[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





                      INCREASING THE EFFECTIVENESS


                      OF STATE CONSUMER PROTECTION

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 6, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-25



89-933              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice         JULIA CARSON, Indiana
    Chairman                         BRAD SHERMAN, California
RON PAUL, Texas                      GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio                BARBARA LEE, California
JIM RYUN, Kansas                     JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California                 RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania      WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona             MIKE ROSS, Arkansas
VITO FOSELLA, New York               CAROLYN McCARTHY, New York
GARY G. MILLER, California           JOE BACA, California
MELISSA A. HART, Pennsylvania        JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia  STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota           RAHM EMANUEL, Illinois
TOM FEENEY, Florida                  DAVID SCOTT, Georgia
JEB HENSARLING, Texas                ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey             
TIM MURPHY, Pennsylvania             BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director
              Subcommittee on Oversight and Investigations

                     SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman       LUIS V. GUTIERREZ, Illinois
STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
MARK GREEN, Wisconsin                DENNIS MOORE, Kansas
JOHN B. SHADEGG, Arizona             JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              CAROLYN B. MALONEY, New York
JEB HENSARLING, Texas                CHARLES A. GONZALEZ, Texas
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
TIM MURPHY, Pennsylvania             JIM MATHESON, Utah
GINNY BROWN-WAITE, Florida           STEPHEN F. LYNCH, Massachusetts
J. GRESHAM BARRETT, South Carolina


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 6, 2003..................................................     1
Appendix:
    May 6, 2003..................................................    29

                               WITNESSES
                          Tuesday, May 6, 2003

Ario, Hon. Joel S., Insurance Administrator, Oregon Insurance 
  Division, Secretary-Treasurer, National Association of 
  Insurance Commissioners........................................     7
Atchinson, Brian K., Executive Director, Insurance Marketplace 
  Standards Association..........................................    11
Hillman, Richard J., Director, Financial Markets and Community 
  Investment, U.S. General Accounting Office.....................     9
Hunter, J. Robert, Director of Insurance, Consumer Federation of 
  America........................................................    13
Marema, Lenore S., Vice President, Legal and Regulatory Affairs, 
  Alliance of American Insurers..................................    14
Parke, Hon. Terry, Illinois State Representative, Past President, 
  the National Conference of Insurance Legislators accompanied by 
  Mr. Robert W. Klein, Ph.D., Associate Professor & Director, 
  Center for Risk Management and Insurance Research, Georgia 
  State University...............................................     5

                                APPENDIX

Prepared Statements:
    Kelly, Hon. Sue W............................................    30
    Oxley, Hon. Michael G........................................    32
    Gutierrez, Hon. Luis V.......................................    34
    Ario, Hon. Joel S............................................    36
    Atchinson, Brian K...........................................    59
    Hillman, Richard J...........................................    64
    Hunter, J. Robert............................................    78
    Marema, Lenore S.............................................    88
    Parke, Hon. Terry............................................   102

              Additional Material Submitted for the Record

Ario, Hon. Joel S.:..............................................
    Written response to questions from Hon. Luis V. Gutierrez....   110
Hunter, J. Robert:...............................................
    Written response to questions from Hon. Luis V. Gutierrez....   114
National Association of Mutual Insurance Companies, prepared 
  statement......................................................   120

 
                      INCREASING THE EFFECTIVENESS
                      OF STATE CONSUMER PROTECTION

                              ----------                              


                          Tuesday, May 6, 2003

             U.S. House of Representatives,
       Subcommittee on Oversight and Investigation,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 3:04 p.m., in 
Room 2128, Rayburn House Office Building, Hon. Sue W. Kelly 
[chairman of the subcommittee] presiding.
    Present: Representatives Kelly, Hensarling, Garrett, 
Murphy, Brown-Waite, Barrett, Renzi, Maloney, and Davis of 
Alabama.
    Chairwoman Kelly. [Presiding.] This hearing of the 
Subcommittee on Oversight and Investigations will come to 
order. I just want to say that without objection all members' 
opening Statements will be made part of the record. 
Subcommittee chairs and ranking minority members will be 
recognized for five minutes each. All other members will be 
recognized for three minutes each for their opening Statements. 
We will alternate between the majority and the minority.
    I am going to begin by simply saying that I have called 
this hearing today to review an issue that we feel is of utmost 
importance to all consumers, and that is the effectiveness of 
State insurance market conduct oversight. When it comes to 
insurance needs, consumers need to know that they are not being 
misled by products and that valid claims will be paid quickly. 
It is the responsibility of State insurance commissioners to 
efficiently regulate market conduct with the best interests of 
the American people in mind.
    Consumers need to know, they need to understand, and we 
have with us today some people who will testify about what the 
current conditions are. We have Joel Ario, the Secretary-
Treasurer of the NAIC and the Insurance Administrator of 
Oregon. He is going to testify that protecting consumers is the 
first priority of insurance regulation.
    Commissioner Ario, I could not agree with you more, and we 
are here to make sure that State insurance regulators are up to 
the task.
    The NAIC first began to look closely at market conduct 
regulation in the early 1970s and admittedly has made some 
modest improvements since then. Recently, both the NAIC and 
NCOIL have been reviewing the need to modernize market conduct 
surveillance to better serve consumers. They have come up with 
some interesting ideas, particularly after Chairman Oxley 
requested a GAO investigation. It is promising that there is a 
greater focus on achieving clear and specific guidelines for 
proper oversight. However, ideas will only get us so far, and 
the American people deserve action and they deserve action now.
    Far too often, we have seen State legislatures fail to act 
upon good ideas of organizations such as the NAIC and NCOIL. It 
is only when Congress pressures the States, for example, with 
the NARAB provisions that I fought to include in Gramm-Leach-
Bliley, that consumers finally get to see results. There must 
also be considerable coordination between States, as the 
varying nature of market conduct regulation from State to State 
is quite problematic. Across the country, we have seen 
consumers harmed by the current patchwork of State systems that 
involve too much duplication, with too few standards and no 
systematic approach to detect patterns of improper conduct.
    The negative impact on consumers is two-fold.
    First, consumers suffer higher prices and less choice due 
to overlapping, inefficient, requirements which needlessly 
increase the cost of doing business.
    Second, consumers are exposed to bad actors who slip 
through the regulatory gaps due to improper targeting of 
resources. We need to develop a systematic comprehensive 
approach, with clear standards that will target resources more 
efficiently. Until then, a lack of consistency from State to 
State will continue to hurt all Americans by undermining 
protections and that drives up costs.
    While State regulation of insurance market conduct has not 
served consumers well in some respects, I would like to stress 
that these inadequacies should not be interpreted as a need for 
more regulation, which could further harm consumers. Instead, I 
hope that we can, and I feel we must, work together to find an 
efficient and effective way to regulate insurance market 
conduct without creating more unnecessary burdens on the entire 
industry. Simply put, we do not need to pursue more regulation, 
but more effective regulation. I would like to thank all of our 
witnesses today for appearing before the subcommittee, and I 
look forward to hearing from you on how we can accomplish these 
goals.
    We have been informed that Mr. Gutierrez has just had a new 
grandchild, so Mr. Gutierrez will probably not be able to make 
today's hearing. We congratulate Mr. Gutierrez, and I hope that 
his staff will deliver our congratulations to him. I understand 
how that feels, to be a new grandparent. It is a lovely 
feeling.
    And now I would like to take care of one bit of business. 
The Subcommittee on Oversight and Investigations will come to 
order. Before we begin our hearing, the chair has one small 
piece of housekeeping.
    The chair has been informed by the chair of the full 
committee that he is in receipt of a letter from the gentleman 
from Texas, Mr. Hinojosa, tendering his resignation from the 
Subcommittee on Oversight and Investigations. It is the chair's 
understanding that the gentleman from Alabama, Mr. Davis, who 
is here I believe today, will be elected to fill the 
subcommittee's vacancy at the next full committee meeting. 
Therefore, pending the action by the full committee, the chair 
asks unanimous consent that the gentleman from Alabama be 
permitted to participate in hearings held by this subcommittee 
as if he had been so elected. Is there any objection? If not, 
so ordered.
    For further opening Statements, Ms. Maloney.
    Ms. Maloney. Thank you, Madam Chair, from the great State 
of New York. I thank you for having this important hearing. I 
thank the witnesses for appearing today before the subcommittee 
to share their views on State regulation of insurance and 
consumer protection.
    The incredibly diverse and vibrant U.S. insurance market 
owes much to the preservation of regulation by the States. In 
many ways they act as individual laboratories and allow 
experimentation that is not possible on the federal level. The 
focus of State insurance regulators on their individual markets 
allows them the ability to develop thorough expertise that can 
benefit consumers and the industry.
    I particularly appreciate the emphasis and the testimony of 
the Insurance Administrator of Oregon, which states that the 
first priority of State insurance regulation is protecting 
consumers. While State regulation has adapted to the changing 
insurance market for over 100 years, regulators face new 
challenges today to keep up with the new global financial 
services environment. Given these market changes, the GAO study 
is particularly timely conducted by the GAO, which provides a 
snapshot of how market analysis and market conduct regulation 
is being conducted in the States.
    The GAO testimony acknowledges that the National 
Association of Insurance Commissioners is emphasizing the need 
for nationwide standards for market analysis and market conduct 
examinations to its members.
    However, the GAO testimony highlights some major 
deficiencies in manner in which the States conduct this 
regulation and practice today. The GAO points to a lack of 
agreement on standards for examinations and training of 
examiners, inconsistent reliance by one State on the work of 
another, and an exam scheduled that overly burdens some 
companies and fails to adequately examine others. I believe 
these are serious fundamental problems that must be resolved to 
preserve the effectiveness of State insurance regulation.
    While we focus today on market analysis and market conduct 
examinations, I look forward to continuing this discussion to 
the full range of State insurance regulatory issues. I thank 
the chairwoman for calling this hearing, and I look very much 
forward to your testimony.
    Chairwoman Kelly. Thank you, Ms. Maloney.
    Mr. Barrett? Mr. Davis, have you an opening Statement?
    Mr. Davis of Alabama. Thank you, Madam Chairwoman, and 
thank you for permitting me to be here today. Before my 
colleague from New York joined me, I was tempted to say that 
only in the House can you join a subcommittee and become 
ranking member on the same day, for at least a day.
    Let me welcome the panel here today. I will not make a very 
long opening Statement. I would simply say this, one of the 
consistently vexing issues that we are facing right now as a 
body and as a committee is the byplay between the States having 
a lot of leeway to fashion their own regulatory structure, and 
the practical difficulty in a modern 2003 economy when 
predictability does not exist across the country. We face that 
in a host of contexts, from tort reform to preemption, and 
certainly to the kinds of issues that you are talking about 
today.
    One of the advantages of being on this committee is that we 
do have a chance on a fairly regular basis to engage these 
issues in a somewhat non-confrontational fashion. We do have 
the advantage on a pretty consistent basis of engaging these 
issues in a manner that helps us learn, instead of one that 
automatically polarizes us. So I look forward to hearing your 
testimony and to being edified by it today.
    Thank you, Madam Chairwoman.
    Chairwoman Kelly. Thank you, Mr. Davis.
    Mr. Hensarling?
    Mr. Renzi?
    Mr. Renzi. Thank you, Madam Chairwoman.
    Thank you to our panel today for your testimony. I look 
forward to hearing it. I know we are looking at today the 
effectiveness of our State insurance markets. I particularly am 
concerned and I am interested in understanding a little bit of 
how we get away from so much of the patchwork of our 
regulation. I found as an insurance agent that it leads to what 
I feel is much more higher prices and less product choice. I 
would like to see more of an emphasis on regulations that are 
uniform as it relates to our licensing of agents, as well as 
kind of signature laws. I am hopeful today that some of your 
testimony will cover that, and I look forward to it.
    Thank you.
    Chairwoman Kelly. Thank you, Mr. Renzi.
    Our panel today consists of the Honorable Terry Parke, 
Illinois State Representative, past President, the National 
Conference of Insurance Legislators.
    He is accompanied by Mr. Robert W. Klein, Ph.D., Associate 
Professor and Director, Center for Risk Management and 
Insurance Research at the Georgia State University.
    Then we have the Honorable Mr. Joel Ario, Insurance 
Administrator from the Oregon Insurance Division. He is 
Secretary-Treasurer of the National Association of Insurance 
Commissioners. We welcome you.
    Mr. Richard Hillman, Director, Financial Markets and 
community investment at the U.S. GAO. We welcome you.
    Mr. Brian K. Atchinson, Executive Director of the Insurance 
Marketplace Standards Association. We are glad to have you with 
us.
    And then we have Mr. J. Robert Hunter, Director of 
Insurance, Consumer Federation of America. Welcome, Mr. Hunter.
    And then Ms. Lenore Marema, Vice President, Legal and 
Regulatory Affairs, Alliance of American Insurers.
    Thank you all very much for being here. We begin with you, 
Mr. Parke.

