Present were:

Guests: Martin J. Koetters, Executive Director, Office of Insurance.

LRC Staff: Greg Freedman, Rhonda Franklin, and Spring Emerson.

Acting Chair Gooch opened the meeting with an announcement that Chairman Bruce is in the hospital and gave an update on the status of his condition. Representative Thomas relayed information from the Chairman's family.

Rep. Gooch introduced Mr. Martin Koetters, Executive Director, Office of Insurance, who gave a brief overview of AIK Comp, a group self-insurance fund, and one of Kentucky's largest workers' compensation carriers.

Rep. Riggs asked if regulations governing these self-insurance funds could be changed to ensure financial stability. Mr. Koetters replied that it is too early to say whether changes should be made in current regulations. A three-pronged effort is in place, two of which are actively underway. First is to address AIK Comp, then look at the financial condition of the remaining seven self-insured workers' compensation groups. Until a clear understanding of what went wrong and how it went wrong is achieved, it would be difficult to even begin suggesting possible change in regulation.

Mr. Koetters expressed concern for self-insured groups being chased out of business, which will cause an even larger problem for other businesses in the state. He added that Kentucky needs competitive insurance programs to draw business back into the state as well as retain the businesses we have. He went on to say that the issues should be addressed in a balanced way so as not to cause damage to the businesses in Kentucky.

Rep. Gooch asked what percent of the market is held by the seven self-insured workers' compensation funds in Kentucky. Mr. Koetters replied that about 20% of $700 million is representative of the self-insured workers' comp premium.

Rep. Gooch expressed concern for retroactive assessments and the need for faster response time.

Rep. Crimm asked if the Office of Insurance has assumed responsibility for the financial oversight of self-insured workers' comp groups. Mr. Koetter replied in the affirmative.

Rep. Baugh asked if the self-insured funds secure re-insurance. Mr. Koetters replied that all self-insured workers' comp groups are required to carry what is called "specific stop-loss," which would cap the amount of money the fund would pay out on any one claim. Under current regulations, the funds are to purchase aggregate stop-loss, which would cap the dollar amount the fund would pay out in any one calendar year. The regulation states that the office of workers' claims could waive the aggregate obligation. Rep. Baugh asked if it had been waived. Mr. Koetters replied that it was waived for AIK Comp. He added that there is a small market where specific and aggregate stop-loss insurance can be purchased.

Rep. Baugh inquired about the across-the-board percentage of assessment. Mr. Koetters replied that the Office of Insurance has not designed an assessment plan for approval as yet. He added that the AIK Comp by-laws have set the assessment on a pro-rata basis.

Rep. Riggs asked if there has been any discussion of increasing the capability of the Office, whether that means new or transferred personnel. Mr. Koetters replied that on a short-range basis, no change in personnel will be necessary.

Rep. Ford asked if any one thing in particular is attributable to the problem at hand. Mr. Koetters replied that there doesn't seem to be any particular item that can be pointed out. Rep. Ford inquired what percentage of claims are awarded. Mr. Koetters will provide that information to the Committee at a later date.

Rep. Comer inquired about an increase in severity of claims. Mr. Koetters answered that there had been an overall increase in claims activity rather than a specific type. Rep. Comer asked how many fraud investigators are in the Office of Insurance. Mr. Koetters replied that there are six.

Acting Chairman Gooch thanked Mr. Koetters for participating in the meeting. He then announced the next meeting of the Interim Joint Committee on Banking and Insurance is to be held in Covington on Monday, September 13, 2004 at 2:45 P.M., in conjunction with the annual convention of the Kentucky Banker's Association. There being no further business, the meeting was adjourned at 10:56 A.M.