You know, I'm looking at, what is it, the level of source of income? So are those corporations that are targeted or built for low income residents, or is that a general kind of construct? [Deputy Commissioner Emily Brown ]: You wanna take so that's a good question. I don't I don't know if it's is your question is it defined in statute? [Vice Chair Edye Graing ]: Well, if and if it's not, is is it generally understood to, you know, what that what the meaning of that term is? [Deputy Commissioner Emily Brown ]: So I don't so, again, I made reference to this being based on a New York law. Okay. And I'm sure a lot of you know that in New York, there are co ops where you kind of become an owner of a building and, right, everyone has a share. [Chair Michael Marcotte ]: Alright. [Deputy Commissioner Emily Brown ]: And there might be qualifications to become a co op member that might be income or occupation, you know, who Who's doing it. Yeah. So I imagine it's getting to that type of scenario, but I can definitely get further clarification. We don't wanna be putting things out there that don't make sense for for our market, but I I believe that's what it's meant to address. [Vice Chair Edye Graing ]: Yeah. I I totally I totally get in the concept of the New York coop. You know, they they define who who's who's entering the coop. Yeah. I suppose and you don't want the insurer to [Deputy Commissioner Emily Brown ]: be involved in that. Yes. Yeah. So any any more questions on the surplus lines? There was one other issue I wanted to raise to the committee for consideration. [Chair Michael Marcotte ]: So do we do we have situations like that in Vermont where we have well, I think [Deputy Commissioner Emily Brown ]: I don't know. So that's that's what I was saying. I can look into that and make sure that it's applicable to our state. I mean, I'd I wouldn't see why there wouldn't be a a scenario where that would be allowed, but or a possibility. If it's possible Yeah. [Chair Michael Marcotte ]: We'll get we're getting out in front of it instead of Exactly. Yeah. [Deputy Commissioner Emily Brown ]: So Yeah. Just on that, what would be the difference between, like, an HOA versus a cooperative, or is that that just a governance structure? I'm not sure. Okay. So that's way outside of my expertise, Erlene, but I can definitely, you know Yeah. Look into that and talk to someone in housing. Yeah. [Vice Chair Edye Graing ]: I'm sorry. [Deputy Commissioner Emily Brown ]: That was, like, would that Yeah. With the co op thing cover the No. Definitely. Which we have. A lot of. Right. Yes. Yeah. Understood. I don't know. It's more [Member Michael Boutin ]: of clarification being the HOA and the co op being realtor. Yeah. A co op, we do have them as a situation where it's you you everyone owns a share. You see this a lot in mobile home parks. The one that we're talking about today in TIF, that mobile home park is a coop. An HOA is a little different in that it will, it's designed to deal with common area issues, maintaining the roads. If you've got eight units all under one building, you're gonna have you know, that roof's gonna need to be taken care of. So I just wanted to get a little clarification from them. [Chair Michael Marcotte ]: But I would think under even under that scenario, the terms that they have to obtain the HOA as. Correct. [Vice Chair Edye Graing ]: Right? Yes. Thanks. Great. [Deputy Commissioner Emily Brown ]: So the one other item I wanted to bring to the committee's attention is there actually there is an insurer out there who serves this market of affordable housing. So what we inadvertently did is not allow them to serve they only serve affordable housing, essentially. And what we have done with this language is not allow them to ask about affordable housing to then write these businesses. So there's two ways that you could go about adjusting the language to make sure that those types of, insurers are allowed to operate. You could remove the prohibition on inquiring. So you could allow an insurer to still inquire, but that doesn't mean that they can then underwrite or rate on the basis of it being, you know, under the criteria that Maria ran through. Or you could put additionally put some language in there that says, you know, an insurer who only offers coverage for affordable housing, you know, entities or, you know, persons as defined in the statute is exempt from inquiring. I think I prefer the elimination of inquire. And the reason being is that when we actually went to the market and surveyed insurers on this, most of I would say, you know, close to all insurers who we asked about this do not collect data on whether they're serving an entity that provides affordable housing or not. And and because the reason being is that they don't want that information because that could then lead to having that knowledge and then, you know, being able to have to prove the negative, right, that you're not using that information for rate making and underwriting. So generally, we found that insurers are not collecting this information. They weren't even able to tell us who wasn't who you know, which hotels or motels were serving affordable housing versus not. So I kind of think the cleaner option is to just eliminate the prohibition on inquiring. But that's the department's preference and obviously defer