[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
NARAB AND BEYOND
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HEARING
BEFORE THE
SUBCOMMITTEE ON
CAPITAL MARKETS, INSURANCE, AND
GOVERNMENT SPONSORED ENTERPRISES
OF THE
COMMITTEE ON
FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MAY 16, 2001
__________
Printed for the use of the Committee on Financial Services
Serial No. 107-17
U.S. GOVERNMENT PRINTING OFFICE
72-560 WASHINGTON : 2001
_______________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
Office
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Mail: Stop SSOP, Washington DC 20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts
Chair PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska MAXINE WATERS, California
RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas
ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut
BOB BARR, Georgia DARLENE HOOLEY, Oregon
SUE W. KELLY, New York JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas
CHRISTOPHER COX, California GREGORY W. MEEKS, New York
DAVE WELDON, Florida BARBARA LEE, California
JIM RYUN, Kansas FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas
DOUG OSE, California STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin HAROLD E. FORD, Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi
VITO FOSELLA, New York JOSEPH CROWLEY, New York
GARY G. MILLER, California WILLIAM LACY CLAY, Missiouri
ERIC CANTOR, Virginia STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
Terry Haines, Chief Counsel and Staff Director
Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises
RICHARD H. BAKER, Louisiana, Chairman
ROBERT W. NEY, Ohio, Vice Chairman PAUL E. KANJORSKI, Pennsylvania
CHRISTOPHER SHAYS, Connecticut GARY L. ACKERMAN, New York
CHRISTOPHER COX, California NYDIA M. VELAZQUEZ, New York
PAUL E. GILLMOR, Ohio KEN BENTSEN, Texas
RON PAUL, Texas MAX SANDLIN, Texas
SPENCER BACHUS, Alabama JAMES H. MALONEY, Connecticut
MICHAEL N. CASTLE, Delaware DARLENE HOOLEY, Oregon
EDWARD R. ROYCE, California FRANK MASCARA, Pennsylvania
FRANK D. LUCAS, Oklahoma STEPHANIE TUBBS JONES, Ohio
BOB BARR, Georgia MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, North Carolina BRAD SHERMAN, California
STEVEN C. LaTOURETTE, Ohio GREGORY W. MEEKS, New York
JOHN B. SHADEGG, Arizona JAY INSLEE, Washington
DAVE WELDON, Florida DENNIS MOORE, Kansas
JIM RYUN, Kansas CHARLES A. GONZALEZ, Texas
BOB RILEY, Alabama HAROLD E. FORD, Jr., Tennessee
VITO FOSSELLA, New York RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
GARY G. MILLER, California RONNIE SHOWS, Mississippi
DOUG OSE, California JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania STEVE ISRAEL, New York
MIKE FERGUSON, New Jersey MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
MIKE ROGERS, Michigan
C O N T E N T S
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Page
Hearing held on:
May 16, 2001................................................. 1
Appendix:
May 16, 2001................................................. 29
WITNESSES
Wednesday, May 16, 2001
Kelly, Hon. Sue W., a Member of Congress from the State of New
York........................................................... 3
Counselman, Albert R., CPCU, President, Riggs, Counselman,
Michaels & Downes, Baltimore, MD; Past Chairman, Council of
Insurance Agents and Brokers................................... 9
Kirven, Hon. William J., III, Commissioner of Insurance, State of
Colorado; Chair, Western Zone, National Association of
Insurance Commissioners; Co-Chair, NAIC's Financial Services
Modernization Working Group on NARAB........................... 7
Smith, Ronald A., CPCU, President, Smith, Sawyer & Smith, Inc.,
Rochester, IN; State Government Affairs Chairman and Past
President, Independent Insurance Agents of America, on behalf
of the Independent Insurance Agents of America, the National
Association of Insurance and Financial Advisors, and the
National Association of Professional Insurance Agents.......... 11
APPENDIX
Prepared statements:
Crowley, Hon. Joseph......................................... 30
Oxley, Hon. Michael G........................................ 35
Kanjorski, Hon. Paul E....................................... 31
Kelly, Hon. Sue W............................................ 32
Counselman, Albert R......................................... 47
Kirven, Hon. William J., III................................. 36
Smith, Ronald A.............................................. 56
Additional Material Submitted for the Record
Alliance of American Insurers, prepared statement................ 65
National Conference of Insurance Legislators, letter, May 15,
2001........................................................... 72
NARAB AND BEYOND
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WEDNESDAY, MAY 16, 2001
U.S. House of Representatives,
Subcommittee on Capital Markets, Insurance
and Government Sponsored Enterprises,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 2:05 p.m., in
room 2128, Rayburn House Office Building, Hon. Richard Baker,
[chairman of the subcommittee], presiding.
Present: Chairman Baker; Representatives Shays, Gillmor,
Barr, Weldon, Biggert, Miller, Hart, Kanjorski, Maloney, Jones,
Meeks, Inslee, Ford, Lucas of Kentucky, Shows, Crowley, Israel,
and Ross.
Also Present: Representative Kelly.
Chairman Baker. We will go ahead and call our hearing to
order. I wish to ask for unanimous consent that for today's
hearing Mrs. Kelly be considered a Member of our subcommittee
for the purposes of questioning the panel that follows and that
she will be recognized pursuant to myself and Mr. Kanjorski for
the purposes of pursuing that line of questioning. And that is
without objection, of course.
Today we have, I believe, the obligation to review the
progress to date in meeting the goal established by the
adoption of Gramm-Leach-Bliley in the harmonization of the 50-
State regulatory process for insurance agency licensing and
marketing. I had the misfortune recently to sit down with some
folks and look at a chart--that was an amazing piece of work--
that showed the regulatory requirements in order to seek and
obtain approval for the marketing of an insurance product in
each of the 50 States simultaneously, and it is indeed an
overwhelming set of circumstances.
Despite the fact that there is some comfort taken that to
date, 21 States have agreed to reciprocity, there are several
observations which I would like to make that I think give
Members some concern. The 21 States frankly only represent
about 30 percent of the licensed agents, and only 20 percent of
the premium being paid. The standard to expect attaining is a
national marketing system of uniformity; I think we are falling
far short of our expectations.
And therein also is an important point. My view of the
provisions of Gramm-Leach-Bliley as a member of that conference
committee is that it went beyond the question of just
reciprocity. I went to the issue of uniformity, and that is
indeed a different standard, so that we have much work to do.
It is my hope that today, in the course of this hearing, we
will hear from those who are engaged in this issue, NAIC and
others, that there has been significant progress beyond the
reported numbers. But certainly, the subcommittee will move
very slowly in its actions and carefully listen to all affected
parties.
It would be my view that this would be an ongoing, long-
term project, not on a short-term paper we hand in tomorrow and
walk away from, so that this hearing today marks the initiation
of that process. I believe that this can be a productive
endeavor and encourage those with the responsibility to work
aggressively toward a harmonized standard, averting the need
for the Congress to act in any other manner.
With that, I would recognize Mr. Kanjorski for any opening
statement he may choose to make.
Mr. Kanjorski. Thank you, Mr. Chairman.
One-half of the sand has now fallen through the hourglass,
marking a time Congress gave the States under Gramm-Leach-
Bliley Act to establish reciprocity and uniformity thresholds
for non-resident producer licensing. It is therefore
appropriate and constructive for us to hold a hearing at this
time on the efforts to date by the States to comply with the
NARAB provisions contained in the 1999 law and the need for
further Congressional action to improve the efficiency and
effectiveness of the Nation's insurance industry. I therefore
commend you, Mr. Chairman, for bringing these matters to the
subcommittee's attention and for helping to educate our Members
about the new jurisdiction. This hearing also represents the
first time our subcommittee has substantively examined
insurance issues in the 107th Congress.
In an effort to allow an agent or broker to conduct
business in more than one State using a single license,
Congress included provisions to create the National Association
of Registered Agents and Brokers, or NARAB, in the law to
overhaul our Nation's financial services marketplace. These
provisions require at least 29 States and territories to
implement reciprocal or uniform standards for agents licensing
by November 12th, 2002. If these jurisdictions fail to meet
this deadline, the law then triggers the establishment of NARAB
as a semiautonomous body managed and supervised by State
insurance commissioners with the power to set and preempt
certain State standards in order to create a national licensing
standard for insurance. As I understand, the States, under the
guidance of the National Association of Insurance
Commissioners, have to date focused on meeting the reciprocity
standards contained in the GLB Act while pursuing uniformity as
a long-term goal.
Last fall, the subcommittee on finance and hazardous waste
held a hearing about the status of implementing the NARAB
provisions of the Act. At that time, limited action had
occurred and doubts existed about whether the States would meet
the deadline. Since then, however, considerable progress has
been made. According to the National Association of Insurance
Commissioners, 21 States have now passed legislation seeking to
satisfy the reciprocity requirements. As a result, it now
appears likely that the States will preempt the creation of
NARAB.