 STATEMENT OF HON. TERRY PARKE, ILLINOIS STATE REPRESENTATIVE, 
     PAST PRESIDENT, THE NATIONAL CONFERENCE OF INSURANCE 
 LEGISLATORS, ACCOMPANIED BY ROBERT W. KLEIN, PH.D., ASSOCIATE 
PROFESSOR & DIRECTOR, CENTER FOR RISK MANAGEMENT AND INSURANCE 
               RESEARCH, GEORGIA STATE UNIVERSITY

    Mr. Parke. Thank you, Representative Kelly, members of the 
subcommittee.
    My name is Terry Parke.
    First, I would like to express my appreciation for having 
the opportunity to speak to you today. It is my privilege to 
represent the residents of Schaumberg and Hanover Townships in 
the northwest suburbs of Chicago, in the Illinois General 
Assembly.
    It is also my privilege to have served as President of the 
National Council of Insurance Legislators, NCOIL, in 2001. In 
that capacity, I testified before the modernization of 
insurance regulation before the Subcommittee on Capital 
Markets, Insurance and Government Sponsored Enterprises. In 
that testimony, I said an effective market conduct regulation 
would be essential to overall modernization. That testimony 
pointed out that strong regulation of conduct in the 
marketplace would be essential if States move from the present-
day prior-approval system to strong regulation targeting actual 
company misconduct.
    In today's testimony, I will provide you with the content 
of a preliminary report of the Insurance Legislators 
Foundation, as an educational and research arm of NCOIL. The 
primary report was received by the ILF on May 2 and will be the 
subject of a public hearing at the Hotel Intercontinental in 
Chicago on June 6. NCOIL is happy to release the document in 
conjunction with the holding of this hearing.
    The preliminary report identifies fundamental and sweeping 
changes that would bring insurance market regulation as 
practiced today into the 21st century. It offers ideas that can 
bring insurance regulation in line with the reforms and new 
attitudes that have begun to take shape in the regulation of 
financial services in the United States and overseas.
    The preliminary report points out that their needs to be a 
fundamental re-thinking of the philosophy and approach toward 
market conduct regulation and surveillance. In many respects, 
regulators have become de-factor quality control auditors for 
insurers. This is not an effective use of regulatory resources 
and does not serve the public interest. The present system has 
become a patchwork in practice, varying from State to State. It 
is arbitrary and places an excessive burden and uncertainty on 
insurers. The preliminary report contains ideas that would 
benefit consumers by eliminating costly regulatory 
redundancies. These redundancies increase the cost of products 
and stifle innovation. Such regulatory redundancy can also 
deter an insurer from entering markets and thereby reducing 
consumer choice.
    Representative Kelly, members of the subcommittee, changes 
in market conduct regulation are essential and indispensable 
components of improving the efficiency and effectiveness of 
insurance regulation and insurance markets in America.
    Today's report is part of a second and final phase of a 
four-year study of market conduct regulation which James 
Schacht of PricewaterhouseCoopers and Dr. Robert Klein of 
Georgia State University conducted. The first phase of that 
study compiled in 2000 found, among other things, widespread 
disagreement regarding the purpose of market conduct 
examinations, especially as to whether such examinations should 
focus on general business practices, or only on specific 
violations of law, and little coordination of market conduct 
examination by States, leading to widespread and wasteful 
redundancies.
    Today's preliminary report responds to those and many other 
real-world, present-day issues. Critics say that the present 
market conduct surveillance system fails to acknowledge 
insurers' compliance programs, self-assessment, and independent 
assessment activities. The primary report shows how States 
could establish standards for effective compliance programs.
    Most specifically, we envision a regulatory approach in 
which the CEOs of each regulated insurer would certify that the 
company he or she manages has operated in ways that do not harm 
consumers. In this new system, each CEO would certify to 
regulators that the company he or she manages has complied with 
the standards, or in the negative, would identify the standards 
that the company has not met, along with the steps to remediate 
the problem. Such self-policing systems would include 
incentives for insurers self-assessment activities aimed at 
determining improper market conduct practices.
    In our earlier report, it was noted that 85 percent of the 
insurers surveyed performed critical analysis or retained 
independent assessors to detect improper market conduct 
practices. Self-assessment activities improve compliance, 
discourage violations and foster corrections.
    This concept of self-policing is not unique to the 
insurance industry. Other regulatory agencies are shifting from 
prescribing specific behavioral controls to articulating 
principles of guidelines for companies to follow, and then 
allowing them to develop effective controls meeting them. The 
recent proposed anti-money laundering requirements for the 
insurance industry provide a clear example of this shift. The 
proposed rule for insurance companies concerning section 352 of 
the PATRIOT Act provides broad discrepancies, but allows 
insurers to establish specific program elements to achieve the 
intent of the section of the Act.
    The preliminary report points out that there is often a 
lack of coordination with regard to multi-State examinations. 
The preliminary report identifies the need to give the 
domiciliary State the main responsibility for monitoring the 
surveillance activities of an insurer and its affiliates. 
Critics point to a lack of statutory authority with regard to 
market surveillance. Only two States----
    Chairwoman Kelly. Mr. Parke, I am sorry to interrupt you, 
but you have five minutes and your five minutes are up. I would 
like to have you summarize what you are going to say. I want to 
inform all of our witnesses that your written testimony is in 
total in the record, and many of us have read your testimony. 
So we are asking you today to give a summary of what your 
testimony is. The green light means you have five minutes; 
yellow means you have one minute to sum up; and red means you 
are out of time. In the interests of making sure that some of 
the people who have flown in can get the planes to fly back 
out, I am going to try to keep this hearing to five minute 
segments.
    So, Mr. Parke, I let you go over a little bit because in 
fact we had a little problem here with the lights, but at this 
point, if you could sum up, I would appreciate it.
    Mr. Parke. That is fair. I have to catch a plane myself, so 
I am along with the problem.
    In essence, we have a report that we are going to make 
public today that addresses market conduct. We think it will 
talk about the concerns that this committee has expressed. We 
think that there needs to be a new approach to market conduct 
in which insurance companies and insurance regulators can use 
the resources to make sure that those bad actors are in fact 
held accountable. That can be done through market conduct. And 
the rest of the insurance industry that are complying, doing a 
good job and serving consumers and making a profit are not 
penalized for those that are not doing a good job. We think 
this approach is worthwhile and worthy, and we will push it at 
the NCOIL conference that will be established in a month at our 
summer meeting that will be in Williamsburg, Virginia.
    [The prepared statement of Hon. Terry Parke can be found on 
page 102 in the appendix.]
    Chairwoman Kelly. That sounds terrific, and I hope you will 
put a copy of that report in the hands of the staff here.
    Mr. Parke. That is already being done. Thank you.
    Chairwoman Kelly. Good. Thank you so much.
    Mr. Ario?