to the committee on that on on how you'd like to see that in the statute. [Chair Michael Marcotte ]: Do you wanna go with just Google and inquire? [Legislative Counsel Maria Royal ]: That brings us to section five of the bill. And this and some of the subsequent sections pertain mostly to captive insurance. I believe you got nice presentation and background on the captive insurance industry in Vermont, and what they are. Essentially, usually wholly owned subsidiaries that self insure parent company or affiliates. Right? So this first section five, pertain to the licensing authority or the licensing of captive insurance companies. And the change here, you'll see on the top of page six, they are required to get a license. And the proposed language is to conduct insurance business comprised in, and the proposal is to just specify section thirty three zero one of title eight. What is in current law are specific subdivisions of thirty three zero one. And I think the only things that were not included, and I and I stand to be corrected if I'm wrong, in three thousand three hundred and one were workers' comp, multiple lines insurance, and inland marine insurance. Everything else is already identified here by specific subdivisions. So this would just say any of the insurance that's authorized in Vermont essentially without any exceptions. Is that fair? [Acting Commissioner Sandy Bigglestone ]: Sandy Gribblestone, acting commissioner of DFR, and also deputy commissioner of the captive insurance division. Just for a little bit more clarity, we found that there are many instances where the captive insurance statute points to the traditional insurance code when it makes sense. And so, we found that the references in the captive statute to section thirty three zero one could be improved simply to just reference thirty three zero one. And, you know, there are there's really no risk to doing that only because it's hard to sort of look through those subsections and start to decipher what's allowed, what isn't allowed, when in fact, six zero zero two, in in particular, under subsection a, there are, it does serve to limit the scope of certain types of coverage that a captive can, transact. And so, for instance, six zero two a one states that no pure captive may ensure any risks other than the nodes of the parent and affiliated companies or controlled unaffiliated companies. Six zero two a six states that no captive insurance company may provide personal motor vehicle or homeowners insurance coverage or any component thereof. And then there are a few other sections. So we can still limit what we need to, and I think that just simply referencing three zero one makes a lot of sense. Happy to take questions. [Deputy Commissioner Emily Brown ]: Okay. That's [Vice Chair Edye Graing ]: perfect. So the in your six thousand captive insurance. You're saying there are limitations on the lines. [Acting Commissioner Sandy Bigglestone ]: Mhmm. There are limitations. [Chair Michael Marcotte ]: Kind of really just [Vice Chair Edye Graing ]: that you're eliminating the the limitations on your lines. In the general statute piece, you'll have many minutes. [Acting Commissioner Sandy Bigglestone ]: We're basically saying any insurable risk that an insurance company or reinsurance company can undertake can be done in a captive. And then six zero two goes on to limit that scope to, you know, to prohibit homeowners, personal auto, things that don't belong in a captive. [Vice Chair Edye Graing ]: Thank you. [Speaker 4 ]: I'm making sure I understand then. Rather than have gaps in what one can do with or I'm like, let's get a tense Mhmm. Under which then we find. So there's just I think I I'm gonna that might not be the right visual, but I think I'm understanding that there's spaces that six zero two sort of says yes or no specific things, and you have to keep working through that. [Acting Commissioner Sandy Bigglestone ]: Yeah. At times. Yeah. At times. Mhmm. And so there may be something that, you know, in in prior statute or as current statute, that is allowable, that could be put into a captive, but we're kinda hamstrung. And then six zero two becomes difficult to, you know, under our licenses authority to interpret at times. [Vice Chair Edye Graing ]: Okay. [Legislative Counsel Maria Royal ]: So that brings us to section six of the bill, also in the captive insurance industry, and this pertains to the minimum capital and surplus requirements that apply to captive companies. And the change here is you'll see in this subsection d, it says within thirty days of commencing business, each captive insurance company shall file with the commissioner a statement under oath of its president and secretary. And the proposal here is to add for two individuals authorized by the governing board certifying that the captive insurance company possessed the requisite unimpaired paid in capital and surplus prior to commencing business. And I will let the department speak to that. I'm just gonna mention, you'll see there are several other sections that make the same a similar change where instead of there are specific individuals referenced, it's broader authority to anybody to any two individuals that the governing board authorizes to verify under oath. So, again, that's gonna come up in other sections as well. But [Acting Commissioner Sandy