2019 Legislative Session Update

1. 2019 Legislative Session Update Kendall Cotton Policy Advisor Bob Biskupiak Deputy Insurance Commissioner

2. Legislative Philosophy

3. Legislative Philosophy

4. 2019 Overview • 16 sponsored bills passed • 4 vetoed by Governor • Focused on advancing healthcare cost initiatives, consumer protection, administrative efficiencies

5. HB 62 Non-Resident Auto Effective: 2/12/2019 Sponsor: Rep. Bruce Grubbs Summary: Closes loophole on non-resident owners regarding limits of liability Revises exempt vehicle requirements Requires insurers of non-resident drivers to comply with Montana State minimum liability limits of 25/50/20 if their drivers are at fault in motor vehicle accidents in Montana Industry Impact: Insurers will be required to pay the Minimum liability requirements if their insured driver is a non-resident and at fault for a vehicle accident caused in Montana. Insurers of non-residents from the 28 states with lower mandatory auto liability limits than Montana will be most likely to see an impact. Questions: Sharon Richetti 444-2894

6. HB 64 Life and Health Guaranty Fund Effective: 1/1/2020 Sponsor: Rep. Bruce Grubbs Summary: Brings HMO’s and HSCs into guaranty fund Strikes redundant language per NAIC model Establishes process to remove director with cause Changes the amount of a class B assessment to a 50-50 percentage Industry Impact: N/A Questions: Steve Matthews 444-4372

7. HB 66 Repeal Bill Effective: 2/29/2019 Sponsor: Rep. Terry Moore Summary: Repeals notice requirements for charitable annuities Repeals Antiquated Requirements for Benevolent Associations that ONLY provide a Death Benefit (none currently exist) Industry Impact: Charitable Organizations that issue qualified charitable gift annuities are no longer required to submit notice to the department. The department has record of 300 charitable gift annuity issuers who will no longer be required to file. Questions: Steve Matthews 444-4372

8. HB 92 Cleanup Bill • Effective: 10/1/2019 • Sponsor: Rep. Julie Dooling • Summary: Section 1: Clarify Gift Statute Section 2: Allows CSI to establish a service of process fee by rule to cover costs Section 3: Clarify statute regarding interest rates Section 4 – 9: Minor Clarifications in statute Section 10: Clarify limitations on mid-term rate increases Section 11: fix draft error regarding grievances • Industry Impact: n/a • Questions: Bob Biskupiak 444-5438

9. HB 373 Producer Affiliation • Effective: 10/1/2019 • Sponsor: Rep. David Dunn • Summary: 1. Minor clarifications to reduce confusion • Industry Impact: n/a • Questions: Jeannie Keller 444-3897

10. HB 382 Auto Safety Discounts • Effective: 10/1/2019 • Sponsor: Rep. Mary Caferro • Summary: 1. Extends safe driver discounts from 2 to 3 years • Industry Impact: All insurers writing private passenger and commercial automobile insurance in Montana will need to renew discounts every 3 years instead of every 2 years. Insurers will need to re-file their personal and commercial rates/rules with the Department. • Questions: Mari Kindberg 444-5220

11. HB 489 COPA Repeal • Effective: 5/10/2019 • Sponsor: Rep. Matt Regier • Summary: • Eliminate Certificates of Public Advantage • Background: • Regulatory incentive for Hospital Consolidation • Merging Hospitals were allowed to apply for COPA, which exempts them from Anti-Trust Restrictions • Benefis • COPA’s enabled market concentration and monopolistic power • Questions: Kendall Cotton 444-3412

12. HB 555 Prior Authorization • Effective: 1/1/2020 • Sponsor: Rep. Dennis Lenz • Summary: • Shortens timeline for non-urgent care prospective review determinations from 15 to 7 business days • Updates to prior-authorization review criteria • Shortens timeline for urgent care determinations from 72 to 48 hours. • Allows for 24 hours following emergency care for notification of services provided to the issuer. • Industry Impact: Montana industry will need to update forms, policies, contracts, manuals, website information and internal procedures to reflect the new time frames and requirements. • Questions: Ted Bidon 444-0385