STATEMENT OF HON. JOEL S. ARIO, INSURANCE ADMINISTRATOR, OREGON 
 INSURANCE DIVISION, SECRETARY-TREASURER, NATIONAL ASSOCIATION 
                   OF INSURANCE COMMISSIONERS

    Mr. Ario. Thank you, Madam Chair. My name is Joel Ario and 
I want to join Representative Parke in thanking you for holding 
this hearing this afternoon. Having read the comments of both 
Representative Parke and Mr. Hunter, I see there is no 
divergence there. There is a lot of divergence of opinion on 
this panel. I am anxious to get to the questions myself, so I 
will be brief in summarizing my written comments and really 
focus on four points.
    First, as you have already mentioned, effective consumer 
protection, focused on local needs. This is the hallmark of 
State insurance regulation.
    Second, because of this focus on local needs, this is not 
an area where one-size-fits-all works. It needs to be adapted 
to local circumstance.
    Third, effectiveness and efficiency are not mutually 
exclusive. Effectiveness is most important, but we think there 
are many ways in which we can make the system more efficient as 
well.
    And then finally, the foundation of an effective and 
efficient system is a rigorous market analysis program. I noted 
several mentions of that in the opening Statements. I think 
that is the foundation really that we are trying to develop for 
a program that draws on all the different areas of market 
regulation, to identify and respond to the real consumer 
problems in the marketplace.
    Let me take you to those in turn. Gain, the purpose of 
State insurance regulation, and it has been this way for 125 
years, is consumer protection. Insurance is a different kind of 
product than either banking or securities or really any of the 
other financial products out there. It is a more complex kind 
of product. What kind of policy will be offered to the 
consumer? What will be the price of the policy? What are the 
specific policy terms and conditions? What is included, what is 
excluded from the policy? What does the fine print say? Is a 
claim valid when it is filed? If it is valid, how much is it 
worth? These are all questions that are very complicated. They 
often lead to misunderstandings between consumers and insurers 
and they often lead to consumer complaints to our offices.
    We handle on a national basis 3.5 million consumer 
complaints a year in the 50 States. That works out to an 
average of 7,000 complaints in every State. I would venture to 
guess that is an order of magnitude, or maybe more different 
than the amount of complaints that come in on the other 
financial service products. Responding to those consumer 
concerns, listening carefully to what the consumer says in 
those complaints, and trying to get to the real issues of those 
complaints--they are not all valid. There are some complaints 
that come in that are not, but a number of them, most of them 
raise important issues. Our job is to follow those complaints 
and address them in our marketplace and make that marketplace 
work for consumers at the local level.
    Second point, this is not an area that one size fits all. 
There surely are areas where there is commonality. In the life 
insurance industry, we have recognized as regulators a number 
of parts of life insurance regulation that ought to be more 
uniform, and we are taking aggressive action to address those. 
But you get into some of the other lines of insurance, and the 
differences are important between the States. Terrorism is a 
different problem in New York than it is in my State of Oregon. 
Hurricanes and other kinds of disasters that befall coastal 
communities make for a much different homeowner market in 
Southern Florida than a homeowner market in the Midwest.
    If you look at health marketplaces, you will see the way 
the local provider networks work, the way the hospital networks 
work, all have a fundamental effect on how the insurance 
products are delivered in those markets and how the insurance 
products are put together.
    Some suggest, and Representative Parke just did, I think, 
that we could have a uniform system across the board for this, 
and usually it comes with the recommendation that he makes, 
which is that the State of domicile would be the appropriate 
State to take the lead. There is a lot of merit in that, and I 
think the NCOIL study is a good study that will help us move 
forward. But there are some problems with that kind of model, 
too.
    Take the terrorism issue. Terrorism is not a big issue in 
my State. We have not had a lot of quarrels with the insurance 
companies over their terrorism coverage, their exclusions, and 
so forth. But I know in your State of New York, it is a much 
different situation. Superintendent Serio spends a lot of time 
on that issue. When I call up Greg and say, ``Gee, Greg, now 
that I have checked into this company that is domiciled here in 
Oregon and does business in New York''--I do not have a big 
carrier that fits this, but say I did--and called up Greg, and 
said, ``I have checked them out, and on a generic basis, they 
do a good job with their terrorism filings with us, so just 
trust me, leave it alone, don't worry about what they do in 
your market,'' he would not be very happy, because he would say 
his marketplace is dramatically different than mine, and he has 
a different stance on exclusions. He has a different stance on 
a number of issues. I understand that. I agree with that. It is 
a different kind of marketplace. That is the kind of situation 
I think that we want to work on the problem, but it is not a 
one-size-fits-all type of situation.
    Third point, there are efficiencies to be gained. A lot of 
this I think does and should focus on market conduct exams. One 
of our major initiatives at the NAIC this year is uniform exam 
procedures. We have identified four different areas in the 
examination process where we think there ought to be clear 
uniformity.
    First is scheduling. If we can schedule in a consistent and 
uniform basis, we can minimize duplication.
    Second, if we can do pre-exam planning in the same kind of 
way, we can then deliver to the companies clear expectations of 
what a market conduct exam is going to be, what is expected of 
the company, what the regulator will want to see.
    And third, in the examination procedures, if we can do 
those more uniformly, we can have a more predictable process 
for everyone. It can be a more efficient process. It can be 
done more quickly and so forth.
    And then finally, if exam reports are written in a 
consistent and uniform fashion, we can better understand and 
compare results.
    I see I am already to the red light, too, so I will skip my 
last point on market analysis and make just a very quick 
conclusion. We again welcome this hearing. We will not get the 
job done that we want to get done by ourselves. You are right 
that the Congress pushing on us, NCOIL pushed on us, the 
industry pushing us, Bob Hunter pushing on us; all of those 
things are important to getting our job done. The worst case, 
the absolute worst case for us would be an overreaction to the 
problems and to create a one-size-fits-all federal solution. It 
just would not work for consumers.
    Finally, the key for all of us is to keep our eye on the 
ball here, the main objective which is effective consumer 
protection.
    Thank you.
    [The prepared statement of Hon. Joel S. Ario can be found 
on page 36 in the appendix.]
    Chairwoman Kelly. Thank you.
    Mr. Hillman?