Bigglestone ]: That's it. So so this doesn't this amendment doesn't change the the substance of this and of this section of our statute as well as the other sections Maria was pointing to, and and you'll see as we go along. What this is aimed to do is to clarify related to signing authority of individuals in a manager managed limited liability company. So six zero six sets out the requirements for the formation of captive insurance companies, and that is also pursuant to general corporate law. So Title eleven, Chapter twenty five pertains to limited liability companies and allows for the LLC to be manager managed rather than member managed. These are corporate law nuances. And so in a manager managed limited liability company, the operating agreement expressly provides that the company will be managed by managers. Managers have the exclusive authority to manage and conduct the company's activities. So the operating agreement governs LLCs where managers act like officers of a corporation but are not named officers in the sense. So really, there are various sections throughout this bill that are, adding language to where you see president and secretary or named officers of a corporation to add language simply to say individuals authorized by the governing board so that limited liability companies are not, there's no gap created because of LLC structures. [Legislative Counsel Maria Royal ]: Okay. So that brings us to section seven, which pertains to, section sixty o six of title eight having to do with formation of captive insurance companies. And this is just a really a technical correction. You'll see on line fifteen a reference to Chapter twenty one of Title eleven. This applies to captives that are formed as limited liability companies in, I think, two thousand and fifteen, you repealed that chapter and created a new chapter, chapter twenty five. So you're just this is a conforming change to reflect reorganization of statutes. And that just occurs in a couple of other places in that particular section. And then, there's a new provision, which is in subdivision three, and this is, sorry, of subsection I. And so this just specifies that under existing law, if you're formed as a limited liability company, you have to comply with Vermont laws that pertain to limited liability companies since the reference to new chapter twenty five, or the updated reference. A similar provision under XtMLA for nonprofit corporations, you have to comply with nonprofit law. So the new subsection here is specific to mutual insurers, basically saying that you have to comply with Title eight as it pertains specifically to mutual insurance companies. And then as in the prior sections, in the event of a conflict between the general law and this law, captive law, the provisions of the captives law shall control. [Vice Chair Edye Graing ]: So I think it those are the only two sections that you wanna have this crossover between captive law and mutual. Mhmm. Right? [Chair Michael Marcotte ]: So there are a bunch of other things, but these are the only two that you wanna have that. [Acting Commissioner Sandy Bigglestone ]: Yeah. In in practice correlation. In practice, we when licensing new companies, if they're formed as mutuals, we always look at thirty three eleven and three three zero three, and we apply those. And what was discovered this year was that the the specific references to those mutual insurers was missing in our law. So, again, just making this part of our statute more complete. And just to be more specific, thirty three zero three addresses the governance standards of mutual insurers for election of officers and how meetings of policyholders will be held. And then thirty three eleven addresses form requirements. Again, we follow all of the laws that we need to, but, this makes our statute more complete by including this language. [Assistant Annagrace Oblak ]: Thank you. [Chair Michael Marcotte ]: I just wanted to bring up one point, and you don't have to go back, Maria. But Emily, when we were talking about Eastern, we're making sure that insurers aren't discriminating, there's a section eight housing and all that. We're not we're not adding that language because of issues that we're having. It's Oh, yeah. It's just to clarify what is already in statute to make it plainer that they're they can't do both things. [Deputy Commissioner Emily Brown ]: Yes. And in in full transparency, this was brought there this was specifically brought to the department as a potential issue that some participants in the emergency housing program were so I'll just back up. So generally, right now, the insurance market is called a hard market. And we've talked to this committee about that. Right? Everyone's premium is going up. Costs are rising. Reinsurance is being hard you know, it's harder to procure and more expensive. So a lot of hotel and motel owners who are participating in the program were either seeing maybe their coverage, their premium increase or were being dropped. Some that's what we heard from from some participants. So there was a concern that that was happening because of participation in the program. And we are currently we've sent out a survey to all the participants in, the program to make sure that this isn't happening. There were, I wanna say, two instances where we had questions for the insurer as to the