From my perspective, streamlining the insurance licensing
process represents an important first step in increasing the
effectiveness and efficiency of our Nation's traditional system
of State insurance regulation. The McCarran-Ferguson Act
authorized States to regulate the insurance business, and
Congress reaffirmed this system in the GLB Act. Absent
continued advances in State efforts to streamline and increase
uniformity in their insurance laws and regulations, however,
some may, in the near future, encourage Congress to consider
altering these statutory arrangements. The States must
consequently continue to work proactively to modernize their
systems for regulating the insurance marketplace.
In closing, Mr. Chairman, I believe it important that we
learn more about the views of the parties testifying before us
today, and if necessary, work to further refine and improve the
legal structures governing our Nation's insurance system. I
also look forward to hearing from our witnesses about their
impressions and to working with you in the future on insurance
issues. Thank you, Mr. Chairman.
[The prepared statement of Hon. Paul Kanjorksi can be found
on page 31 in the appendix.]
Chairman Baker. Thank you, Mr. Kanjorski.
Mrs. Biggert, would you have an opening statement?
Mrs. Biggert. No.
Chairman Baker. At this time, then, I would recognize our
first witness today is the Honorable Sue Kelly, Member of the
subcommittee, and appreciate her longstanding interest in the
subject of insurance uniformity and welcome you here today to
make comments on this important topic. Thank you, Sue.
STATEMENT OF HON. SUE W. KELLY, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW YORK
Mrs. Kelly. Thank you very much, Chairman Baker, Ranking
Member Kanjorski and Members of the subcommittee. I want to
thank you for inviting me to testify on the National
Association of Registered Agents and Brokers, which is known as
NARAB, section of the Gramm-Leach-Bliley Act. Let me begin by
reading to you a quote which demonstrates both the desire of
State regulators to achieve uniform licensing standards and the
impediments to it: ``The commissioners are now fully prepared
to go before their various legislative committees with
recommendations for a system of insurance law which shall be
the same in all States, not reciprocal but identical, not
retaliatory, but uniform.''
This statement expressing the clear desire for uniform
insurance regulatory system was made by Mr. George W. Miller of
the New York's Insurance Commissioner. He was the New York
Insurance Commissioner who founded the National Association of
Insurance Commissioners. Mr. Miller made this statement at the
end of the very first meeting of NAIC in 1871. Since then, the
NAIC has been working for 130 years to achieve some form of
regulatory uniformity. I wish they could have solved the
problem, but clearly, they have not.
Some of the problems for agents and brokers who offer
policies in more than their home State are simply the result of
needless duplication, yet the root of many other problems is
protectionism. I believe that the licensing laws affecting
agents and brokers are among the most anachronistic. An
overwhelming majority of commercial insurance is sold on an
interstate basis, yet an agent or broker has to get upward of
100 insurance licenses in order to market national insurance
programs.
More seriously, those agents encounter numerous obstacles
that have been erected in States to protect in-State agents
from out-of-State competition.
Today's insurance business spans State and national
borders, with an increasing emphasis on national insurance
programs, multistate clients and cutting-edge technology. Yet
today's agent licensing system is based on yesterday's market,
one in which agents and their clients did business in their
region and nowhere else. Agents who want to write a national
insurance program have to procure and maintain licenses by
line, class, producer and State. These agents are confronted
with a mind-numbing minutiae of individual State licensing
requirements, including such prerequisites as fingerprinting,
certified copies of high school diplomas, printed notices in
the local newspaper before an agency can get a license. These
have nothing at all to do with the real insurance regulation or
professionalism of its practitioners. Some States require
corporate rather than individual agent licenses, which means
the agency must be incorporated in the State where it wants to
obtain a license.
Other States will not permit any non-resident agent to
solicit business in the State. In this time of increasing
global competition, it is hard to lecture to our trading
partners about opening markets when we still have these kinds
of barriers to interstate domestic commerce. Together, we took
an important step when we made NARAB a part of the Gramm-Leach-
Bliley bill. If 29 States can repeal their anticompetitive
licensing laws by November of 2002 with the voluntary licensing
clearinghouse, NARAB would create--it will not be implemented.
In this way, the initiative operates as a sword of Damocles
if a clear majority of States fail to repeat protectionist
requirements. Let me be clear. We must not let the States stop
at 29. We have to push further. We must take the next step
beyond NARAB, and we must realize the goal set by Mr. Miller
130 years ago, which is a goal of uniformity for 50 States and
reach it before the end of this decade.
As evidenced by the State's continuing effort to avoid
NARAB implementation, the States will act if we give them the
right incentive.
I ask you today to join me in looking beyond NARAB today
and calling for uniformity among the States. This way we can
ensure that our insurance agents and brokers can focus on
providing the best insurance service at the lowest cost to
consumers, not continuing to hire extra staff in an attempt to
comply with the staggering complexity of 50 insurance agencies
and regulatory standards.
I thank you very much for this opportunity, and I just want
to take a moment to thank Chairman Oxley for taking up this
fight in the Gramm-Leach-Bliley conference and getting this
provision back in the bill. In addition, it would not have been
possible without the support of you, Chairman Baker, who had
perhaps the best statement of all in a conference when you
spoke in favor of NARAB. I thank you very much for the
opportunity to share my thoughts, and at this time I am glad to
answer any questions that you might have.
Chairman Baker. Thank you very much.
[The prepared statement of Hon. Sue W. Kelly can be found
on page 32 in the appendix.]
Chairman Baker. Some have stated that as to Congressional
activity on this subject, that Congress really hasn't had
hearings scrutinizing NARAB operations or the concept of NARAB
to any significant degree prior to the Gramm-Leach-Bliley
considerations in conference. I know for a certainty that on
the Banking Committee side of the formula in the decade-long
debate of modernization, this was, in fact, a subject of
repeated discussion. Do you have knowledge about the Commerce
Committee's activities in this arena, and wasn't Chairman
Oxley--a Chairman of the subcommittee of jurisdiction--an issue
in which he had some longstanding interest?
Mrs. Kelly. The Commerce Committee actually did have
hearings, and we had hearings here in the banking committee at
that time. I have a copy of George Reider's--the Connecticut
insurance commissioner--testimony in front of our committee.
That was on February 11th, 1999. He testified on NARAB and this
is a copy of his testimony. Unfortunately, I can't say the same
for some of the people, I suspect, who are saying that there
were no hearings. There were.
Chairman Baker. And the reason I bring that up, is the next
step in critical comment is that we have too short a time line
in which to address such a complicated matter. I don't think
anybody, one, should have been taken by surprise, but is there
a sufficient clock remaining, in your view, for this process to
achieve productive-end conclusion?
Mrs. Kelly. Chairman Baker, I am glad you asked that
question. I think that we gave 3 years for the States to
address the problem, and after about a year-and-a-half, 21
States have acted on the problem. I think there is probably
easily going to get that 29, because this is something whose
time has come. So I think now we should go back and take a look
at it and perhaps just move this out and do what Miller asked
in his remarks 130 years ago, let us do it for all 50 States,
because it just simply makes sense. In hindsight, I think
perhaps we should have set that bar higher.
Chairman Baker. And finally, the point of view that this is
about companies engaging with producers and upsetting the apple
cart at the State level, I am not, and I don't believe you are,
an advocate of Federal regulation of insurance sales, but we do
have to recognize that on the consumer side of the coin, new
product development, competitive pricing and ultimately better
service is the end goal of this. It is about making sure that
the best products are available for whatever the consumer need
might be, and having 50 arbitrary grocery stores in which you
have to have a different list of rules to enter each store
isn't in the consumer's best interest. I assume that is your
motivation as well.
Mrs. Kelly. I would agree with you. I think if we raise the
bar, what we are doing is something that is really reasonable
and is going to do a tremendous amount of good for the
consumers, and it is the consumers who are benefiting from this
piece of legislation.
Chairman Baker. I want to express my appreciation for your
willingness to participate and your longstanding interest and
leadership on this issue as well.
Mr. Kanjorski.
Mr. Kanjorski. Mrs. Kelly, I think you make a good point,
but I am more interested in learning what you would suggest for
how we could raise the bar?
Mrs. Kelly. I think we have perhaps set it at too low at
the requirement for 29 States. We need to raise the bar. One of
the concerns that I have is that we have some of the larger
States engage in this as well. If we have a smaller States with
smaller populations, we are not affecting everyone in the
United States. Those larger States need to be a member of this
community. We need to get them into uniformity, and it will
help the consumers tremendously in those larger States as well.
Mr. Kanjorski. But how would we raise the bar? What is the
stick and what is the carrot?
Mrs. Kelly. I am sorry. What were you----
Mr. Kanjorski. What would be the stick and/or the carrot
that we could use to accomplish raising the bar? California is
not in. Pennsylvania is not in. Texas is not in. I agree with
you that if we could only get 29 of the smaller States to stay
in while 21 of the larger States stay out, we are not going to
be terribly successful. But what would you utilize to
accomplish greater reciprocity?
Mrs. Kelly. I would think we could find a way to attach an
additional bill that would open that number up to 50. You see,
what has really happened here, when we did the NARAB and passed
the NARAB bill, we essentially put a sword of Damocles over
their heads. We gave them 3 years and said, either do this
yourselves, or we will step in.