 STATEMENT OF RICHARD J. HILLMAN, DIRECTOR, FINANCIAL MARKETS 
    AND COMMUNITY INVESTMENT, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Hillman. Thank you, Madam Chairwoman and members of the 
subcommittee. I appreciate the opportunity to provide you with 
GAO's preliminary observations from our work on State insurance 
regulators' oversight of market activities in the insurance 
industry.
    My focus today is on, one, the States' use of market 
analysis and on-site examinations and market regulation; and 
two, the effectiveness of the National Association of Insurance 
Commissioners' efforts to improve these oversight tools and 
encourage the States to use them.
    Regarding our first objective, on the States' use of market 
analysis and on-site examinations and market regulation, we 
found that all States do some level of market analysis, but few 
States have established formal market analysis programs to 
maintain a systematic and rigorous overview of companies' 
market behavior and to more effectively identify problem 
companies for more detailed review. The way State insurance 
regulators approach and perform market conduct examinations 
also varied widely across the States.
    While NAIC has developed a handbook for market conduct 
examiners, States are not required to use it, and we found that 
it is not consistently applied across States. Moreover, the 
handbook is not intended to provide guidance for some important 
aspects of market conduct examinations; for example, how often 
examinations should be performed or what criteria States should 
use to select companies to examine.
    We also found that the number of market conduct examiners 
differed widely among States and that there were no generally 
accepted standards for training and certifying examiners. These 
differences make it difficult for States to depend on other 
States' oversight of market activities. Most of the States that 
we visited told us that they felt responsible for regulating 
the behavior of all companies that sold insurance in their 
State, regardless of their State of domicile. Thus, even in 
those States that did market conduct examinations, the effort 
is often neither efficient nor effective because the pool of 
companies is too large for any one State to handle.
    Moreover, since most States are not coordinating their 
examinations with other States, some large companies reported 
being examined frequently and sometimes simultaneously by 
multiple States, while other companies were examined 
infrequently or never.
    Regarding our second objective, to assess NAIC's efforts to 
improve the States' market conduct programs, we found that 
since the mid-1970s, NAIC has taken a variety of steps to 
improve the consistency and quality of market conduct 
examinations. However, despite the NAIC's longstanding efforts 
and some limited successes, progress towards a more effective 
process has been slow.
    Recently, NAIC has increased the emphasis it places on 
market analysis and market conduct examinations as regulatory 
tools that could improve States' abilities to oversee market 
conduct. With more consistent implementation of routine market 
analysis, States should be better able to use the resources 
they already have available to target companies requiring 
immediate attention.
    Also by applying common standards for market conduct 
examinations, States should be able to rely on regulators in 
other States for assessments of an insurance company's 
operations. These improvements should, in turn, increase the 
efficiency of the examination process and improve consumer 
protection by reducing or eliminating existing overlaps and 
gaps in regulatory oversight.
    However, if NAIC cannot convince the various States to 
adopt and implement common standards for market analysis and 
examinations, current efforts to strengthen these important 
tools for consumer protection are unlikely to result in any 
fundamental improvement.
    In summary, we support the goal of increasing the 
effectiveness of market conduct regulation through development 
and implementation of consistent nationwide standards for 
market analysis and market conduct examinations across the 
States, in order to better protect insurance consumers. The 
emphasis placed on these issues by NAIC has increased 
substantially over the last three years.
    We believe that NAIC has taken the first step in the first 
direction, however much work remains as NAIC and the States 
have not yet fully identified, reached agreement on, and 
implemented appropriate laws, regulations, processes and 
resource requirements that will support the goal of an 
effective uniform market oversight program.
    Madam Chairwoman, this concludes my prepared statement. I 
would be happy to respond at the appropriate time to questions.
    [The prepared statement of Richard J. Hillman can be found 
on page 64 in the appendix.]
    Chairwoman Kelly. Thank you, Mr. Hillman. I want to say 
that I found your report very interesting, very cogent. I hope 
our other panelists have a chance to read it.
    Mr. Atchinson?

STATEMENT OF BRIAN K. ATCHINSON, EXECUTIVE DIRECTOR, INSURANCE 
               MARKETPLACE STANDARDS ASSOCIATION

    Mr. Atchinson. Good afternoon, Madam Chairwoman and members 
of the subcommittee. Thank you for the opportunity to speak 
with you today on this important topic.
    I am Brian Atchinson, Executive Director of the Insurance 
Marketplace Standards Association. IMSA is an independent 
nonprofit organization created in 1996 to strengthen consumer 
trust and confidence in the life insurance industry through a 
commitment to high ethical market conduct standards. IMSA 
member companies comprise more than 200 of the nation's top 
life insurance companies, representing approximately 65 percent 
of the overall market share for individually sold life 
insurance, annuities and long-term care insurance products.
    From 1992 to 1996, I previously served as Superintendent of 
the Maine Bureau of Insurance, and in 1996 as President of the 
NAIC. Prior to joining IMSA, I served as an executive officer 
in the life insurance industry. As a former regulator and 
company person, my views on market conduct regulation come from 
a number of different vantage points. Insurance regulation is 
intended to ensure a healthy competitive marketplace and to 
protect consumers.
    We have come a long way since the first market conduct 
exams in the 1970s. Unfortunately, the current State-based 
system of market conduct regulation presents challenges that 
even some in the regulatory community acknowledge is in need of 
improvement. There is little uniformity in the manner in which 
individual States conduct market conduct exams. State market 
conduct exams have been described as being like snowflakes: no 
two are alike.
    Insurance companies often are subject to simultaneous or 
overlapping market conduct exams from different States applying 
different laws and regulations. This lack of uniformity results 
in significant cost and human resource burdens on insurance 
companies that translate into higher costs ultimately passed on 
to consumers in the form of higher prices for their products. 
The challenge for regulators and for the industry is to create 
a uniform system of market conduct oversight that creates 
greater efficiencies for the insurance industry, while 
maintaining appropriate consumer protections.
    The NAIC has been working toward uniform regulation for 
some time, but the pace of change has been slow and has 
prompted more efficient and effective alternatives. Regulators 
could improve the current system of market conduct regulation 
in several ways. For instance, today's market conduct exams 
tend to focus on identifying technical violations that may have 
little actual impact on consumers. Perhaps the focus should 
shift to exploring whether a company has a comprehensive system 
of policies and procedures in place to address market conduct 
compliance issues.
    Also, State insurance departments should not view market 
conduct exam activity as a source of revenue or general fund 
subsidy. Rather, departments should be determining whether a 
company has a system in place to detect and remedy market 
conduct improprieties before they become widespread. This 
practice would allow market conduct regulation to better serve 
consumer interests.
    IMSA's mission, the Insurance Marketplace Standards 
Association, is primarily to strengthen trust and confidence in 
the life insurance industry through high ethical standards. 
IMSA qualification also provides a consistent, uniform template 
of market conduct compliance policies and procedures. To meet 
IMSA standards, a company must have in place a comprehensive 
system of compliance throughout the organization, undergo an 
external assessment, and then undergo a new assessment every 
three years. Companies that qualify for IMSA devote 
considerable resources to maintaining those standards, and are 
well-positioned to respond quickly to State regulatory 
inquiries or to comply swiftly with new State legislative 
requirements.
    The U.S. PATRIOT Act offers a prime example. As you know, 
this law gives federal authorities much wider latitude to 
monitor potential money laundering activity. Recently, the 
media reported that terrorists, drug dealers and other 
criminals may be using life insurance products to launder 
money. With an infrastructure of policies and procedures in 
place to detect and cure questionable sales practices based on 
IMSA's principles, an IMSA-qualified company is already in a 
good position to comply with the intent of federal anti-money 
laundering efforts.
    In the last two years, IMSA has gained greater acceptance 
by regulators and rating agencies. In fact, a small but growing 
number of State insurance departments use IMSA membership and 
qualification as an informational tool as they plan and conduct 
market conduct exams. We applaud these efforts. With State 
insurance department budgets under tremendous pressure, we 
encourage regulators to pursue all available means to leverage 
increasingly limited resources. IMSA can serve as a valuable 
resource towards that end.
    Neither regulators or companies alone can ensure that the 
marketplace is always operating in a fair and appropriate 
manner at all times. Organizations like IMSA, working in 
conjunction with regulators, can offer invaluable support to 
reform market conduct regulation and may even offer a blueprint 
for reform solutions.
    In conclusion, IMSA believes the market conduct regulations 
should be more uniform and efficient, and we will continue to 
work with you, the NAIC and State and insurance departments to 
explore ways to improve market conduct regulation for the 
benefit of consumers, regulators and insurers alike.
    Thank you very much, Madam Chair, for the opportunity to 
participate in this hearing and to address this important 
topic. Thank you.
    [The prepared statement of Brian K. Atchinson can be found 
on page 59 in the appendix.]
    Chairwoman Kelly. Thank you very much. You are my hero 
because you stayed within the five-minute line.
    Mr. Hunter?