reasons why they canceled the insurance policy of that particular hotel or motel. But generally, when we surveyed the market beyond just the emergency housing program, Also, when we talk to insurance companies about how they treated affordable housing, again, a lot of them said we don't know who we we don't collect that data because it's not part of our underwriting or rating process. We're reading on whether the building, you know, is appropriately kept up and has the right wiring and, you know, it's up to code. So that was what we heard, not regarding the status as affordable housing. Yep. Thanks for adding that clarification. [Legislative Counsel Maria Royal ]: So that brings us to Section eight. And this section has to do with mergers within the captive insurance industry. They are required to comply with the general merger law that applies to insurance company, which is that reference on line twenty, subdivision six zero six j one. But then there are also specific procedures related to the merger of captives having to do with adopting a resolution, what that process is, and approving the agreement of merger. And I'm just getting down because in the process, the substantive change that's proposed here has to do with the articles the adoption of the articles of merger. And this is one of those other instances where, the authority, are signing off on the articles is broadened. So you'll see on beginning on line eighteen, the articles of merger shall be signed on behalf of each insurer by a duly authorized officer or individual authorized by the governing board. Again, broadening beyond just named officers. And that is the only substantive change in that section. All the others are, you know, technical changes about having to do with non gendered language. [Acting Commissioner Sandy Bigglestone ]: Yeah. This is to make sure we're footing that manager managed limited liability company. [Legislative Counsel Maria Royal ]: So then, similarly, in section nine, this has to do with reports and filing the captives with the department. And you will see on page fourteen the report of a company's financial condition. Again, verified by the Office of the Executive Officers or two individuals authorized by the governing board. [Acting Commissioner Sandy Bigglestone ]: I think there are, like, [Deputy Commissioner Emily Brown ]: another three of those. [Legislative Counsel Maria Royal ]: Oh, and the other substantive, provision comes at the end of that section and specifies that, subdivision six b o two c three, which pertains to confidentiality provisions of this title, shall apply to each report filed pursuant to this section, except that such subdivision shall not apply to reports filed by risk retention groups. [Acting Commissioner Sandy Bigglestone ]: And that is just to make clear that, you know, that was an update to make clear that risk retention groups file, under any NSC requirements, and they are subject to public disclosure. So we wanna make sure we get that verification in there. So [Chair Michael Marcotte ]: they're not trying to get so they're not under two different or I am [Acting Commissioner Sandy Bigglestone ]: then Right. And in chapter one forty two, general captive provisions are in one forty one. Chapter one forty two pertains to risk retention groups, and it's and it's clarified in there that they shall file with the NAIC, and those are subject to public disclosure. So this was a important catch to make sure it doesn't conflict. [Legislative Counsel Maria Royal ]: Okay. Ready for section ten? So this pertains to captives that provide reinsurance. And what this is doing is specifying that any captive insurance company may provide reinsurance of policies approved by the commissioner comprised in, and you'll see the reference there. This is a section we talked about earlier, section three thousand three hundred and one, which is the different types of insurance that are allowed in Vermont generally of this title on risks of its parent affiliated companies and controlled unaffiliated business ceded by any other insurer and may provide reinsurance of annuity contracts, etcetera. [Acting Commissioner Sandy Bigglestone ]: And just more a little bit more, clarification on on the process for making these amendments. We believe that it'll provide more consistency between sections and avoid confusion as to, what's allowed on a direct insurance basis under six zero two and what is allowed on a reinsurance basis by captive insurers. So it'll definitely, you know, align in in the proposed amendments to simply point to section three thousand three hundred and one. In section five of this bill, this also helps to align with that a little bit better. [Chair Michael Marcotte ]: Goats. [Legislative Counsel Maria Royal ]: Sorry. I I know I'm I don't wanna ask something that's already been asked. But Go ahead. When we talk about the controlled unaffiliated businesses, can you talk a little bit more about what that would be? [Acting Commissioner Sandy Bigglestone ]: Sure. There's a section of our statute that allows for a captive insurance company to enter into transactions for controlled unaffiliated business. And if you think about, you know, an organization, a corporation that owns a captive, they may have a contractual relationship with a vendor, or we consider employee benefits to be controlled