Well, the end game of this has been that 21 States already,
in a year-and-a-half, have stepped in and said, you know, this
is really a good idea, we are going to do this. If we sort of
give them that type of incentive again by finding a vehicle to
attach a new piece of legislation that would open this a bit,
all the way to the rest of the 50 States, I think we will get
uniformity. And then I think it will be something that will
inure to the benefit of the consumers.
Mr. Kanjorski. I think it is an important issue, and I
compliment you for your position.
Mrs. Kelly. Thank you. These agents have to spend a lot of
money getting these separated licenses, and that is only
reflected in their fees.
Chairman Baker. Mrs. Biggert.
Mrs. Biggert. Thank you, Mr. Chairman. In your quote from
1871, it was talking about uniformity. Do you think that you
should just skip over--is uniformity your goal, and why
wouldn't that be the standard to achieve the States rather than
just to have the reciprocity as the first tactic?
Mrs. Kelly. Uniformity is the goal, Mrs. Biggert. The idea
of having uniformity is that it would, first of all, inure to
the benefit of the consumer because of the cost of the agents.
Right now, some of the things that the agents are required to
do are just simply costly. If you, for instance, are requiring
an agent, if they want to offer multistate insurance, they have
to, in some instances, go out to a State and spend a week
taking a course in another State that is not their home State,
and that is perfectly understandable, but if the course doesn't
add anything to their knowledge and is not enhancing their
ability to offer their insurance in that State, it seems to be
needless duplication. What NARAB would allow is a self-
regulating organization. We set the bar so that everybody is
involved, allow them to self-regulate, and by their self-
regulation, it drops the cost to the consumers of the
insurance. It seems to make sense.
Mrs. Biggert. Thank you. Thank you, Mr. Chairman.
Chairman Baker. Mr. Israel here, you are next. No
questions?
Mr. Israel. I have no questions right now, Mr. Chairman.
Chairman Baker. Mr. Shows.
Mr. Inslee.
Mr. Inslee. No questions.
Chairman Baker. I thank you for your willingness to
participate and do appreciate your longstanding interest in
this subject and look forward to continuing to work with you.
Thank you.
Mrs. Kelly. Thank you very much, Mr. Chairman.
Chairman Baker. At this time I would invite the members of
our second panel to please come forward. Welcome, gentlemen,
and for the purposes of proceeding, each of your statements
have been made part of the record. Please feel free to
summarize as much as practicable. Constrain your remarks to
maximize the opportunity for Members to ask questions, and we
are pleased to recognize the Honorable William J. Kirven,
Commissioner of Insurance for the State of Colorado and Co-
Chair of the National Association of Insurance Commissioners
NARAB Working Group to speak here on behalf of the NAIC.
Welcome, Mr. Kirven.
STATEMENT OF HON. WILLIAM J. KIRVEN III, COMMISSIONER OF
INSURANCE, STATE OF COLORADO; CHAIR, WESTERN ZONE, NATIONAL
ASSOCIATION OF INSURANCE COMMISSIONERS; CO-CHAIR, NAIC'S
FINANCIAL SERVICES MODERNIZATION WORKING GROUP ON NARAB; ON
BEHALF OF THE NAIC
Mr. Kirven. Thank you, Mr. Chairman. As you stated, Mr.
Chairman, I am the Insurance Commissioner of the State of
Colorado. I am the Chairman of the Western Zone, and Co-Chair--
--
Chairman Baker. If you could pull that mike down a little
bit.
Mr. Kirven. And Co-Chair of the NAIC's Financial Services
Modernization Working Group on NARAB. You do have my prepared
testimony. What I would like to spend my 5 minutes addressing
is the questions that were in the Chairman's letter that you
sent to the NAIC.
The first question is what are our long-term goals for
streamlining producer licensing, and I think Congresswoman
Kelly is absolutely right. If our long-term goal is uniformity,
we realize that the reciprocity in 29 States is not really true
and effective reform.
The States are using a two-step process to approach the
streamlining. It is our goal to achieve reciprocity in every
State plus the District of Columbia, while moving to uniformity
through the adoption of a Model Act, again, in every State. Not
only does this involve revising State laws as necessary, but
also developing and utilizing technology to implement a
centralized process for agent licensing.
In order to achieve these goals, in October of 2000 we
completed the revisions to the Producer Licensing Model Act to
make the model more consistent with the NARAB revisions of
Gramm-Leach-Bliley. The States are now working to enact that
model nationwide, and I will talk a minute in how we are coming
on that.
On the technology front, the NAIC is working through its
non-profit affiliate, the National Insurance Producer Registry,
to streamline the agent licensing process through the use of
improved technology and a centralized producer database. And
the goal here is to make it possible for State insurance
regulators and producers to complete the non-resident licensing
process for any number of States within a 24-hour period using
a single application form.
The current status of our reforms is the States are making
strong progress. Twenty-one States have enacted the Producer
Model Licensing Act or relevant portions of it. Four States
have bills that are waiting their governor's signature. Another
15 States have producer licensing legislation pending, and we
anticipate another four or five States will introduce the
legislation in the coming weeks. I was advised today, for
example, that California has introduced a version of the Model
Act.
One other State intends to adopt regulations to implement
the Model Act, and it is our understanding that the remaining
States are either still considering legislation, or otherwise
planning to do it in the next legislative session.
Obviously, I think it would have been better if everyone
had done it this session instead of cutting it so close, but
there are people who are waiting until the next session.
The fourth question you asked was how many jurisdictions
have passed NARAB-compliant legislation, and what percent of
the total premium do these jurisdictions represent. The initial
process of certifying whether a State's producer licensing laws
are compliant with the NARAB provisions is just now beginning.
Of course, the NAIC was actively involved in the preparation of
the legislation that was submitted to the legislators in the
various States. As you understand, what gets submitted isn't
necessarily what comes out at the back end of that process, and
so now, the NAIC is preparing to examine the laws as they were
enacted to determine whether or not they are, in fact, still
compliant with the NARAB requirements. And that is, as you
know, an obligation of the NAIC to make a determination as to
whether or not the required number of States have, in fact,
achieved reciprocity as required by GLB.
As for determining the amount of premiums covered by States
that are NARAB compliant, this is not something that we
presently track, because it does not provide a relevant
measuring stick. There is no meaningful correlation between the
State's premium volume and the number of non-resident
producers, which is what we are really talking about as far as
efficiency and effectiveness of licensing. We prefer instead to
look at the number of licensed agents of those States that are
adopting the producer licensing model. In those States that
have thus far enacted producer licensing legislation, this
accounts for almost one-third of all licensed agents in the
country, or nearly one million out of 2.9 million. If we add
those States with bills awaiting their governor's signature and
those States with pending bills in the legislative session,
nearly 70 percent of the licensed agent population will be
covered.
There has been some reference to the size of the States,
Mr. Chairman, and in fact, California, I think, in 1999, had
roughly 238,000 total licensed agents, but only 44,000 of those
were actually non-resident producers who were licensed.
How many jurisdictions do we anticipate passing NARAB by
the deadline? Obviously, we think that there will be in excess
of the minimum of 29, and we are confident that we will have
those minimum 29 on board, but again, we do not intend to stop
there. We intend to achieve our goal of getting all
jurisdictions to meet reciprocity and then move on ultimately
to uniformity.
With respect to measuring premiums affected by reciprocity,
again, we have not found that to be a meaningful measure and do
not really have data. Do we believe the potential creation of
NARAB has assisted States in their efforts to enact agent
licensing reforms? I think it is hard to say with any
certainty. Certainly we started this process long before GLB
was enacted, but it certainly gave focus to--and some
inspiration to the effort that the NAIC has made, and I think
that has been a very positive effect. I think it is important
to keep in mind that State regulators were, in fact, working on
agent licensing reforms well in advance of GLB.
The last question you asked was to discuss the need for
comprehensive uniformity in agent licensing. In March of 2000,
almost all members of the NAIC signed off on a statement of
intent, wherein they expressed their commitment to work toward
implementing effective uniform producer licensing standards.
Today, the NAIC's commitment remains as strong as ever. The
NAIC, working with its affiliate, the National Insurance
Producer Registry, is continuing to work with States to achieve
a centralized electronic producer licensing process that will
reduce the costs and the complexity of regulatory compliance
related to the current multi-state process. Those concludes my
answers.
[The prepared statement of Hon. William J. Kirven III can
be found on page 36 in the appendix.]
Chairman Baker. Thank you very much, Mr. Kirven. I
appreciate your responses.
Our next participant is the past Chairman of the Council of
Insurance Agents and Brokers, Mr. Albert Counselman. Welcome,
Mr. Counselman.
STATEMENT OF ALBERT R. COUNSELMAN, PRESIDENT, RIGGS,
COUNSELMAN, MICHAELS & DOWNES, BALTIMORE, MD; PAST CHAIRMAN,
COUNCIL OF INSURANCE AGENTS AND BROKERS
Mr. Counselman. Thank you. Good afternoon, Mr. Chairman and
Members of the subcommittee. I am Skip Counselman, President of
Riggs, Counselman, Michaels & Downes in Baltimore, Maryland. I
am also past Chairman of the Council of Insurance Agents and
Brokers. I am grateful for this second opportunity to testify
on the issue of agent and broker licensing. I first testified
before Chairman Oxley's Subcommittee on Finance and Hazardous
Materials in July 1997 about 4 years ago.