STATEMENT OF J. ROBERT HUNTER, DIRECTOR OF INSURANCE, CONSUMER 
                     FEDERATION OF AMERICA

    Mr. Hunter. Good afternoon, Madam Chair, members of the 
committee. I am Bob Hunter, Director of Insurance for Consumer 
Federation, a former Texas Insurance Commissioner, and Federal 
Insurance Administrator under Presidents Ford and Carter.
    No one could deny that State insurance commissioners have a 
poor record when it comes to market conduct oversight of the 
insurance industry, and consumers have been abused as a result. 
We could go through many examples. The lack of excellence is 
particularly concerning in an era where less regulation of 
products is done at the time they are introduced, exposing 
consumers to greater risk of damage by bad insurance policies 
not reviewed by anyone at the State insurance department level.
    The NAIC itself has Stated that greater, more aggressive 
consumer protections are needed in this new era, and we agree. 
The unique nature of insurance policies, which are complex 
legal documents not easily understood by consumers, and 
insurance companies that are granted antitrust exemption by the 
federal Congress, requires more extensive consumer protection 
than other consumer commodities. State systems should be 
designed to promote beneficial competition such as price 
competition, loss mitigation efforts, but to deter destructive 
competition such as selection competition, redlining in the 
cities and so on, reverse competition such as credit insurance 
where prices are driven up by high commissions and other unfair 
sales practices.
    We believe that the following items are important to 
consider as you look for ways to upgrade the State market 
conduct oversight capacity. First, there should be minimum 
standards for market conduct examinations. That would be good 
for consumers. We have supported them on the national NAIC 
level and we would support them at the federal level, but we 
are very concerned about weak uniform standards. We are very 
concerned that that would lead to abuse.
    The accreditation type of approach was very successful in 
upgrading State financial examinations might be used to achieve 
these kinds of goals. There must be enforcement criteria in the 
standards. There must be private causes of action as an 
important complement to market conduct examinations, because 
market conduct examinations are only prospective, and cannot 
grant restitution to already-harmed consumers, and consumers do 
not at this point trust the track record of the States.
    Consumers oppose self-certification programs in the form 
that some have proposed, and specifically we oppose the NCOIL 
proposal that we have heard today. Self-certification in the 
post-Enron era is problematic at best. That is not to say self-
certification could not be part of what a State looks at in 
determining whether an insurer is meeting State standards.
    However, if a State relies on such information, it must be 
made public and the tests made by self-certification groups 
must be transparent. Consumer feedback should be used after 
policy terminations, claims denial and other actions by 
insurance companies. There ought to be a way of finding out not 
just complaints, but some kind of interview process 
periodically used by the States. There should be suitability 
rules in place, particularly for cash-value life insurance 
policies to assure that sales of proper products are made.
    The NAIC should be requiring certain data to be collected, 
some of it for market shares, entries and exits and so on, but 
also zip code data to see if redlining is occurring; 
underwriting guidelines to determine how insurers decide what 
to write and how to price; and claims handling guidelines to 
determine the rules for claims processing. While there has been 
progress by the NAIC in details of how exams are to be done, 
they have not achieved effective or efficient examinations. 
Consumers want effective examinations. We also agree that 
efficient examinations is a good goal and we think that it can 
be improved without giving up effectiveness.
    We need a thorough examination of what has gone wrong in 
previous market conduct exams that have missed a lot of really 
bad situations. It is hard to fix a system that has not been 
analyzed.
    I would be happy to respond to your questions at an 
appropriate time.
    [The prepared statement of J. Robert Hunter can be found on 
page 78 in the appendix.]
    Chairwoman Kelly. Thank you, Mr. Hunter.
    Ms. Marema?