unaffiliated business because they're, they are employees of the corporation, but they're third parties. So we wanna be able to distinguish third party relationships between the owner of a captive and if there is some exclusive vendor relationship or something where they can extend the insurance coverage of the captive to that entity, but have some control over protocol protocols relating to, risk management and risk mitigation. That that is something that we have allowed and want to continue to allow. This particular statute is for reinsurance. So reinsurance is insurance for insurance companies, and we want to make sure and then reinsurance also pertains to where a captive insurance company is. We call them fronting arrangements, but they are act as a reinsurer, and they will take, transact a reinsurance agreement with a commercial insurance carrier. But there it's the risk coming into the captive should be limited in scope to the risk of the owner of the captive. So, this kinda sets sets that tone a little bit better. [Legislative Counsel Maria Royal ]: Okay. Moving on to section eleven. This section pertains to captured companies that go into a dormant status. It has to do with, what requirements apply in that period of dormancy. And the only substantive change is that language that we've seen already, instead of verified by oath of two of its executive officers or individuals authorized by its governing board. And similarly, in Section twelve, again, this is specific to branch captive insurance companies and more specifically reports that they are required to file with the commissioner and similar broadening of similar broadening of authority of who can verify by oath. [Chair Michael Marcotte ]: So I've noticed here we we're talking about two of these two executive officers. Mhmm. Are we talking about two individuals? Or is because I've We are talking noticed before, we're talking about you know, we're saying four two individuals or if it's only one person, but here, we're not saying [Acting Commissioner Sandy Bigglestone ]: Oh, good catch. Yes. [Legislative Counsel Maria Royal ]: Oh, good catch. Individuals. Yeah. [Deputy Commissioner Emily Brown ]: Excellent. Catch. And [Legislative Counsel Maria Royal ]: section thirteen, similar change as pertains to special purpose financial insurance companies. In this instance, it's just one officer or an individual. And then section fourteen, this is specific to risk retention groups, which the commissioner mentioned are governed in a different chapter of Title eight. And this particular section has to do with the governance standards that apply to risk retention groups. So changes to gendered language. Okay. Sorry. I just had to remind myself here. So with respect to the governance standards, there is a definition of what's considered an independent director. There are requirements about having independent directors. And so under existing law, an independent director means somebody who does not have a material relationship with the risk retention group. And then it goes on to specify what constitutes a material relationship with a risk retention group. And I think this is just, more of a technical correction. This was a real I remember working on this. This was a really complicated outlining initiative. And so the way it's written now, and I'll just explain the difference with current law. So you'll see that first Roman numeral one. So again, these are people who would have a material relationship. So individuals, that in any twelve month period received from the risk retention group, etcetera, compensation. I'm not gonna go through all of it. Then in Roman numeral two on line nineteen, you have a material relationship if you have a relationship with an auditor as follows, and then all of those provisions. And then this third one, which is now, and I believe it was intended to be a separate third definition of what constitutes material relationship, the way it was outlined, though, you can see it was AA. It looked like it was a subdivision of the prior. Right? So this is just changing the outlining. So now it's its own separate category. You have a material relationship if you are employed as an executive officer of another business that's affiliated with the risk retention group. So I believe that's consistent with maybe what the original intent of the model language was. And the rest of that's just outlining to conform with education. So, and then specific to risk retention groups with that, authorizing language, president, chief executive officer, or individual authorized by the board of directors of a risk retention group. And that is it. Section fifteen just specifies that the act takes effect on a passage. [Deputy Commissioner Emily Brown ]: Emily Brown, DFR. I do have one other issue I wanted to raise with the effective date. So section three, which was the change from the fifteen days to the thirty days for a rate filing, because companies plan several months in advance on rate filings. I think the Department would just request that there's a date certain. So it could be July one or whatever date the committee prefers, but so that there is a known date when insurers have to switch over to this new filing process. So that was the other request that we would have for an adjustment. [Chair Michael Marcotte ]: It seems like July one is