I would like to say that while I appreciate the efforts of
the NAIC leadership and while I can see progress being made,
the marketplace reality has changed little for a firm such as
mine. I still am facing several of the same burdensome
requirements that I faced 4 years ago, and little has been done
to significantly streamline the licensing process for me and
for my employees.
In my prior testimony, I noted that I had to personally
maintain 100 separate licenses. Today I still maintain 90
licenses, not much of an improvement. The application process
has gotten slightly better, as most States now accept the
NAIC's uniform applications. However, many States still require
additional documentation beyond what is requested on those
forms. And even though I hold a non-resident agent license in
Texas, for example, I still may not solicit business from any
Texas resident. So as you can see, not much has changed in the
last 4 years.
With that said, I think that the enactment of NARAB
provisions of the Gramm-Leach-Bliley Act had a positive effect
on State's efforts to enact licensing reforms. It was only
after the enactment of NARAB that the States got serious about
enacting these reforms.
It is highly unlikely that States would have moved this
quickly without the Bunsen Burner effect of NARAB giving them a
jump start, especially when you consider the fact that our
association formed its first committee to work on licensing
reforms more than 60 years ago. NARAB was a true provision of
modernization in the Gramm-Leach-Bliley Act. Were it not for
the tenacious support and initiatives from Congresswoman Kelly,
the leadership of Chairman Oxley and your active support of
NARAB in conference, Mr. Chairman, things assuredly would not
be changing for the better, particularly at their current pace.
This initiative was bipartisan and provides a very good
model for a carrot-and-stick approach that can effectively move
insurance regulation forward toward goals of efficiency. As
this subcommittee explores the options for improving
harmonization of State laws, we would urge you to recognize the
progress that has been achieved through NARAB, even though
regulators strongly opposed its passage at the time. The
Council appreciates the progress that has been made in
reforming the licensing system, but we believe that we are only
at the beginning of the road.
After NARAB's enactment, the NAIC pledged to go further
than NARAB in reforming the licensing system and to secure not
only reciprocity of all licensing jurisdictions, but also
uniformity of licensing laws in all jurisdictions.
It is a virtual certainty that a majority of these
jurisdictions will enact the necessary legislation to meet
NARAB's reciprocity requirements. However, there are some
questions as to whether NAIC will reach its initial goal of
reciprocity in all jurisdictions.
The Council is very concerned about this prospect. While 20
States have enacted laws that meet the reciprocity standard,
those States account for only 20 percent of the total premium
in the U.S. Council members represent only the top one percent
of agents and brokers, but place over 80 percent of all
commercial insurance business in the U.S., and if only 29
States enact the necessary laws, a large number of agents and
brokers will not actually be benefitting from the NARAB
regulations and proposals.
The Council continues to have concerns about States such as
California, Texas, Florida and New York. The Council firmly
leaves that increased uniformity of licensing laws is the key
to full acceptance of non-resident licensing reciprocity. This
is why we have consistently supported States enactment of
NAIC's Producer Licensing Model Act, because it brings State
agent and broker licensing laws much closer to uniformity than
they have ever been before.
However, there is still a need for the States to go
further. For example, there is the issue of tenure and renewal
dates in all 50 States. There is the issue of countersignature
laws, which still exist, which are protectionist in several
States.
Mr. Chairman, I wish to thank you for holding this hearing
today, but we would also like to note that the battle must
continue forward on this issue. As you consider options, we ask
that you consider what appropriate issues should be considered
so that all jurisdictions representing 100 percent of premium
volume benefit by uniformity throughout the country. Thank you
for this opportunity and for your leadership on this important
issue.
[The prepared statement of Albert R. Counselman can be
found on page 47 in the appendix.]
Chairman Baker. Thank you, Mr. Counselman.
Our next witness is Mr. Ronald Smith, here today in his
capacity as Chair of State Government Affairs and past
President of the Independent Insurance Agents of America, as
well as participating on behalf of the National Association of
Insurance and Financial Advisors and the National Association
of Professional Insurance Agents. Welcome, Mr. Smith.
STATEMENT OF RONALD A. SMITH, PRESIDENT, SMITH, SAWYER & SMITH,
INC., ROCHESTER, IN; STATE GOVERNMENT AFFAIRS CHAIRMAN AND PAST
PRESIDENT, INDEPENDENT INSURANCE AGENTS OF AMERICA; ON BEHALF
OF THE IIAA, NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL
ADVISORS, AND THE NATIONAL ASSOCIATION OF PROFESSIONAL
INSURANCE AGENTS
Mr. Smith. Thank you, Chairman Baker. Chairman Baker,
Ranking Member Kanjorski and Members of the Subcommittee, good
afternoon. I am Ron Smith. I am an insurance agent from
Rochester, Indiana, and I am representing the Independent
Insurance Agents of America, the National Association of
Insurance and Financial Advisers and the Professional Insurance
Agents.
No segment of the industry is affected more by licensing
laws than our diverse membership, and no group is impacted more
by the reforms we are discussing today.
Despite our longstanding support for State regulation and
effective licensing laws, we feel the current licensing system
does not operate as efficiently as it should. For this reason,
we have led the effort to streamline the licensing process, and
we have pushed for increased uniformity across State lines.
The passage of the NARAB provisions assured our members
that effective licensing reform was finally eminent. It has now
been 18 months since the enactment of the Gramm-Leach-Bliley
Act, and we are halfway to the NARAB deadline. The associations
that I represent have a presence in every State capital. And
our members and affiliates have been working closely with State
lawmakers to enact reform.
This partnership has resulted in a staggering amount of
reform in a short period of time. Because of these efforts, the
NARAB threshold of 29 States will be cleared, we believe,
before the end of 2001 over 1 year ahead of the timetable
established by Gramm-Leach. Our success at the State level
cannot be overstated. Here are some of the numbers.
Twenty-one States, as have been mentioned, have enacted
significant reciprocity and uniformity laws. We believe there
are 10 additional States that have passed reform bills through
both legislative chambers, and if those bills become laws, that
will mean approximately 31 States which account for almost 50
percent of all licensed individuals and almost 45 percent of
the country's total property and casualty insurance premiums.
We think that will happen yet this year. Many other States are
currently considering licensing reform bills, and by the end of
this year, we anticipate that over 45 States will have
considered licensing reform legislation.
We think we have made some progress. Given the pace of
activity that has occurred, it is now clear that the creation
of NARAB will be averted. We commend the hundreds of State
legislators who have worked diligently on insurance license and
reform over the last several months. They have clearly done
their part to modernize insurance regulation.
While the accomplishments of the last several months are
impressive, we intend to keep the pressure on. Our
organizations believe it is essential that we have national
reform. Reaching the statutory bare minimum is not good enough,
and we will not settle for reform in only 29 States. Instead,
we will continue to push for reform in all States, both prior
to and after the November 2002 deadline.
Some in our industry suggest that the process is
insufficient, because larger States have not yet acted. We are
a little more optimistic on that point. We believe that several
large States will be taking some action. 41 States will adjourn
by August of this year in their State legislatures, and we
anticipate that at least 35 of those States will have taken at
least some action this year. Most of the remaining States,
including the largest States, have legislative sessions that
continue on an ongoing basis. These additional States include
New York, California, Illinois, Pennsylvania, Michigan, Ohio
and New Jersey. Each of these States is now working to enact
licensing reform, and we are optimistic that several of these
States will get something done, maybe even this year. Effective
and meaningful reform must be national in scope, and it is
essential that the largest States be part of the mix.
By enacting the NARAB provisions, Congress took affirmative
steps to ensure that insurance agents would have access to a
streamlined and functional licensing mechanism. While we have
consistently argued that the States were up to the challenge,
we are nevertheless pleased with the results so far. We must
continue, however, to build on this progress and gain enactment
of similar reforms in the remaining States. We are confident
that this will occur and we will continue to work closely with
State policymakers to achieve meaningfullicensing reform on a
national basis.
On behalf of IIAA, NAFIA, and PIA, I thank you for this
opportunity to present our views. We look forward to working
with this subcommittee in any capacity needed. Thank you.
[The prepared statement of Ronald A. Smith can be found on
page 56 in the appendix.]
Chairman Baker. Thank you very much, Mr. Smith.
Mr. Kirven, I want to start with what appears to be
differing views about the real direction of the provision
within Gramm-Leach-Bliley and whether or not there was clear
enough direction in the language of the Act to understand the
goal.
And this is just my perspective. I can't speak for all
members of the conference, and certainly Mrs. Kelly probably
has her own view. But reciprocity is something different from
uniformity, and when we sat around that table talking about the
marketing of products, it, I believe, was with a view toward
the goal of uniformity. You then went on to say that the Gramm-
Leach-Bliley requirement was not the initiation of the effort,
but it certainly was an incentivizer to the overall activity.