13. HB 578 Surplus Lines Disability Insurance • Effective: 7/1/2019 • Sponsor: Rep. Edward Buttrey • Summary: • Allows Disability Income Insurance to be offered in surplus lines market in limited situations. This bill does not allow disability (health) products to be offered in surplus market. • Allows for business entities to insure its principles. Professionals in sports or the entertainment industry are examples. • Only allowed in surplus market if unavailable or limited in authorized market. • Industry Impact: • This is the first non property and casualty product allowed in Montana’s surplus lines market. • Industry will need to make sure they are properly licensed to sell this product. • A surplus lines license with an underlying producer license with only property and casualty does not allow for this product to be sold. • Must also have the disability LOA on their producer license. • Questions: Jeannie Keller 444-3897

14. SB 39 Surplus Lines • Effective: 3/7/2019 • Sponsor: Sen. Steve Fitzpatrick • Summary: • Amended prior legislation that allowed multiperil business to be placed in the surplus market. • Changes Montana law to move away from standard model which encourages “authorized” insurers to be innovative. • Removes $1,500 condition of placement in surplus market. Now a producer does not have to complete a diligent search if the premium quoted by authorized insurer is 10% higher than the premium quoted by the unauthorized insurer. • Adds Inland Marine to definition • Industry Impact: Industry will need to understand changes to when business can be placed in the surplus market. • Questions: Jeannie Keller 444-3897

15. SB 55 Captives • Effective: 7/1/2019 • Sponsor: Sen. Dan Salomon • Summary: • Keeps MT competitive with other states by cleaning up outdated language • Removes duplicate corporate filing requirements from pre-internet days. • Closes Tax Loop –Hole • Questions: Steve Matthews 444-4372

16. SB 125 Reinsurance • Effective: Applies Retroactively to plans in 2019 • Sponsor: Sen. Steve Fitzpatrick • Summary: Establishes the Montana Reinsurance Association to help reimburse insurers for high-cost claims so those costs aren't included in determining individual marketplace premiums for the following year. • Industry Impact: • Lower Premiums by 10-20% • Protect coverage for those with pre-existing conditions • Questions: Janelle Williams 444-4613

17. SB 205 Vulnerable Adults Effective: 10/1/2019 Sponsor: Sen. Steve Fitzpatrick Summary: Update definition of vulnerable adult, financial exploitation regarding intestate succession, wills, trusts, joint assets, life insurance, and beneficiary designations. Industry Impact: This bill should have no impact on the securities or insurance industries. This bill causes a beneficiary to forfeit any benefit of inheritance if the beneficiary financially exploits the decedent. Questions: Lynne Egan 444-4388

18. SB 240 Rescission Effective: 5/7/2019 Sponsor: Sen. Jason Ellsworth Summary: Reaffirms that the right of rescission is allowed for insurance contracts in the event of fraud, material misrepresentation, and other circumstances. Industry Impact: None Questions: Ted Bidon 444-0385

19. TechTalk: Impacts of Cybersecurity on Insurance Eric Fulton – Keybase

20. TechTalk: Ethical Considerations in a Changing World Eric Fulton – Keybase

21. Fraud. Just don’t do it. Lynne Egan – Deputy Securities Commissioner Neil Brunett – CSI Investigator

22. An Introduction to the CSI’s Investigations Bureau Neil Brunett – CSI Investigator

23. Objectives • Provide information about the Montana State Auditor’s Office specific to the Investigations Bureau • Teach methods of detection and prosecution of fraud

24. Enforcement Powers • The CSI can: • Investigate suspected fraud • Use subpoena power to collect information • Use search warrants • Issue injunctions and cease & desist orders • Pursue civil action to revoke licenses or seek fines/forfeitures • Pursue criminal action in conjunction with county, state, and federal prosecutors

25. History • Before 1995, insurance fraud was handled by local law enforcement as theft, or left to insurers as a civil case • In 1995, Montana’s legislature passed the state’s first insurance fraud laws • These laws allowed the Commissioner to investigate a wide variety of cases involving insurance

26. Referrals • Insurance Companies • Insurance professionals • Private citizens • Law enforcement • Other State agencies • Within the CSI • In 2018, the Investigations Bureau worked on over 200 cases received from these various sources.

27. Insurance Fraud By the numbers: $ 80 Billion – Cost of fraud nationally. $700 - Average annual cost to consumers in higher premiums due to fraud.