   STATEMENT OF LENORE S. MAREMA, VICE PRESIDENT, LEGAL AND 
       REGULATORY AFFAIRS, ALLIANCE OF AMERICAN INSURERS

    Ms. Marema. Thank you. I am delighted to be here to 
represent the views of the Alliance of American Insurers. We 
are a national property-casualty trade association. We have 340 
property-casualty insurance companies as our members, and our 
members range in all sizes, from the smallest to the very large 
companies.
    What I thought I would do here in my five minutes is share 
some of our members' experiences with you about the current 
State market conduct examination system. Our members would 
share three concerns they have about the system with you. We 
would have three ways in which we think it can be improved. 
Then I would like to talk a little bit about how we think we 
need to proceed.
    If our members had one overriding concern about the current 
market conduct examination system, it would be that States need 
to better target companies for examination. They need to target 
companies with problems. Many times our members really do not 
see among the States a rational basis for triggering an 
examination. I do not think I could State this better than one 
of the consumer groups did at a recent NAIC meeting when they 
said that the States really need to focus on the biggest 
problems, not the biggest companies.
    Secondly, States need to better coordinate market conduct 
examinations. In the current system, each State can call an 
examination with little regard or any regard for what any other 
State is doing. It is not uncommon for a very large insurance 
company to have a dozen or more market conduct examinations 
pending at any given time.
    Thirdly, there is a lack of consistency in examination 
procedures. The NAIC has a market conduct examination handbook 
that tells States how to do it, but there is a variety of 
different ways that States have implemented it. Just to give 
you on example, the handbook requires that companies get 
notified of the exam. The notice that a company could get can 
vary from six minutes to six days to sixteen days to sixty 
days, and it can be specific or it can be very general and so 
forth.
    So those would be the three problems that I would cite from 
our members' perspective in the current system. What to do 
about that? Much has been made about the differences in State 
laws and regulations. I think if you are talking about market 
conduct examinations, I think we are talking more not about 
differences in laws and regulations, but difference in the 50 
States' processes and 50 States' implementation of that. The 
lack of coordination leads to duplication and overlapping. 
Really, the inconsistent State procedures are the real problem.
    Having said that, I think the groundwork is in place to 
change that. If you look at the NAIC's testimony, 
Superintendent Ario has listed a wide variety of market conduct 
activities that the NAIC has under way to correct some of these 
problems. But there are three of those NAIC initiatives that we 
think will produce real-time change in the current system.
    The one is the market conduct analysis that they intend to 
develop. We think there is a wealth of information that already 
exists in the State insurance departments to help them better 
target companies for examination: consumer complaints, reports 
that companies do on major changes that they have made in their 
companies, and so forth. The appeal that this market conduct 
analysis has to us, it is something based on data that all 
States have; it is something they can all do; they can all do 
it now; the data that they have is applicable to all lines, all 
companies. I think it would bring States up to a certain bar 
that they would all be doing analysis on the same data in a 
consistent manner. That is a work in progress at the NAIC. It 
is going to take some doing to put together.
    Secondly, they are doing an exam tracking system, the ETS. 
That is going to be an electronic system where there will be a 
centralized system of scheduling. That, to us, gives the States 
really the vehicle that they need to better coordinate an exam. 
When a State wants to call an exam, they will be able to look 
at the ETS and see what other States are doing with regard to 
that particular company.
    And last, certainly, is the uniformity effort that the NAIC 
has going on, in particular some of the items in that. I would 
cite the standard data call. The NAIC has developed really the 
basic information that all States should need to do an exam in, 
and in the same format. That, from our companies' perspectives, 
those three items are going to be very, very helpful.
    How would we proceed? The key here is going to be State 
implementation. I will say in my remaining time, from the 
Alliance perspective, real change is change in behavior in the 
State insurance departments that conduct market conduct exams. 
For example, it is a good thing for the NAIC to develop a 
standard analysis, but from our perspective success is when all 
States actually use it. It is good for them to develop an 
examination tracking system; that is really needed. But the 
success is when all States input their data into it. It is 
really good for them to develop uniformity in procedures for 
examinations, but the real key to success is when our members 
see an examiner coming through the door who utilizes those 
procedures.
    My organization supports State insurance regulation. We 
think that it has served consumers best over time because it 
responds to local needs. We think the States can fix these 
problems. I think the NAIC has laid the groundwork and more 
importantly, we see a strong commitment from the NAIC 
leadership to do this. So we are operating from the presumption 
that the problem is going to be fixed at the State level and it 
will get done.
    Thank you.
    [The prepared statement of Lenore S. Marema can be found on 
page 88 in the appendix.]
    Chairwoman Kelly. We thank you. I thank all of you for your 
testimony. In particular, I would like to go back to you, Mr. 
Parke, just for a minute, and talk to you. You mentioned the 
Illinois model in your testimony. Do you think that Illinois' 
system of insurance regulation focuses on less regulation on 
the front end and more on the back end? Do you think that that 
targets the insurance department resources in the areas that 
will most benefit the consumers, like the market conduct 
oversight? Do you think that that has worked well?
    Mr. Parke. As a matter of fact, the State of Illinois is 
one of the most competitive States in the union. We have some 
of the largest amount of insurance companies selling insurance 
in the State of Illinois. That is because the free market 
system works. Competition works. They regulate each other 
because competition requires that. The consumer is not left 
alone. The insurance department uses market conduct. It also 
regulates solvency and also takes a good look at consumer 
complaints.
    In the State of Illinois, we find that there is an awful 
lot of members that have diverse thinking. I have been in the 
General Assembly 19 years and I have never really heard a whole 
lot of legislators pushing to change the current system that is 
there. And there are a lot of different points of view. We have 
some members that are very pro-consumer, and yet we do not see 
a cry from Illinois legislators to change the current system. 
Competition works when you leave it alone and let it function.
    Chairwoman Kelly. What kind of coordination is going on 
between NCOIL and the NAIC to improve the market regulation?
    Mr. Parke. Well, the report that we have is going to be 
presented. We are going to review it on June 6 in Chicago, and 
then we are going to look at the next three meetings of NCOIL, 
starting with our Williamsburg program, to try to see what kind 
of model legislation can be derived from this report.
    We believe that the model legislation that will be used by 
various legislators to be taken to the State capitals to be 
refined based on what the needs of that State's needs for 
market conduct would be, I think there is a strong cry to 
change the current system of market conduct, and I think that 
Illinois will be one of those, if I have anything to say about 
it, that will be presenting a new approach to market conduct. I 
believe progressive legislators in the other various States 
will do the same.
    Chairwoman Kelly. Since you brought up the model 
legislation, what do you think the chances are of the model 
legislation actually getting there, and how long do you think 
it is going to take the majority of the States to pass the 
legislation in some kind of a uniform manner and with some sort 
of uniform implementation? As we have heard today, that is 
critical. I am asking this question because I authored the 
NARAB legislation and we are still working on it. So I am 
wondering how long you think it will take you to get this done.
    Mr. Parke. I think NARAB is a fine example, and I am glad 
you brought it up. Quite frankly, the goal was 29 States. We 
exceed that. We are at 42 States. Yes, there are two or three 
major States that have not done it, but quite frankly those 
States have internal questions and they have issues that are 
unique to those States, and I think that they are struggling 
and working through it. Eventually, I think that will come 
about and will happen.
    As far as legislators, we believe in the next 12 months 
that we will present at NCOIL, probably sooner than that, a 
model bill that the legislators can take back to the various 
States. Again, fine-tune it based on what that State's needs 
are and what the consumers' needs are, and I think you will 
find that a great majority of the States will move forward with 
some kind of uniform market conduct program.
    Chairwoman Kelly. Thank you.
    Mr. Ario, you testified that it may make sense to shift 
some of the focus from the front end, review through the rate 
and form review process, to a combination of self-certification 
and back-end view through desk exams or other approaches. I 
wonder if you would talk to us a minute about that, just expand 
on that a little bit.
    Mr. Ario. Madam Chair, I would be happy to. I think the 
Illinois case is a good example. There is a competitive market 
there with more of a back-end approach. We are looking at this 
in Oregon. We are shifting some of our rates and forms analysts 
who currently spend all of their time looking at filings as 
they come through the front door, and still doing some of that.
    I think Mr. Hunter makes some very good points about the 
need to look at some products, anyway, on the front end because 
of the complexity and the difficulty consumers have with those 
products. We are shifting some of that resource towards the 
back end and relying on self-certification, the kind of things 
that Brian Atchinson talked about. We have check-lists now on 
our web page that companies fill out to show exactly what their 
form does and does not contain. If we send a message to the 
companies that we are going to take them at their word on those 
things, as a starting point, but trust and then verify.
    We are going to then go out and spot check on the back end 
whether those forms actually do comply in the way that they are 
certified to comply. We are probably going to have to catch 
some people doing it wrong, but if we do catch them and make 
examples of them, I think companies will get the idea, and I 
think it will improve the filings on the front end, frankly. A 
lot of the filings that come in now, since they know we are 
going to review them on the front end, some of the filings come 
in as kind of an opportunity to discuss; let's just throw it at 
the regulator and see what they think. If we have a self-
certification and hold them accountable and then spot-check on 
the back end, I think that that system is workable, not for all 
products, but for some products.
    Chairwoman Kelly. Thank you.
    I am out of time. Ms. Maloney?
    Ms. Maloney. Thank you.
    Mr. Hillman, my first question is for you. You indicated in 
your testimony that some States have some insurers that face 
multiple examinations from different States. Specifically, you 
described a situation in your written testimony where over a 
three-year period, three companies in your study of large 
companies were examined 17 times or more over three years, 
while six were examined between one and five times. I guess my 
question is, do you have any suggestions to correct this type 
of different treatment for different insurers?
    Mr. Hillman. There is a wide variety of steps that the 
State insurance regulators could take to improve the efficiency 
and effectiveness of their market conduct examination programs. 
Perhaps one of the most important things would be the 
development of consistent standards for market analysis and 
market conduct examinations, so that one State can rely on the 
activities of another State in conducting those analyses and 
examinations.
    Right now, because things are so inconsistent, there is no 
reliance on State activities and one State insurance department 
regulator believes they must look at all the insurance 
companies within their State--those that are domiciled and 
those that sell insurance, but domiciled in another State--
rather than relying on the form of State insurance regulation.
    In addition to consistent standards, we also believe that 
there needs to be more consistent laws, more consistent 
regulations, more consistent processes, and the development of 
resources with appropriate expertise to conduct market 
examinations.
    Ms. Maloney. Mr. Ario, would your organization be the one 
to come forward with these consistent standards?
    Mr. Ario. Ms. Representative, that is correct, yes. The one 
point that I would make on the exam----
    Ms. Maloney. Are you working on them?
    Mr. Ario. Yes. We are working on uniform standards for 