Do you think that we--pending the current target of
November, 2002, nothing will alter that event--need to start
thinking about another incentive program for uniformity?
Mr. Kirven. From the NAIC's perspective, I would hope that
you would not. I think the NAIC itself is committed to
uniformity. We want all jurisdictions to have a uniform
application process where you simply file one application and
you can get licensed in any State in the Union. We have a
strong incentive to do that.
As you have noted, Mr. Chairman, there are some States that
still have, for example, countersignature laws in effect. I
agree that those are certainly economic protection. And in
certain States, apparently the agents--we need their
cooperation, and we need to have their support to change some
of those things, and if they don't, then that is certainly a
problem for us.
I don't think it is any secret that the most difficult part
of this process for us is having to go to each of these
legislatures, introduce a bill and everybody has their ideas
and it is our system on how that can best be accomplished. And
sometimes what we put in as a Model Act doesn't exactly look
like a Model Act when it comes out.
That is a difficult issue for us. I think we have made
great progress to date doing that, but I want there to be no
question that the NAIC's goal is clearly uniformity. We have
never felt that reciprocity was an end in it. But we also
realized, given the timeframe and given the amount of work that
we have to do with these legislatures, that reciprocity would
certainly help us beat the clock, so to speak.
But I would certainly not--and I don't think the
organization will tolerate--say, ``Well, we made that deadline,
let us keep trying.'' I think we are going to push ahead for
uniformity.
Chairman Baker. Well, as a longstanding member of the
Louisiana legislature, I have good reason to have my concerns
about our ability to achieve certain goals.
I would point to the fact that almost every bill that is
passed in the legislature has the proviso, except for the
Parish of Orleans. Even the rules of time apparently don't
apply to Orleans Parish any longer. So for those reasons and
the fact that you observed that it was some modest assistance
in focusing the organization's attention, for what it is worth,
if it helps, just let them know that somebody else is talking
about additional interest in the matter, should progress not
achieve desired goals.
Mr. Counselman, you indicated you have approximately 90
licenses today, as opposed to a hundred. How does that occur,
and what do you perceive from the market side is the difficulty
in the larger States coming on board?
Mr. Counselman. Thank you, Mr. Chairman.
Ninety as opposed to a hundred is because of the good
cooperation from some of my associates in my own company. We
have a total of 190 non-resident licenses for people in my
company. We operate in one location in Baltimore, in one State;
and so some of my associates have additional licenses that I
used to hold exclusively. So the streamlining of 10 percent
isn't really streamlining. It is just some of my associates are
carrying those----
Chairman Baker. You were just trying to be nice, I guess.
Mr. Counselman. Right. I am trying to be precise.
But the uniformity is the major issue, because even if we
have licenses in all of these States, we are not fulfilling the
identical requirements in those different States. The
applications are different, and the requirements are different.
For example, in criminal background checks, it seems like a
reasonable thing to require. The manner in which that
information is gathered for the different States is not
consistent.
Chairman Baker. I thank you very much. My time has expired.
Mr. Kanjorski.
Mr. Kanjorski. I am trying to understand that issue better.
When you say that you will meet the requirement that 29 States
will pass laws by the deadline, you are only talking about
reciprocity. You are not talking about uniformity. Is that a
correct assessment of your accomplishment in the 3-year
deadline?
Mr. Kirven. Yes. I am talking about 29 States' reciprocity.
We will exceed that goal, but our real goal is 50 States for
uniformity.
Mr. Kanjorski. After the 3-year period, how much uniformity
are you going to have?
Mr. Kirven. Well, actually, the Model Act is designed to
create a lot of uniformity now. It does a dual purpose. It also
establishes reciprocity, but it goes on to establish
definitions of the various lines in commonality among the
States that adopt it. So it is, in fact, a start toward
uniformity; and if everybody adopted the Model Act, I think we
could probably safely say we had uniformity.
Mr. Kanjorski. How many States have adopted the uniform
act?
Mr. Kirven. Twenty-one States. Ten, I think, are through
both houses awaiting governors' signatures.
Mr. Kanjorski. That is the Model Act itself?
Mr. Kirven. That is the Model Act.
Mr. Kanjorski. So you will have both reciprocity and
uniformity?
Mr. Kirven. For the most part in those. We have to look at
those. When we put them in, they are the Model Act; and when
they come out, there have been some changes to them as they go
through the process. And that is what the NAIC is going to do
as part of its compliance process, is to look at the enacted
laws to see how compliant they are with the minimum standards
that we have for uniformity.
Mr. Kanjorski. How soon will that analysis be finished?
Mr. Kirven. Well, the working group, which I cochair, is in
the process right now of establishing a checklist of each item
that must be in the State laws to meet our requirements for
determination that they are compliant with reciprocity. We are
going to work on that at the June meeting. So we will start
this summer. And we would be glad to share with the
subcommittee our progress on certifying those States.
Mr. Kanjorski. Could you do that? I think it would be very
helpful to us.
Mr. Kirven. OK.
Mr. Kanjorski. Mr. Smith, I know you are trying to walk a
fine line here, being optimistic and favorable, but I sort of
heard a little hesitancy in your testimony. When the day is
done, are we really not going to accomplish what we are looking
for?
Mr. Smith. I think there is a big difference between
reciprocity and uniformity, and our association has always felt
that way. We worked extremely hard on the Model Act. We spent a
lot of time, effort and energy on the language in the Model
Act. There were some attempts to change that language. We were
effective in fighting those off, because we thought the changes
were harmful to consumers. And so, quite frankly, we have been
a little disappointed in what has come out of some of the State
legislatures.
We would look forward to working with this subcommittee, if
that need be, to reach the goal of uniformity. There is no
question that that is where we should be.
I live in a community of 7,000 people in north central
Indiana. I have 15 licenses around the various States and
actually deal with my largest client, who happens to be in the
State of Florida. So this is not just something that affects
big brokers. It affects smaller agents and brokers like myself
who happen to have clients that deal all around the country.
Mr. Kanjorski. Is this delay done for protectionism, or is
it that every State wants to feel they have a right to be
unique and a little different?
Mr. Smith. I think there has been a lot of protectionism in
the past, particularly countersignature laws. We are basically
now down to five States. We think one of those is going to get
rid of their countersignature law. But it has been very
protectionist.
I think now several States believe that they have one or
two ingredients that for their State is crucial in the
licensing process, but yet for the vast majority of States, it
is not deemed crucial--criminal background checks and some
things like that. That is where in particular I think some of
the larger States have been hung up on their passage of the
Model Act. So that is why we maintain a certain degree of
optimism, because we do have associations in each of those
States working with the State legislatures and the NAIC to see
if we can't reach some compromises there.
Mr. Kanjorski. Mr. Counselman, is it your hope that you are
going to go down from the 90 licenses that you now own to just
one?
Mr. Counselman. I would hope I would go to one.
Mr. Kanjorski. Can any of you give me an idea about when
you have 90 licenses, what does it cost you?
Mr. Counselman. It is different in every State. On average,
it is probably about $100. It could be as little as $25 or as
much as $150, but in addition some States have bond
requirements, and that could be $100 to $500 in addition.
Mr. Kanjorski. It seems to me that you are talking about
thousands of dollars for your agency.
Mr. Counselman. I am talking for my own firm in excess of
$100,000, and for me just with 90 licenses, I am talking
thousands of dollars. But when you multiply that by the
literally millions of agents across the country, it is a very
major issue. And the time it takes to fill out those
applications, somebody has to take the time to do it at work.
Mr. Kanjorski. Very good. Thank you, Mr. Chairman.
Chairman Baker. Thank you, Mr. Kanjorski.
Mrs. Kelly.
Mrs. Kelly. Thank you, Mr. Chairman.
Mr. Kirven, you are talking about your your group, is the
NAIC really agreeing with this goal that we are trying to
achieve with NARAB?
Mr. Kirven. Yes.
Mrs. Kelly. Well, if you agree with the goal, it seems to
me that 130 years is a long time to try to enlarge this
question and try to push it. I would like to know when you
think we will have uniformity. What is your stated goal at this
point in terms of time in all of the States? In 3 years? Five
years? Six months? What are we talking about?
Mr. Kirven. Well, I would think that if we can reach the
reciprocity level in 3 years, I don't know why we couldn't--and
this is my personal opinion. We don't have a fixed date. I
don't know why we couldn't try and achieve uniformity within
the next 3 years.
Mrs. Kelly. Well, I am asking you about all 50 States, sir,
not just the fact that we put the 29 States in as a goal.
Mr. Kirven. I understand, Congresswoman Kelly. I said--if
it took us 3 years to reach 29 as a minimum, which we will
reach more than that, I would hope within another 3 years we
can reach uniformity, because it takes--you know, GLB was
passed in November of 1999 I think. That was really too late to
get bills ready for introduction in the 2000 session. So in
Colorado we did it the very first session we could, which was
this year, got it done and passed. Some States are waiting, but
I would think that, if we need to make more changes, we will
need 3 years as a reasonable amount of time to finalize, fine-
tune uniformity on some of the acts now that may not come out
uniform.