Yeah. That's that's that we usually use. So Yeah. [Legislative Counsel Maria Royal ]: Do you want that to be the default for the whole bill or just for that section three that Emily was talking about? Or [Acting Commissioner Sandy Bigglestone ]: Yeah. I would if it simplifies things for the committee, July one, there's there's nothing, in the captive sections that would need to be effective upon passage, and July one would be just fine. [Chair Michael Marcotte ]: So we have those you have all the changes, Maria, that so far? [Legislative Counsel Maria Royal ]: I've received some proposed amendments. I can let the department speak to those. [Chair Michael Marcotte ]: Well, I think it's [Vice Chair Edye Graing ]: Or do [Chair Michael Marcotte ]: you one of the changes now that that Oh, [Legislative Counsel Maria Royal ]: the ones that just came up here. Mhmm. Yeah. I think so. I'll confirm, though. [Chair Michael Marcotte ]: Yeah. Make [Legislative Counsel Maria Royal ]: sure I got everything. [Chair Michael Marcotte ]: Then we we'll have Aaron and I think there's a proposal from Rocket Mortgage. Are you aware of that, Sandy? [Acting Commissioner Sandy Bigglestone ]: Yes. K. [Chair Michael Marcotte ]: So we'll have them in next week, I think, and chat about that. And I think, Emily, we can talk with Jen and Carly Yes. See if we get that worked out, figured out. And then are there any other amendments or those are the only ones that I'm aware of. Your idea of it? [Legislative Counsel Maria Royal ]: I think there were some others floating around, but maybe I'll check-in with you [Deputy Commissioner Emily Brown ]: and just make confirm. [Chair Michael Marcotte ]: Yeah. We'll we'll we'll have that discussion tomorrow first. You got to with me on that as well on the crypto report. K. So I think we can now jump to Kevin from BCIA. I believe that Kevin is that he's on the screen if you want. Can you give us a screen back, Maria? [Vice Chair Edye Graing ]: Yes. You can get some over there. Alright. [Speaker Kevin Mead ]: Thanks, mister chairman. Kevin Mead of the VCIA. Seeing me on the large screen, you might prefer to have seen the bill rather than me being large in front of you, but there you have it. I just wanted to give you sort of thirty seconds background on industry support for the captive elements present in the changes that you are currently discussing and to give you just a brief insight into how the process works every around every August, we gather together folks connected with the captive industry to talk about what the asks might be in terms of potential changes to the captive enabling legislation. And, as you can see from the content of this bill, there are not many changes of substance that are there, but we do discuss those, and then we enter into a discussion with the DFR as to the things that are attainable and the things that are not attainable because as you might imagine, industry occasionally wants to spread its wings somewhat, and there are some certain underlying core principles that the DFR then reins us back in slightly with those. But we go through that process in order to ensure that industry's wishes, concerns are being raised. And then as the bill is being drafted, we then have a legislative committee within the VCIA that consists of about thirty three people from industry who take a look at that, and we get walked through that bill in order to ensure that industry's aware of the changes that are being proposed and is able to make its voice heard. So with that as background, I'm appearing before you again just to express the support of industry for the bill that you have seen or the changes to the bills that you've seen in front of you related to the captive industry and that we remain confident that this will present a unified and effective framework for that industry to operate and grow within the state of Vermont. [Chair Michael Marcotte ]: Thank you, Kevin. Any questions for Kevin? K. Thank you, Kevin. Just to let you know, we had the Vermont Lodging Association in this morning, and we're talking about BCIA and the need for a convention center and that type of thing. And so we're talking anyway. [Speaker Kevin Mead ]: Thank you, mister chairman. And by way of additional information, I was at a meeting of New England based associations in Massachusetts last week where the New England Water Association also expressed an interest in having better infrastructure for meetings within Vermont in order to be able to bring their regional New England water meetings into Vermont as well. So there there is a ground swell coming from my side as well. [Chair Michael Marcotte ]: Yep. Great. But we need any questions? No. Okay. Kevin, thank you for joining us. [Speaker Kevin Mead ]: Thanks, mister chairman. Thanks, everybody. Jamie. [Assistant Annagrace Oblak ]: Thanks, mister chairman and members of the committee. By way of introduction, my name is Jamie Fean. I am the government relations director for the Burlington firm, Primer, Piper, Eggleston and Kramer. I work with a number of entities and companies that have, interest in the issues you all consider. So I look forward to, working with you where we can over the session. One of those entities, I'm here on behalf of this afternoon is the American Property and Casualty Insurance Association. APCIA is the preeminent national