examinations and we are working on a uniform analysis system. I 
think Mr. Hillman is correct that those processes will help 
improve this sort of situation.
    The one other comment I would make, though, is that without 
knowing exactly which companies we are talking about, in the 
property and casualty market, for instance, there are three 
large insurers that are the three largest insurers in almost 
all 50 States. They represent almost half the market. Given 
that there are different situations in different States, there 
may be reasons why different States would want to examine them. 
It should not be over the same issues. We need to solve that 
problem. But if States have different kinds of issues with the 
same company, you still may have a number of exams of the same 
company. It should not happen with small companies; it should 
not happen with companies that are only engaged in a few 
different States, but it will sometimes happen with larger 
companies.
    Ms. Maloney. First of all, I want to thank you for your 
testimony and for highlighting the incredibly complex situation 
facing insurance companies operating in New York City and 
State, the State and city that I represent, and their efforts 
to offer terrorism insurance. I agree that this situation poses 
very unique problems that demands the local expertise of New 
York regulators. But given the Statements by GAO and yours also 
confirming the findings of duplication of examination and 
varying levels of training for examiners, can you give the 
subcommittee any kind of specific date when you believe that 
the NAIC standards that you are working on will come forward? A 
year? Two years?
    Mr. Ario. Representative, I wish I could promise you a date 
certain for the whole nine yards here. What I can tell is that 
on the uniform exam procedures, which is the project that is 
furthest along for us, we have already 40 States self-
certifying compliance with at least two of the four areas of 
uniformity. Our goal this year, which I think we will achieve, 
is more than 40 States self-certifying to all four areas.
    The next step will be, again, trust but verify. We expect 
it of ourselves, too. We are asking the companies and Lenore 
and her crew to give us complaints when States certify and then 
in practice are not doing what they certified to. So there will 
be some implementation there, but that project will be more or 
less completed this year.
    Market analysis; that is going to take maybe a couple of 
years, and to build the collaborative models, to build the 
trust among the States and the consistent reliance, that I 
would probably ball park at a three-to five-year time frame. 
This is not easy stuff. Insurance is complicated, as you 
suggest, with terrorism, and there are examples like that all 
across the board. I think the key, if I were in your shoes, 
would be to look at, is there steady progress, not so much is 
it done by a date certain, but next year if we have a hearing 
or when you are looking at what we are doing, have we made 
consistent, steady progress. That would be the way I would 
measure what is happening.
    Ms. Maloney. Just as a follow up, Mr. Hunter and the other 
witnesses, do you think that the self-regulation works, and the 
initiatives that are detailed, will they be successful in 
combating the existing inefficiencies in insurance market 
regulation?
    Mr. Hunter. Well, we are very skeptical, but if self-
regulation is transparent and the States rely on it and we can 
see exactly what is going on, then we can trust it. But if it 
is a black box, then we are very afraid of it because we do not 
believe that certain companies are going to tell the truth. We 
know some companies are doing some bad things to consumers, and 
we cannot trust a black box system of self-certification.
    Chairwoman Kelly. Thank you very much, Ms. Maloney.
    Ms. Maloney. Thank you.
    Chairwoman Kelly. Mr. Barrett? Sorry.
    Mr. Hensarling? No.
    Mr. Renzi. Mr. Renzi?
    [Laughter.]
    Chairwoman Kelly. Mr. Murphy, were you here before Mr. 
Garrett?
    Mr. Renzi?
    Mr. Renzi. Yes, ma'am?
    Chairwoman Kelly. You were here before either one of these 
two? I am just taking people in order. You are here, okay.
    Mr. Renzi. Thank you, Madam Chairwoman. Thank you so much.
    Gentlemen and ma'am, thank you so much for your testimony. 
I wanted to move to the subject matter of agent licensing 
reform. I know, Mr. Hunter, you are experienced in this field. 
I want to ask you, I know that with the 56 jurisdictions that 
we have under NARAB, I think Mr. Parke you spoke to the fact 
that you were proud of the fact that 49 of them----
    Mr. Parke. Forty-two.
    Mr. Renzi. Forty-two have some sort of reciprocity as it 
relates. Is that also to agent licensing?
    Mr. Parke. It is basically agent licensing.
    Mr. Renzi. Okay. As it relates to that, is there a 
uniformity there that has been established yet, so that an 
agent can go on, submit one application, one set of 
requirements, and then pay the individual fees by State?
    Mr. Parke. The answer is there are 38 States that are doing 
that now.
    Mr. Renzi. Okay. So we have uniformity, not just 
reciprocity, but uniformity with 38 States, so that one 
application merges with all 38 States.
    Chairwoman Kelly. Mr. Ario, do you want to answer that?
    Mr. Renzi. Thank you.
    Mr. Ario. Yes. We are working hard on uniformity, but the 
question really is, I think, if I have a license in one State, 
if I am a resident agent, can I get into the other 49 States 
very easily? The answer to that is yes.
    Another one of the hats that I wear is the President and 
CEO of a group called the National Insurance Producer Registry, 
which operates an electronic gateway. So I am an agent now in 
any one of the States. I can go up on that gateway and enter my 
information showing that I am an agent in good standing, and be 
licensed.
    I think there are 15 States now that are on that electronic 
gateway, and there will be all 50 probably by the end of next 
year would be my guess. So although for resident agent purposes 
there may be differences in the laws, it does not really matter 
to the individual agent because they only want one resident 
license. They just want to be able to then, once they have 
that, to get into all the other States. That is what we are 
very close to achieving.
    Mr. Renzi. So under your model, sir, an agent would be able 
to go online, fill out one application, provide maybe a 
photograph or fingerprints, and then pay individual fees by 
jurisdiction. I think we have 56 jurisdictions. And then you 
would be able to be quickly licensed. We have agents in my 
State who have waited months and months.
    In one case, we got testimony in my State of an agency who 
provides an insurance product for nursing homes, very needed in 
the property-casualty field. And to maintain their licenses 
alone, they are paying probably close to $100,000 a year, if 
you look at the labor costs and everything else involved, never 
mind the time frame and the different requirements they are 
having to jump through to get it done. So under your model, you 
are saying that this will be accomplished within a year?
    Mr. Ario. I am not sure, Representative Renzi. I do not 
know which State you are from, but if it is not Oregon, you 
ought to come to Oregon because----
    Mr. Renzi. Well, it does not matter what State I am from. 
What I am saying to you is, if I am a licensed agent in any 
State, will I be able to have not just the reciprocity, but the 
uniformity of a simple application, one application with 
individual fees, or is that not going to be in the future?
    Mr. Ario. Representative, for resident licensing, there 
still will be a need to go to the individual State where you 
are a resident and get that license.
    Mr. Renzi. I understand that.
    Mr. Ario. But once you have that primary license, when 
within a year I think we will be at a situation, we are already 
at 15 States, I think we will be close to all 50 States a year 
from now. Once you have that license, you will be able to get 
licensed as a nonresident in all of the other States through an 
electronic licensing process.
    Mr. Renzi. With uniformity, sir?
    Mr. Ario. It is not even really uniformity. It would simply 
be, all you have to do is say, I am a resident in good standing 
in X State. With that and your fee--we are still working on the 
fingerprint issue--but a few little things like that there 
would not even be another full application. We are trying to 
get the system close to driver's licenses. If you have a good 
driver's license in one State, you can basically drive in the 
other States. That is the system we are trying to get.
    Mr. Renzi. Where are we headed on the idea of counter-
signature laws as it relates to that kind of----
    Mr. Ario. I think counter-signature laws ought to be 
eliminated. It was one of the safe harbors in the NARAB 
provisions.
    Mr. Renzi. Thank you.
    Mr. Hunter, is there a harm to eliminating counter-
signature laws?
    Mr. Hunter. Not from a consumer perspective, no.
    Mr. Renzi. Okay. Can I ask the panel, anyone with the 
expertise, where are we on uniformity as far as advertising on 
the Internet? Is it the domicile State that controls the laws 
as it relates to insurance agents who advertise on the Internet 
and what content? Mr. Parke?
    Mr. Parke. Quite frankly, I would defer to the NAIC.
    Mr. Ario. Representative, advertising is I think a good 
example of an area that fits something that Mr. Atchinson said 
earlier, which is we used to spend a lot of time in our market 
conduct exams focused on fairly technical issues. Many of those 
were in the advertising area.
    I know in our department, we used to spend maybe one-third 
of our examination time on advertising issues, pretty narrow 
advertising issues, that kind of question of exactly, is this 
an Oregon ad or was it done from some other States. We do not 
do advertising hardly ever in our market conduct examinations 
anymore, and we have not had any up-tick in consumer 
complaints. So I think that is an area where there is not a lot 
of consumer abuse. Mr. Hunter will give you some examples, 
there are some areas with the elderly and so forth, but by and 
large, I have not heard people worry too much about that issue.
    Mr. Renzi. Thank you.
    Thank you, Madam Chair.
    Chairwoman Kelly. Thank you, Mr. Renzi.
    Mr. Davis, welcome to our committee, and your first 
question period.
    Mr. Davis of Alabama. Thank you, Madam Chairwoman.
    Mr. Hunter, let me direct my first set of questions to you. 
You were probably the most persistent critic of a multi-State 
regulatory framework. I want to ask you about a couple of 
premises behind that. I would imagine that the people on the 
committee who disagree with you would say that there might be 
very strong arguments for consistency with respect to, say, 
life insurance. There is not likely to be a lot of variation 
from State to State, by and large, in that area.
    However, it would seem that there might be significant 
variation when it came to two other classes of insurance: 
property-casualty losses, given varying threats from weather in 
different parts of the country; and the second one, of course, 
just being general health insurance, where there certainly is a 
real sparsity of health care in some areas, and very good and 
abundant health care in other areas. How do you address, 
briefly, those two sets of concerns, that if we try to craft a 
more nationalized system, it will not be able to account for 
those last two classes of insurance?
    Mr. Hunter. Well, it will be more difficult, obviously. We 
have not opposed trying to craft multi-State approaches, as 
long as consumer protection is high and people are protected. 
We do get concerned about whether or not a consumer from State 
X that is harmed. Who is accountable? Who do they go to? That 
becomes a little bit of a problematic question, absent a 
federal approach where the government here is doing that.
    But we think it is possible to craft multi-State 
approaches. We do not oppose them. What we really want to make 
sure is that consumers are protected, whatever the approach, 
whether it is a local approach or a national approach. If the 
protections are good, we are happy with it, as long as there 
are ways to observe how it is doing; there is transparency in 
the process.
    Mr. Davis of Alabama. Give me an example of a multi-State 
approach, for example, that would address weather differences 
in States that face some high-risk of weather adversity. I am 
trying to get some vision of what a multi-State approach would 
look like that was not national in character.
    Mr. Hunter. Well, you could have multi-States along the 
east coast and gulf coast of the United States dealing with the 
hurricane risk. There are multi-State approaches being used. In 
fact, one State, Florida, has taken some leadership, but most 
stakes look to Florida, for example, to certify that the models 
being used to project hurricane losses are fair and reasonable, 
so the other States rely. So I would call that sort of a multi-
State approach on a very specific type of loss that is unique 
to certain parts of the country.
    Mr. Davis of Alabama. How do they handle causes of action 
that cross multi-State lines?
    Mr. Hunter. Well, the local State cause of action would 
apply, so that would be different. If a consumer was harmed and 
brought an action, it would be different, depending on the 
State even under a multi-State regulatory approach.
    Mr. Davis of Alabama. Mr. Ario, let me ask you the next set 
of questions. From your perspective, obviously your premise is 
you defend the multi-State patterns that the States do a 
consistently good and effective job of policing consumer 
violations. Having said that, I think we would all probably 
agree with Mr. Hunter's assertion that there have been numerous 
instances where for whatever reason States have failed and 