Mrs. Kelly. Do you think this would have occurred without
the NARAB legislation, without that sword of Damocles? We have
given NAIC quite some time, 130 years.
Mr. Kirven. I think that certainly the act has given
impetus to an effort that was ongoing. People talk about how
lately the NAIC is moving at light speed, and I guess that
proves Einstein's Theory of Relativity. It took us 130 years to
do some things. Lately, we have done a few in a couple of
years. So we are picking up some momentum, Congresswoman Kelly,
and I think that we will continue to maintain this. I think
there has just been a real hard look at all of our efforts,
speed-to-market issues that the Chairman has referred to.
I certainly as an--coming from private industry and coming
into this job have realized that this system is very balkanized
and very redundant and really needs to be reformed. I am very
committed to that, and I think that my colleagues in the NAIC
are committed as well.
Having said that, though, no matter how much we agree, we
still have to go to our State legislator to change our laws in
a lot of cases, and we want them to be uniform across the
country. And my personal opinion is, is that, yes, we may need
some help with some pre-emption of countersignature laws. If
some States can't just seem to get it done, then perhaps we
will need some kind of a pre-emption which will make them get
rid of the countersignature laws so we can get to uniformity.
What I would like to see you do is give us adequate time, as
you have, to make our best efforts to accomplish this goal.
Mrs. Kelly. I am sure that we would all be very happy to
try to help you. When you say adequate time, I am just looking
at the time line you have had before--and I don't mean to beat
a dead horse here. Certainly I appreciate your coming here to
testify, but I am concerned, because I think that the time has
come for us to have a uniformity. There has been 130 years.
When do you think the NAIC is going to have comprehensive
uniform standards for the States to follow beyond the limited
uniformity parameters that are in the Producer Licensing Model
Act? Do you think that is going to be coming soon?
Mr. Kirven. I think our Producer Licensing Model Act goes a
long way toward achieving uniformity today in its present form
if we can get it adopted in all of the States.
Mrs. Kelly. But I asked you about a comprehensive uniform
standard. I am not talking about reciprocity and not talking
about models. I am talking about real standards for real
people.
Mr. Kirven. And I am talking about the same thing. The
Model Act has more than just reciprocity set forth in it. It
has certain well-defined lines of business and how to be
licensed and what the criteria are and the educational
requirements. So we can make that on a uniform application
across the country. It would be a uniform filing basis.
Mrs. Kelly. My trouble here is the comprehensiveness of it.
I hope that you will work extremely quickly to accomplish the
goal, but I appreciate the fact that you are looking for us to
help you. I am sure we are very happy to help you.
And I thank you, Mr. Chairman, for allowing me to appear
here today.
Chairman Baker. Thank you, Mrs. Kelly.
Mr. Israel.
Mr. Israel. Thank you, Mr. Chairman.
Mr. Smith, you noted in your testimony that we should not
settle for reform in only 29 States, we have to go beyond that,
and that you are optimistic that this year we will have more
than 29 States. We are talking about the large market States
like California, Texas, Florida that have high premium value,
lots of agents and brokers. In addition to being optimistic,
can you tell me specifically what steps your organizations are
taking in order to bring these jurisdictions on board?
Mr. Smith. It is a little bit different in every State,
because it depends on the views of all the people in that
State.
For instance, Texas. Texas has passed the bill, and it has
gone through both the house and senate in Texas, but we are not
sure that it is going to be compliant or the NAIC will consider
it compliant for purposes of uniformity or reciprocity.
However, it would help the vast majority of agents and non-
resident agents that would apply to the State of Texas.
California has some particular things that they require of
their resident brokers that they think if they just pass the
uniform model that they will actually be letting non-resident
agents operate in their State on a basis that is much less
comprehensive than their own residents are required to meet.
So those are two instances where some of the
particularities in those States--we are working with our
lobbyists in those States, we are working with the NAIC in
those States, and then working with NCOIL and various
legislative groups in the various States. So to get into
particulars, every State is just a little bit different, and it
is their own feeling about some of those things that we are
trying to help overcome.
Mr. Israel. The three organizations that you represent,
IIAA, NAIFA, and PIA, are active in California, Florida, Texas.
Are you playing an active role in encouraging those States to
come on board?
Mr. Smith. Yes, absolutely.
Mr. Israel. Thank you, Mr. Chairman.
Chairman Baker. Thank you, Mr. Israel.
Mr. Barr.
Mr. Barr. Thank you, Mr. Chairman.
Could you update me--and I apologize if this came up
earlier in the testimony; I was at a separate hearing--on what
is going on with California, Texas and Louisiana, I think?
Mr. Smith. Louisiana, I believe, has passed the Model Act.
Texas has passed both houses of the legislature. Again, I
restate I am not exactly sure that that will be considered NAIC
compliant. They had a couple little pieces in it.
California, we are working diligently with, as we speak. As
a matter of fact, our lobbyists here that works with me, Wes
Bissett behind me, spoke with their lobbyists yesterday on the
issue.
And I think Ohio is another State that we might mention.
The commissioner there, Lee Covington, is a strong supporter of
this. But yet in Ohio they have had some very substantive
discussions about budgets and things like that; and this
legislation, quite frankly, has tended to hit toward the bottom
of the barrel. So we are optimistic that later in this year we
might get something done in Ohio.
So we are working as hard as we can in all of those States
with our lobbyists. Our national association has affiliates in
all 50 States, and that is who we work with through our
affiliates there.
Mr. Barr. So Louisiana, that has been signed?
Mr. Smith. No. Passed. It has passed and has gone to the
governor. It has not been signed yet.
Mr. Barr. And in Texas, similarly?
Mr. Smith. Yes.
Mr. Barr. Are there still some problems remaining in the
language of the Texas bill?
Mr. Kirven. I believe that is correct. It is not compliant
with the Model Act, and I am going to talk to the commissioner
about that.
Mr. Barr. Is there going to be some effort to change that,
or is it too late, if it has passed both houses?
Mr. Kirven. I know that while I am here I am going to talk
to someone about what issues we don't feel are compliant and
talk to the commissioner and see if we can't have some of those
revisited. I don't know if it is in conference committee or how
we can do that, but we are going to try and talk to Texas and
see if we can't make them change the bill to be more compliant
with the Model Act.
Mr. Barr. I guess you can talk to them, but not mess with
them.
Mr. Kirven. That is correct.
Mr. Barr. And California is just being California or----
Mr. Smith. Wes says that the bill is in committee and may
very well be moving forward soon.
Mr. Kirven. Congressman, if I may----
Mr. Barr. Are you all optimistic that we will see it move
through the California legislative system this year?
Mr. Kirven. Mr. Chair, can I--Congressman, I--one of the
biggest things we have in California is they have a fingerprint
check, and they use it. So a lot of States have it. They put
them in a folder, and they never look at them, but California
apparently does. That is an add-on under the reciprocity thing.
It is not allowed, and California refuses to give it up. I
think maybe roughly 14 States even have requirement, and so we
are a little stuck there.
California won't meet reciprocity because they have an
additional requirement to fingerprint, and yet it also is not
uniform across the country. But we are working through NIPR to
try and--work so we can get an electronic fingerprint one time.
For example, if--and Mr. Counselman wants to be licensed in
50 States, and if we have his one electronic fingerprint, we
can check it once, pay one data access fee for the database,
which is $24 or $25, and spread that cost across all 50 States.
So we hope to recognize savings, and we always have his print
there. We will only have to check it once for every State and
at least make that available to the States that want to use it.
So we are trying to do workarounds on some of these issues,
but it is difficult. Some States don't want to give that up. I
wouldn't argue it is not a valid consumer protection.
Mr. Barr. Well, thank y'all very much. We appreciate your
efforts; and if we can be of any help, let us know. Thank you.
Chairman Baker. Thank you, Mr. Barr.
Mrs. Jones.
Mrs. Jones. Mr. Chairman, I come from Ohio. I am not quite
sure what we are doing, but we are trying to fund education in
Ohio. That is our top priority for our legislature right now.
I have a couple questions. You say there are five States
who have not done something. I think that was you, Mr. Smith.
Was that part of your--one of you said----
Mr. Smith. I referred to several States, and we are hopeful
that at least 45 will have taken at least some action by the
time their legislatures come back. So, yes, there are four or
five that have not really addressed the issue yet.
Mrs. Jones. And can you tell me who they are? Not if you
don't----
Mr. Smith. We can get you a list. We will be happy to share
our list. We have a list of all the States and the activities
that we think are taking place. We will be happy to share that
list with you.
Mrs. Jones. Just so I am clear on--and we are using the
same terminology, can one of you define what you mean by
countersignature laws?
Mr. Counselman. I can describe how it impacts on the sale
of insurance, an example would be Florida, because they are
famous for their countersignature law. If I as an out-of-State
agent write some business in the State of Florida, I have to
have that policy signed or, more specifically, countersigned by
a resident Florida agent. Florida also requires the payment of
50 percent of the commission, regardless of whether the agent
actually participated in the transaction.