association of, you guessed it, P and C companies, writing virtually, all lines of property casualty from auto to homeowners to commercial lines, liability, auto, workers' compensation. I won't name them all, but they comprise nationally of over a thousand members, but several hundred of those are licensed to do business here in Vermont. The department was kind to share with APCA as they always do, and others in the industry prior to you all getting together, what is, comprised of their legislative agenda, and they were able to do that again this past, late fall, early winter. It wasn't conceptual, you know, at that time, so we didn't see the specific language until, recently. So our focus, with the department and the conversations have largely been around, you know, clarifying intent and some of the issues that you've already addressed. I'll just express support and readdress. I mean, I would characterize the amendments as clarifying this year. The, I'm only speaking to sections three and four. These are the traditional insurance ones. The others that you went through are all captive insurance related and don't impact APCIA. The the rate filing, having clarity on the effective date was important for us to make sure it was perspective and wouldn't for the reasons stated, but also to not impact any filings that are currently, you know, in the process. The affordable housing piece, again, while there is sort of a a blanket prohibition already in statute on, it's it's a violation of insurance trade practices for insurers to have unfair discrimination in underwriting or to make arbitrary decisions based on underwriting. But the department in this case feels that clarifying or calling up this particular instance is needed. We did our own internal surveys in addition to the department, you know, our our folks collecting this. And, I can similarly report that that's not information that is being collected at this time. So while in in some instances, I may be be before you resisting, you know, efforts to kinda, address underwriting tools, in this case, that doesn't necessarily need to be the case. Similarly, we would support the f the amendment that you made to allow insurers whose core business and sole business is ensuring affordable housing projects complexes. And it's actually you know, the one company mentioned, I'm sure there are probably some others. It's a good start to start as a Vermont captive, risk retention group that ensures public housing projects in New York, New Jersey, and regionally, and they converted to be a Vermont traditional insurer to continue this line of business. So, the amendment that you approved will allow them to continue to they they participate in federal, you know, housing programs. And, my understanding is compliance and eligibility are factors that they have to comply with on their end. So that change you made, I believe we'll do it. If there's anything additional, I'll bring that back to, to the committee if you'll permit me. Second piece, similarly, if I could kinda take back and share, with respect to having it apply to surplus lines. We assumed it would not apply to surplus lines. So the proposal to, to do the opposite is something I'd like to flesh out a little bit further. The non admitted or surplus lines market is, you know, often looked at as the the option of last resort for individuals or companies that are looking to find coverage that may be difficult in a traditional market. As it's a non admitted market, it is, you know, sort of has a lighter regulatory touch. So in a general sense, we try to keep that, you know, my word, as pure as possible as an option of last resort and regulatory efforts to kind of bring them under the traditional fold sometimes, you know, seems to be opposite of that goal. So I'm not saying this is an issue. I'd just like a chance to perhaps bounce it off folks and see if they've had any issues in New York, for example, or because I don't think there are any other states that I've been aware of where this is. And my understanding is with respect to the rate piece, the department will be developing a bulletin to provide some additional guidance as this unfolds, and we look forward to working with them to address any other implementation issues. [Chair Michael Marcotte ]: Questions? Sorry. I couldn't offer more today. Alright. I think that's all we have for this right now. Maria will grab those amendments. I'm gonna set it up for next week to go through the amendments. We'll hear from Aaron tomorrow on the crypto report that is done by the department and and make decision tomorrow what we do with that. And we'll take this bill up in next week. We will take a look at h one twenty four as well before we reach out on one to seven to see if we incorporate that in there. And so last year, we'll we'll be in touch, let you know when we're gonna take these up and set it up for Wednesday, possibly. But we'll finalize that by the end of the week and look at it. So I think that's all I have. We're on the floor of three. We'd be on the floor. We have the first bill that's coming up today. But last year, we'll be presenting that bill. And then we're back here at nine twelve o'clock. So I ate up fifteen minutes, and now I'm giving you fifty fifty dollars. That's not possible. Seem fair to me.

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