various companies have done a number of things that we would 
certainly frown upon.
    To the extent that States are not able to do a more 
effective job, what is the reason for that? Is there some 
particular aspect of the States having to do their own 
enforcement that prevents them from being as effective as a 
national system might be?
    Mr. Ario. Representative, I think there has been in the 
past a lack of focus on the question of market analysis. In a 
lot of situations, I think, as has been testified by other 
members here, the question of who gets examined and when is one 
that is not clear and done in a rigorous way.
    So that is why in our work we put a great deal of emphasis 
on the concept of analysis. We have a rich continuum of data 
that we get at the State level--3.5 million consumer 
complaints, hundreds of thousands, literally, or Braden form 
product filings, producer actions, investigations--all of which 
tell us a lot about what is going on in our marketplace. I 
think we need to put more rigor into taking that information, 
and in a more rigorous modeling kind of way, look at it, 
identify key data points, identify outliers on those data 
points, and then address them.
    Market analysis, as the GAO report points out, is a 
relatively new concept. Everybody did it in one form or 
another, but it was not very rigorous and it was not a separate 
discipline. It is evolving now as a separate discipline. I 
think that frankly holds a lot of the key to addressing both 
the concerns of the industry and the consumers. On the industry 
side, we get away from the trivial problems and focus on the 
real problems. On the consumer side, we do not miss the 
problems; we identify the problems and get to them earlier. We 
are never going to find everything. Crooks are always clever, 
but we will find a lot more through market analysis.
    Mr. Davis of Alabama. I think my time has expired, Madam 
Chairwoman.
    Chairwoman Kelly. Thank you very much.
    Mr. Garrett?
    Mr. Garrett. Thank you and good afternoon, everyone. It is 
good to see somebody on the panel that I used to associate with 
when I was in my former days as a legislator myself. Good to 
see you again.
    I will throw the first question out to you, Representative, 
and this is a little bit off the mark of the others, but it is 
something we were working on in New Jersey, and that is the 
standards on life insurance and the speed of proposals with 
regard to approval forms and what have you. NAIC had proposed 
interState compacts for speed of market reform of life 
insurance products. Can you tell us a little bit about where 
that is? Whether NCOIL, if you know, has endorsed that compact 
yet?
    Mr. Parke. We have not endorsed it formally. We are looking 
at it. The concept has just been out nine months or so, and 
they have proposed it. We are reviewing it at our meetings and 
talking about the pros and cons.
    A concept like this is not an easy product to try and 
approach to doing something. There are members that have 
expressed strong opposition to this, and we have members that 
think that this is a direction that we have to go in for speed 
to market, to allow the financial services industry to be able 
to compete in a world marketplace. I think that is a driving 
factor that may ultimately pass that, but NCOIL has not taken a 
formal position on that issue.
    Mr. Garrett. Okay, thanks.
    As someone who has been involved, not necessarily directly 
involved, with market conduct studies, but at least in the next 
room while they were going on, and seeing how they can impact 
upon the industry, on the company, I guess my question that I 
will throw out to the panel, if that is okay, and I think some 
of the testimony may have been along this line as well, is that 
the focus so much by the regulator is on the minutiae of it, 
and for those in the industry that are on the front line with 
the consumer would never say that it is the most important 
aspect of it.
    Some may view the word as the technical side of the 
equation instead, as opposed to the other end of the equation 
where if you work for the department, you know that it is easy 
to see where the problems are and it is easy to see which ones 
of the companies are the problem companies, because those are 
the ones that are getting all the complaints to the department. 
How do we address that? Is that really more not just simply an 
issue of simply solving this by coming up with a uniformity 
standard, because at the end of the day you may still get a 
system that you already sign onto as the appropriate system and 
is uniform across the board.
    Mr. Hunter would agree that it addresses consumer 
complaints at the end of the day, but is it a problem locally 
with the local department, the State department, the one that 
is enforcing it, still going after the minutiae as opposed to 
the overall end-game, which is to provide better service to the 
consumer?
    Mr. Atchinson. If I might comment, certainly congressman, I 
think you touch on an issue I think that is becoming more 
prominent among most of us that have been studying this issue, 
which is how does one make sure that everyone is focusing on 
the forest and not just on the trees.
    I think the PATRIOT Act was one recent example of looking 
to ensure that financial service companies have an 
infrastructure in place that will, as a matter of course, 
require ongoing tracking and checking and monitoring and 
ensuring that there is self-corrective action taken when in 
fact problems are identified, as opposed to waiting three or 
four or five years until the market conduct exam is conducted, 
and only then discovering something that if there was an 
infrastructure in place might have been self-identified and 
self-corrected early on. That is not to say that in every 
instance some of these technical violations may not warrant 
attention, but the experience has been that all too often there 
is such an obsession with checking the minutiae, that 
oftentimes some of the larger systemic issues are not 
identified or given the priority that they warrant.
    The organization I am with, IMSA, is just one example of 
how those sorts of infrastructures can be supported and 
encouraged, and if anything can complement the work of the 
regulators.
    Mr. Garrett. I would suggest a couple of things that could 
help us focus on the bigger picture would be if the States 
would do some interviewing of some of the consumers that 
complain in more depth, and try to bring that together and look 
for commonalities; and some interviews of agents. Agents quite 
frequently on front line in knowing when something is going 
wrong in a company or many consumers are getting hurt; and also 
monitoring these lawsuit discoveries. There is a lot of 
documents that come out that are incredible gold mines of 
abusive behavior that should be somehow routinely looked at by 
the States.
    Mr. Parke. I would like to point out an observation in 
listening to the discussion. Because of the federal chartering 
of insurance is an issue that is underpinning a lot of the 
discussion, there is no guarantee, ladies and gentlemen, that 
you are going to solve the problems if you go to a federal 
charter. You are still going to have the underlying problems. 
That is not going to get solved just because you change from 
one venue to another. The other problem is the establishment of 
the huge bureaucracy that is going to be needed to take care of 
it. That system is being done in the various States.
    The old analogy, do you want to deal with 50 monkeys or one 
big gorilla I think is an issue that you have to ask yourself. 
Do you want to deal with this issue? We believe that we deal 
well on insurance. Is it perfect? No. Are there flaws? Yes. Can 
we solve them? Yes. You are giving us direction. GLBA was a 
fine start to give us direction. I think we have shown the 
ability to perform, to do things, to take care of those issues 
that are brought to our attention.
    Whatever you decide by virtue of your hearings to ask the 
States to comply with, I believe that we will make a good-faith 
effort and probably not only achieve, but exceed, as we have 
done with NARAL.
    The other question that you have to ask yourself is, there 
is a $10 billion premium tax issue. The States will lose that 
if you go to a federal program. That is something that we 
cannot easily accept either. You are going to have to review 
what will you do with this $10 billion that States will lose if 
you move in that direction. So as a subcommittee, you have 
other questions on using market conduct as a basis.
    I think nobody up here is complaining that market conduct 
is not an effective tool. It can be a lot better. We are going 
to move in that direction, and I appreciate having the 
opportunity to testify today before you.
    Mr. Garrett. If I can ask one more?
    Chairwoman Kelly. Your three minutes over time and you did 
not get any testimony from Ms. Marema, so perhaps you would 
like to have her testify.
    Ms. Marema. I just wanted to echo the need for market 
conduct analysis, better analysis, better targeting of 
companies. Of course, if you are not sure why you are there in 
the first place, it is easy to focus on minutiae. I think some 
of the reforms that we see the NAIC doing and that we think are 
the key ones, once States are better able to target companies, 
they are going to know why they are there. It is going to be 
easier to focus on the companies' general business practices 
and so forth.
    Chairwoman Kelly. Mr. Garrett, if you want to ask another 
question, please do. There is no one else here and we have 
these witnesses. As long as we have the experts before us, the 
purpose of this hearing is to find out information so we can 
help get this running smoothly.
    Mr. Garrett. Well, and I do not want to delay anything, but 
that is the picture that appeared in my mind when you made the 
reference to the 50 monkeys out there, and I am not sure which 
department of insurance you are referring to among those 50 
monkeys.
    [Laughter.]
    Mr. Parke. It was an analogy. It was not directed at 
anybody.
    Mr. Garrett. So my question is not a flippant one, but just 
I guess falls on the lines that you were saying, and you as 
well, and that is, at the end of the day, the hearings that we 
hold today hopefully drive home the effort to achieve the 
appropriate uniformity with regard to the market studies that 
are done.
    The question is, as we leave here, do we have a role, then, 
on the federal level in having the federal government take a 
preemptive step with regard to the market studies themselves, 
or is it appropriate for your analogy of the 500-pound gorilla 
to step into that role as far as conducting them? Or is our 
role here simply to try to facilitate and get to the optimum 
level of uniformity as far as the studies that are being done?
    Mr. Parke. If I could address the, I will tell you that the 
message that you send today is heard and understood, and I take 
it back to legislators from the various States at our meetings. 
I tell them, they mean business; they expect changes; they 
expect uniformity; they expect reciprocity; and they expect 
market conduct to be more effective and efficient. That is the 
message I am taking back, and I think we hear your message loud 
and clear that there is pressure on you to try and make a 
difference, and the consumer ultimately is the goal that we all 
have to protect and make sure that they have a competitive 
product to solve the problem that will come from insurance.
    Chairwoman Kelly. Mr. Parke, I think there is no one on 
this committee that would object to your taking that message 
back and disseminating it to the 50 monkeys.
    [Laughter.]
    Mr. Parke. You got it. You got it.
    Mr. Ario. Terry has analogized this to monkeys. I will 
analogize this to my nine-year-old son, as State regulators. My 
nine-year-old son, he needs to be encouraged and pushed and 
cajoled into doing the right thing, but I have to let him get 
it done himself, and usually if I try to force the issue beyond 
a certain point, it is counterproductive.
    I think that is basically where we are on this issue. We 
need to be pushed and pushed hard to do the right thing, but to 
try to force us at this point into anything through some 
federal legislation I think would end up being 
counterproductive.
    At some point, if it does not happen, I think you have to 
look at other options. But at this point, I think you have got 
receptive ears out here, so I think these kinds of hearings are 
the kind of means that ought to be used.
    Chairwoman Kelly. Mr. Atchinson, do you want to add 
something there?
    Mr. Atchinson. I just wanted to add my voice to that last 
point, because I certainly think that there is a lot of good 
work being done, but I think the role that this subcommittee 
and the committee can play is to help focus and prompt the sort 
of action that is being considered and contemplated. I refer to 
my tenure as a regulator going back 10 years ago, and while 
there are a lot of good intentions, some of the initiatives 
launched then to reengineer regulation are still under way 
today. I do think that deadlines have a way of focusing most 
any of us, and that would apply to the organizations 
participating in this hearing.
    Thank you.
    Chairwoman Kelly. Thank you, Mr. Atchinson.
    The chair notes that some members may have additional 
questions for this panel and they may wish to submit those in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to the 
witnesses and to place their responses in the record. This 
hearing has been very interesting and I hope it is moving us 
along in the right direction. We gratefully thank you for 
spending as much time as you have.
    This hearing is adjourned.
    [Whereupon, at 4:30 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



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