Mrs. Jones. Now, when I first came to Congress back in 1999
and H.R. 10 was being considered, the big push was leave the
regulation of insurance to the States.
Now, if you want to leave the regulation of insurance to
the States, why then do you want to push this other piece to
uniformity and reciprocity across the board? What is the
advantage of that?
Mr. Counselman. The advantage is the efficiency, because
the NARAB proposal would still allow the States to regulate
insurance and to regulate agents.
Mrs. Jones. So it is more efficient for you to be uniform
with licensing, but it is more efficient for each State to be
the regulator?
Mr. Counselman. Just on the licensing issue alone, it is
more efficient to get a license once; and so, just on that
basic principle, we want there to be uniformity of licensing.
Mrs. Jones. If you know, are licensing fees used to fund
insurance regulation within the States?
Mr. Counselman. They are a part of funding, but the major
funding for insurance regulation comes from premium tax that is
collected by the States, which, on average, is about 3 percent
of premium. So licensing fees are an additional source of
income, but they are not the major source of income, to my
knowledge.
Mrs. Jones. Are you able to tell me what percentage of the
funds that fund a licensing regulation in the State come from
licensing fees?
Mr. Counselman. I wouldn't know the answer to that.
Mr. Kirven. It is not that significant, Congresswoman.
Mrs. Jones. I don't know whether it is, and I am trying to
get educated on it.
Mr. Smith. I am sure that Mr. Counselman and I would both
be happy to pay a fee if we could go ahead and apply for a
license in Florida. I am in Indiana. If I could use my status
in Indiana to apply at the same time in Florida, I would be
happy to pay a fee if that is what it took, rather than go
through a whole separate licensing process and pay a fee that
way.
Mrs. Jones. So, in other words, you would pay 50 fees if
you could get licensed once?
Mr. Smith. If that is what we are required. We are doing
that now. So if it was found that that money was really,
indeed--I am not advocating agents want to spend any more money
than we have to--but. if it was found that some of that money
was needed to help regulate the States, I am sure there would
be some cost. We would be happy to pay a nominal fee, as long
as we could get around or have a uniform license that we could
use for every jurisdiction.
Mrs. Jones. Well, there is some administrative cost to
regulating an industry, and so what I am trying to find out
from the three of you, if you can educate me--maybe you can't.
Then I will ask someone else. Is part of that processing, or
part of this--I don't know what word I want to use--this hurdle
that you must leap responsible or is it attributed to the fact
that the States say I need something to cover the cost of
regulating your industry?
Mr. Counselman. From my experience of sending in the
licensing fees and the process that is involved in it, the
application process and the issuing of the license, I am not
advocating increasing fees, but I would doubt that the fee----
Mrs. Jones. So the record is clear. Right?
Mr. Counselman. I would doubt that the fee that is
collected would actually cover the cost of issuing the license,
because there is so much paper that has to be reviewed before
the license can be issued. I would be doubtful if the revenue
actually covers the expense for an individual State to handle
that service.
Mr. Smith. I am not intimate with all the monetary details
of the State of Indiana, but I do know that in the State of
Indiana premium taxes actually go into our general fund, and
all of the premium tax is not used just for the funding of the
insurance department. Several of the funds are sent to other
departments in the State.
Mrs. Jones. Mr. Chairman, if you would just allow Mr.
Kirven to respond, I am finished with my question.
Mr. Kirven. Congresswoman, I was trying to do my--we have
about 80,000 agents registered in the State of Colorado, and I
believe our fee is about 36 bucks, which I can't do in my head.
But I can do $30. So it would be about $240,000 in--is that
right--fees, and I think our contract to process licenses cost
$300,000. So it is not a revenue generator for us.
Chairman Baker. Let me point out, too, if I may--if I am
understanding the process correctly, if you file once in
Indiana, pay your fees in Indiana, then a database is created
in Indiana that other States can access to verify before you
are allowed to enter into that market. So you are really
talking about 50 State repositories where you are principally
licensed, and other States have access via the Internet, I
presume, to that database. Is that what we are envisioning?
Mr. Kirven. We already have a producer database which has
all but about 300,000 of the agents licensed in it already
today. So we do have that database; and, yes, it would be
accessible for showing that you are licensed in your
domiciliary State.
Chairman Baker. So in a practical matter, just following up
on Mrs. Jones' line, we would not necessarily be increasing
costs. We may, in fact, be reducing it with the elimination of
all of the documents that are now shipped back and forth?
Mr. Kirven. Hopefully the net result would be less expense,
no more documents; and, for example, we would save money on
background checks, too. We could just do it once, and it would
apply to 50 States.
Chairman Baker. Terrific.
Mrs. Jones. Mr. Chairman, if I could just follow up.
Chairman Baker. Yes.
Mrs. Jones. What I was trying to determine was, when you
have a regulator, the cost of regulation, be it investigation,
be it whatever the heck it is; and I was just trying to see if
those dollars that were generated by the application fed into
that process. Thank you very much.
Chairman Baker. No. I understand. In my own State's case, I
am sure the licensure fee has no correlation to the enforcement
side of the business.
Congressman Miller.
Mr. Miller. Thank you, Mr. Chairman.
I used to be in the State legislature on the insurance
committee, and it always struck me as interesting that the
fingerprinting was necessary for licensing, and they figured it
should be required; yet, voter registration cards were
punitive. Good luck on your legislation at the State. I don't
know how you are doing, but it should be an interesting
process.
I have a couple different numbers that I am finding. One
brings the total to 20 States that represent 20 percent of the
total premiums written in the United States. Yet I understand
that there may be discrepancies between our list and the list
developed by others. Is there some States that have enacted
licensing reform that the Council does not believe comply with
NARAB reciprocity provisions? And the other list says 17 States
have passed such laws, representing about 16 percent of the
mark. Is that a fair statement? Seventeen States?
Mr. Counselman. I believe you have quoted--when you
mentioned the Council, you certainly were quoting my testimony.
At any different point in time--and that might be the reason
for the differences among our testimony, because these bills
are being passed in the last few days. The numbers change
daily.
Mr. Miller. Yes. You know, I have quite a few friends in
the insurance industry and, you know, you talk to them about
the requirements of different States and trying to provide the
same service from State to State, how burdensome that is and
how complex and in many cases confusing, and unless you are a
very, very large company, it makes it very difficult for you
and it makes it very difficult for smaller companies going into
States.
And I am kind of changing my mind. In the past, I always
believed that it should be an absolute State issue dealing with
insurance issues and issues associated with a State, but I am
beginning to wonder if there is a need for an optional Federal
charter for insurance companies, similar to depository
institutions. What is your opinion on that, just as a sidebar?
Mr. Counselman. There may well be a place for an optional
Federal charter for certain types of insurance or for certain
categories of insurance. For example, one program that I
represent has only 100 insureds. They are located through the
country, but the policy form has to be filed in 50 States,
because those 100 insureds are in different jurisdictions. So
that would be an example of where it would be very useful to
have a Federal charter.
Mr. Miller. Instead of an adviser group of individuals who
are willing to give their time to discuss and debate these
issues, and it is something I think needs to be debated in the
near future.
I don't have an answer. I don't think anybody does, but
there seems to be a growing need for some form of regulation
that is consistent, where you know what you are doing and
without having to deal with--you dealt in California. I mean,
your oversight changes weekly, depending on what bill goes
before a committee. It is almost impossible to keep up with.
But in the statement of intent, the 49 State insurance
commissioners at the NAIC national meeting, it reads, quote, we
have empowered the NAIC's non-profit affiliate insurance
regulatory information network to develop recommendations for a
streamlined national producers licensing process that will
reduce the cost--I love this--reduce the cost and complexity of
regulatory compliance related to the current multistate
process, end quote.
However, under NARAB's provision for required reciprocity,
States are still allowed to have countersignature requirements;
and does this provision defeat your effort to reduce the costs
and complexity of regulatory compliance related to the current
multistate process?
Mr. Counselman. It was a compromise. When the bill was
enacted, that countersignature was specifically deleted in
order to get the appropriate support. We really do believe that
countersignature should be one of those uniform issues and
should be addressed.
Mr. Miller. And if it is not addressed, you are still
dealing with a complicated process you had to go through
otherwise. So that basic intent really did you no good.
Mr. Counselman. Well, at least it is a limited--the
countersignature issue is a limited number of States, and the
licensing issue obviously affects all 50 States, but
countersignature--differing countersignature requirements are
really focused on--I believe it is about five States.
Mr. Miller. So, basically, if we had an optional Federal
charter, many of these issues would dissolve with that, if it
could be worked out based on the different insurance entities
that are involved in it?
Mr. Counselman. It may or may not be resolved, because most
agents would probably still be selling insurance through
companies that are licensed and regulated in the individual
States and perhaps other forms of insurance or specific
programs that would be under a Federal charter. So, in all
probability, agents and brokers would still have--they might
then have two licenses instead of 50 or----
Mr. Miller. So it would be much more simplistic?
Mr. Counselman. It would be simplistic.
Mr. Miller. Thank you, Mr. Chairman.