28. What is Insurance Fraud? • Abuse of the insurance mechanism for financial gain • No different than stealing money from someone on the street • Criminal activity can exist at any level in the insurance process

29. EXAMPLES OF FRAUDS Broker/Agent Fraud: • Premium Fraud Agent collects the premium, but doesn’t remit the check to the insurance company. The insured has no coverage. Vehicle Insurance Schemes • Past Posting A scheme in which a person becomes involved in an automobile accident but doesn’t have insurance. The person gets insurance, waits a little bit of time, and then reports the vehicle as being in an accident, thus collecting for the damages.

30. Dawson Investigation • Insurance agent files a complaint with the CSI. • Agent correctly notified CSI that a fellow agent had forged her name on insurance documents. • Questionable agent had provided forged Accord forms to bank in support of Dawson’s loans.

31. AGENT CONDUCT

32. Dawson Crashed uninsured Polaris Razor.

33. Dawson files claim & Investigator finds fraud

34. CSI & SIU

35. DAWSON IS ARRESTED

36. DAWSON PLEADS GUILTY

37. EUGENE LAVEYINVESTIGATION • Farmers referral-stating Lavey was co-mingling premium with personal funds. • Lavey did not use a Trust account as required. • Lavey credited new policy in Farmers computer system, but waits to forward the payments. • Failed to forward $56,514.55 in premium payments on about 219 separate occasions using the money for his personal use.

38. CSI ACTION

39. LAVEY CRIMINAL ACTION Convicted felon in Daniels County

40. INSURANCE AGENT INVESTIGATION • Referral from Insurance agent: • Complaint was that a insurance agent was having employees solicit and complete applications of insurance for policy holders. • Insurance agent forges signature on bottom of applications. • Insurance agent not using trust account as required.

41. Prohibited Practices “Insurance Only” Licensed Individuals Lynne Egan Deputy Securities Commissioner Office of the Montana State Auditor, Commissioner of Securities and Insurance

42. Securities Regulation The Securities Act of Montana charges Commissioner Rosendale and the CSI staff with the following three tasks in regards to securities regulation: Protect the investor, persons engaged in securities transactions, and the public interest Promote uniformity among the states; and Encourage, promote, and facilitate capital investment in Montana

43. The Securities Industry in Montana… • 110,705 stock brokers licensed to transact business in Montana (only 1318 live in MT) • 1,303 broker-dealer firms licensed to transact business in Montana • 641 broker-dealer branch offices in Montana • 1,002 investment adviser firms in Montana (71 are domiciled in MT) • 38,205 securities approved by the agency to be offered and sold to Montana investors • 110 Montana issuers have been approved to access more than $1.1 billion in investor capital since 2017

44. Suitability in Annuity Transactions Mont. Code Ann. § 33-20-805 requires insurers, insurance producers, and independent agencies in recommending the purchase of an annuity to have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of facts disclosed by the consumer as to the consumer’s investments, other insurance products, financial situation and needs… In conducting the required suitability analysis, which includes knowing a consumer’s investments, which could include securities, you are prohibited from the following practices if you are not a licensed securities salesperson or investment adviser representative.

45. Prohibited Practice #1 • Discussing risks specific to a consumer’s securities portfolio • You must be a licensed securities salesperson or an investment adviser representative to discuss specific securities holdings of a current or prospective client. You cannot discuss the risks associated with a client’s securities holding or position.

46. Prohibited Practice #2 Providing advice regarding a consumer’s securities or securities investment performance or comparing a consumer’s securities or securities investment performance with other financial products, including annuity contracts or life insurance policies. You can compare an insurance product with the performance of a securities index (Dow Jones, S & P, Russell) but not a specific securities position.

47. Prohibited Practice #3 Recommending the liquidation of securities or identifying securities that could be used to fund an annuity or life insurance product. Mont. Code Ann. § 30-10-103(12)(a) defines an investment adviser as “a person who, for compensation, engages in the business of advising others…as to the value of securities or as to the advisability of investing in, purchasing, or selling securities…”

48. Prohibited Practice #4 Recommending specific allocations, in dollars or percentages, between insurance and securities products.

49. Prohibited Practice #5 Offering research, analysis, or recommendations to a consumer regarding securities.

50. Prohibited Practice #6 Completing securities forms, except for a) assisting with forms that are required by an insurance company to complete an insurance transaction or b) assisting with forms that are required by the Montana Insurance Code.