Chairman Baker. Thank you, Mr. Miller.
Just for information, we distributed to date all Members a
tentative committee agenda, and one of the possible issues for
fall consideration is examination of the national charter
question. And so people don't get excited, that doesn't mean we
are introducing legislation. We are just examining.
Mr. Miller. One of the States is on that charter concept?
Chairman Baker. Yes.
Mr. Miller. I applaud you for that, because I believe
things have changed dramatically in recent years, and the
requirements that many States impose on insurance companies
tend to be punitive based on the mandates of 50 separate States
and trying to meet those mandates. I think there is far too
much confusion. I applaud you.
Chairman Baker. Well, it is merely a discussion to make
inquiry that Chairman Oxley has indicated that that is an area
of interest for his review, and so sometime this fall--it is
the committee agenda as such. We are creating enough trouble
between now--that we can't get to it till then.
Mr. Miller. Thank you, Mr. Chairman.
Chairman Baker. Thank you.
Mr. Smith. If I can make a quick comment in that regard, I
would appreciate it.
We have been opposed to Federal charters, simply from the
standpoint that we don't want just another level of bureaucracy
added to our industry. But I do applaud the fact, though, that
there is room for discussion. We like the idea of potentially
maybe some national charters; and we, too, would applaud you
for having discussions in that regard.
Mr. Miller. If approached properly, similar to banks, State
savings and loans, it works very well; and I myself--and I am
sure the Chairman and Mr. Oxley, have no interest in creating a
bureaucratic nightmare for the industry to go through. It only,
from my perspective, could happen if some reasonable conclusion
and agreement could be reached within the industry that was
beneficial, that would simplify the process everybody has to go
by. Where you are asking for that today, we are saying maybe we
can do that in a broader fashion.
Chairman Baker. And I want to reiterate, I am not
advertising--as you are not advertising for new fees, I am not
advertising for a new Federal regulator. Just to make the
record clear.
Mr. Meeks.
Mr. Meeks. Thank you, Mr. Chairman.
And you know, I, like my colleague, Mrs. Jones, am trying
to learn. I know that, as a practicing attorney, I wish that I
could go to--take one--get one license and practice in any
State in the Union, but I can't, and there is different
competing interests that the States have to determine how many
lawyers are practicing in the State and to limit that number.
But let me ask this question. Here is my real question. I
know in the Gramm-Leach-Bliley bill they set a minimum goal in
which to achieve the reciprocity in licensing reform efforts.
If those minimum goals are met, why wouldn't it just then
fizzle out?
Mr. Kirven. Congressman, we recognized early on that those
minimum goals are just simply that, that that is not really
true reform and that we need to have nationwide uniformity
amongst the States. Having 29 States simply is not an
acceptable--a minimum for us. We are not going to quit. We
really have--we are using this as impetus to push for total
uniformity, because that is really what today's markets and the
globalization of the industry requires.
Mr. Meeks. Well, is there anything else that you think that
we should be doing in Congress to keep pushing reform?
Mr. Kirven. As I stated earlier, I think that we appreciate
the opportunity to see how much progress and see if we can get
that uniformity. If there are a few holdout States or somebody
that won't give up countersignatures, maybe some form of pre-
emption would then be necessary to let us push our goal of 100
percent compliance.
Mr. Meeks. Is there--and I missed most of the testimony,
but do you see any compelling reason by any of the States not
to want to have a reciprocity on reform?
Mr. Kirven. Over time, States have developed unique
features that they think are very essential; and we talked
earlier about California and fingerprints and checking the
criminal database, and only a minority of States do that, check
fingerprints, but they are very married to that idea.
That is one example of where a State has something that
they are somewhat married to and reluctant to give up, and we
are trying to address those issues going forward of a way to do
that without necessarily requiring every State in the Union to
do that, although it may or may not be a bad thing. Some people
don't like the idea. We are working on letting those States
still be able to do that but still having a uniform process.
Mr. Meeks. Thank you, Mr. Chairman.
Chairman Baker. Thank you, Mr. Meeks.
Each State is different. Louisiana has had reason to
fingerprint its past four commissioners.
Mr. Weldon.
Mr. Weldon. Thank you, Mr. Chairman.
Mr. Smith, in your written testimony, you note that some
insurance departments have been hesitant to introduce and
support the Producer Licensing Model Act. Could you please tell
us which insurance departments you are referring to and why you
think this is occurring?
Mr. Smith. We would be happy to get you that list.
I think why it is occurring is because the issues that we
have been talking about here, several States think that they
have certain distinctive things about their particular State
that require them to use fingerprints or have a
countersignature or whatever those requirements are; and,
therefore, they have been reluctant to get on board with the
Model Act.
I think some of the States we have talked about--obviously,
Florida is a State we have worked with. California, Texas has
had some problems. I mean, it is relatively common what those
States are.
Mr. Weldon. I am from Florida, you know, so be careful what
you say.
Mr. Smith. Florida is a great State. I absolutely love
Florida. And, as I say, my largest client is there. So we have
worked very closely with a lot of the people in Florida, and
our association works very hard with----
Mr. Weldon. I was just teasing you about that.
Mr. Smith. That is OK. It is OK. I don't change. They still
have some questions--they question--a lot of the States--a
lot--some of the States still question the need for this act,
the uniform piece, and so that is what we are fighting in a few
of the jurisdictions.
Mr. Weldon. Is some of the dynamics of what has been going
on some response to Gramm-Leach-Bliley, this section there of
just market issues? Are the small States that are coming into
compliance interested in getting into the big State markets?
Are the big State markets reluctant to get into there because
they see an opportunity for business going elsewhere? Just
protecting the home turf, in other words.
Mr. Smith. I think that is a good question. I think there
is some protection, I feel. I think a lot of it is timing. I
think some of the big States have had budgetary items. I think
this has been a secondary or back-burner issue for them. I
don't see that any small State wants to get into big State
marketing.
We have clients in Rochester, Indiana, a town of 7,000
people, that literally have plants in several States across the
country. So they are used to dealing with me; and if they have
a plant in New Jersey or Montana or someplace else, they would
rather have me take care of that on a rather simplistic matter
than deal with some other agent some place in one of those
jurisdictions.
So that is why uniformity is important. I really think it
is an economic issue more than anything right now.
Mr. Weldon. But if I understand all three of you correctly,
the level of uniformity that has occurred so far would have
never occurred without this provision and that if we are going
to get all 50 States on board it is going to stay further
action on the part of Congress, on the part of Federal
Government.
Mr. Smith. I think one of James Bond movies was ``Never Say
Never,'' but I think, yes, you may very well be right. This,
the Gramm-Leach, provided the impetus for these reforms to
start taking place.
Will they be complete without more impetus? I think that is
a question that we won't fully know the answer to until
sometime next year as we get closer to the deadline. But you
may very well be right. We may need some more preemption from
this group to make sure we have reciprocity and uniformity.
Mr. Weldon. Mr. Kirven, Mr. Counselman, do you want to
comment on that?
Mr. Counselman. Congressman, I think there are other issues
that do come up that effect the passage of this legislation on
a State-wide basis, and I think that because it is not always
just licensing that is being examined, but it is other
insurance issues that some States and some State legislatures
feel that they want to have absolute control over without
giving up any semblance of control.
Our point is that this isn't a control issue. This is a
licensing efficiency issue. So we are trying to hammer home the
thought that this is all about paperwork. This is not about
regulation. But those other issues do come up, relating to a
State giving up some ability to regulate insurance within its
jurisdiction.
Mr. Weldon. I believe my time has expired. Thank you, Mr.
Chairman.
Mr. Baker. Thank you, Mr. Weldon.
Mr. Lucas. No questions.
Mrs. Kelly, did you have a wind-up comment?
Mrs. Kelly. Thanks, Mr. Chairman.
I just have a message for you, Mr. Kirven. Let me ask you
to take a message back of one word to the NAIC. That word is
``uniformity.'' If you folks aren't able to do that and help us
realize this goal, then I am sure that we are willing to ensure
that you do.
Thank you very much, Mr. Chairman.
Mr. Baker. Thank you Mrs. Kelly.
Gentleman, I do appreciate your courtesy and participation.
Obviously, this is the first hearing on this subject within
this subcommittee's responsibility. For the sake of keeping
channels of communication open, we will proceed with a series
of inquiries relating to the NARAB as well as the national
charter matter. I feel it our obligation to prepare for next
November should market progress not be where we all would like
it to be. Then we certainly do not want, after having created
the standard, to fail to react to the responsibility as
outlined in Gramm-Leach-Bliley.
To that end, the respective organizations should know that
Chairman Oxley and this subcommittee have significant interest
in the matter. We believe it good public policy, ultimately
good for the consumers we all serve; and that to that end we
can work cooperatively together toward a system that makes more
market sense and delivers better products to all the folks who
rely on you.
So I thank you for your courtesies, and we look forward to
working with you as the months proceed. Thank you.
Our hearing stands adjourned.
[Whereupon, at 3:34 p.m., the hearing was adjourned.]
A P P E N D I X
May 16, 2001
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